Unless you’ve been living under a rock, you’ve heard that the SNB made the shocking decision to drop its peg at 1.20 in the EURCHF, prompting the Swiss franc to surge around 15% across the board. In my many years of trading the Forex Market this is the first time I have seen such an erratic move. I have to say it is unexplainable. For all the years of experience I may have gathered today taught a very important lesson. The Market is unpredictable.
I absolutely feel the pain of everyone who had a trade in the CHF. The ones without a stop loss, well that is wrong to start with, but what has surprised me is the slippage for those that had set a stop. I have experienced slippage before but 100 pips slip on sound money management will not wash out your account. But what happened today will 1700 pips even with sound money management and a stop loss people did get washed out. Including one of my personal accounts, which is now showing me a negative equity and balance of hundreds of dollars. I’m wondering who will pay for that. I would understand my balance getting down to zero but negative! That’s new to me and most of my team as well. Does that mean if I were to make a deposit it will be used to cover the negative balance first? Have I lost more than what I deposited? What if I refuse to pay? This and many other questions are running in my head right now, with my broker flooded with all the customers who had CHF positions open I will just have to be patient. It’s a virtue that is taught well in Forex.
All that happened is now in the past and sobbing over it will not get you anywhere. I believe one should move on and now look forward. Well where does one start? I think there are a few things to take away from today’s move. First and foremost the market is unpredictable, central banks cannot be trusted and retailers will loose money. Now that’s a harsh reality. Despite all that, I still love trading forex, I will not quit trading forex and I will rise back up. I think the real loss is just time.
Well now how do you protect yourself? The market is unpredictable, I’ll stress use good money management and always have a stop. Central banks cannot be trusted. Well don’t put all your eggs in one basket, that deals with the central banks. Retailers loose money. Trade against the retailers, use SSI as a constrain indicator. FXCM provides great SSI analysis on their www.dailyfx.com website.
Finally one final lesson, never leave your money in your forex account. I think you should set aside some money for trading but all of it will not be in your account. Use high leverage to counter the low balance. Let me explain in detail. If trader A has $1000 to trade forex, and trader B also has $1000. Trader A deposits all of his $1000 in his forex account and risks 5% per trade which is $50. Trading 1 mini lot he can use a stop loss of 50 pips. Now in today’s situation the stop loss slips and the market as shown in the chart has fallen 1700 pips so his whole account gets wiped and is left with a zero or negative balance as in my case.
Now trader B has $1000 to trade forex but only deposits $250 into his account. He also risks 5% but instead of risking 5% of $250 he risks 5% of $1000 because that is what he set aside for trading. Now in today’s situation if he traded 1 mini lot and and had a 50 pip stop loss, it slips and he looses his whole account of $250. The good thing about this situation is he still has $750 to trade with. Trader B can use high leverage to cover up for the lost deposit.
This is probably the fisrt time I have come to see the benefit of high leverage. Let us know what are your thoughts in the comment section below. Did you make a fortune or did you drown deep. Logically any sane person would not have been short EURCHF considering where it was. Reading around I have found some people who were short simply because of SSI.