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humblepeasant

Swiss Franc

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I was surprised to see that, unless I'm just missing it, no one is talking about the recent CHF move at TL?

 

I was lucky (just lucky, nothing else) enough to not be affected by it. I was completely out of the market at the time (and asleep), and I don't trade the CHF anyway. I do trade currencies, however...the EUR/USD, and occasionally the GBP and JPY.

 

Nevertheless, it has rattled me. I am conservative with leverage, but virtually any position at the time would have had a dramatic impact on an individual account. I've been trading for several years now, and always knew this type of thing technically can happen, but I know I personally basically tucked that type of risk away as theoretical, and have never really given it much thought.

 

Anyone caught in the move, good or bad? I've read that some of the more "bucket shop" style forex brokers are forgiving the debt, while real brokers aren't/can't.

 

Anyone know of any other similarly dramatic moves over the past few decades or so, in major markets such as the CHF?

 

Would like to just get a discussion going.

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HP,

 

Thanks a lot for bringing it up. :angry:;)

 

Don’t have time to ‘discuss’ much .... Fwiw, I took a 10% haircut - strike that - took a 10% beheading of NAV to a small, very inactive ( ie mostly abandoned since they stopped carrying PM’s several years ago ) OANDA account via a CHF/JPY position leveraged at 10:1.

In my 'head' it was a JPY play - one position in a cluster of JPY plays in that account - ... and that particular part of the play had been working.

That play on the JPY "symbol" in my head turned out to be, among other errors, a “Category Error”

For a good treatment of “Category Error”, etc. see

Epsilon Theory - Salient Partners | Ghost in the Machine, Part 1

...cute stuff like

…I get so annoyed when I read things like “this wasn’t just the greatest shock in the history of forex, it was the greatest shock in the history of traded securities! a 30 standard deviation event!” Please. Stop it. Just because you can impose a normal distribution on the EURCHF cross doesn’t mean that you should. …
in that article. So, even though in this case I could have lost that whole account without pain, it is proving to be a good 'learning moment' for me...

...

for some unknown reason the whole deal reminded me of Biondo and Pluchino

Phys. Rev. E 88, 062814 (2013) - Reducing financial avalanches by random investments

Improbable Research » Blog Archive

etc

 

also , re why SNB action has not been discussed on TL, for snicks see

On the Certainty of Uncertainty, or: Why there is no Skepticism beyond Self-Skepticism - disinformation

 

Hopefully someone will take up the conversation with you without just a bunch of

links-a-lot zdo

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Fwiw, ‘narrative based’ day trading short Euro larger size in regular account the following Mon morning more than recouped the CHFJPY nominal drawdown amount.

 

But, those funds will likely not be used to ‘refresh’ the OA account . That little account is pretty much on its own...

 

btw that group of JPY trades * is still on in the OA account, including the short CHFJPY stinger which is still on at an avgprice of ~ 122.70 . It has currently recovered from about half the max adversity it ticked to intraday near 139.+ on 1/15 and, long haul, may still work ( ... especially if I ‘revenge trade’ a bit and throw on some well-timed long USDCHF. The voice of trading teachers always tell you to never ‘revenge trade’. I break that rule routinely. The correct spirit for revenge trading is important though... rather than do it to teach the monster a lesson or show it a (power)thing or two etc., do it simply and dispassionately to take back what the monster took from you...

Inclusion of the term “well-timed” above is very important - especially when you’re dealing with a set of trades involving negative carry , etc...

The use of the term “monster” is significant too. :helloooo: :) )

 

* more fwiw - with cyclical short USDINR trades put on to offset interest costs / keep interest flow just barely net positive in the account...

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I wonder if anyone here uses out-of-the-money options as a catastrophic insurance plan (basically as a WIDE stop-loss...wide so that the cost of the options is minimized...in the event of a major move with virtually no trades along the way).

 

I don't know much about options, and I've never traded them myself. It may in fact make more sense to simply buy calls and puts rather than hold outright positions and use options to control risk...I haven't run the numbers.

 

I would imagine it would be a little more tricky (and costly) to apply such a strategy to day trades. However, depending on the strategy, day trades potentially involve larger position sizes due to the more limited risk in terms of ticks...which means more exposure to catastrophe.

 

It may seem a little extreme/paranoid, but anything can happen. Germany could suddenly, unexpectedly leave the Eurozone. Russia could invade a member of NATO. A US president could be killed. Etc. Very, very unlikely...but certainly not impossible.

 

I have a certain level of risk tolerance (for my predetermined risk when I put on a trade...even with bad slippage). I have a hard time tolerating the risk of undoing years of work on a black-swan single day of trading.

 

Even options don't control for the risk of a brokerage going under. I guess the only solution there is to "diversify" your brokerage accounts. A major catastrophe could potentially cause multiple brokers to go under, however.

 

And before anyone chimes in on this...I am fully aware that the only way to eliminate risk in trading is not to trade. With no risk, no reward (most of the time). I merely seek to minimize risk.

 

Thoughts?

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