CHF convulsion
Hi there guys,
Anyone affected by the CHF news on thursdays or by the closure of a broker due to it??
I have a bigger question.
If you had a system in play, just before the CHF intervention, and if your system told you to sell a USD/CHF position, which motivated you to enter the market at 0.98605, where you were able to commit $100,000 in capital against that position, and if you watched that position drop to 0.83001, and it you were able to close out the short position at 0.83752, what profit would you have realized if this trade had been possible in an MetaTrader-5 account? Just curious.
I'm a newbie, so my comment language may not be written very well, but hopefully, you'll be able to get the gist of my what if scenario.
I have a bigger question.
If you had a system in play, just before the CHF intervention, and if your system told you to sell a USD/CHF position, which motivated you to enter the market at 0.98605, where you were able to commit $100,000 in capital against that position, and if you watched that position drop to 0.83001, and it you were able to close out the short position at 0.83752, what profit would you have realized if this trade had been possible in an MetaTrader-5 account? Just curious.
I'm a newbie, so my comment language may not be written very well, but hopefully, you'll be able to get the gist of my what if scenario.
A $100,000 position is 1 standard lot for USDCHF. So a sell opened at .98605 and closed at 0.83752, had result in (.98605-.83752)=0.14853. So you win 0.14853 CHF for each $.
That makes 14,853 CHF or 17,734 USD.
Of course you need a broker that accept your orders for that, not sure this was happening for retail traders.
A $100,000 position is 1 standard lot for USDCHF. So a sell opened at .98605 and closed at 0.83752, had result in (.98605-.83752)=0.14853. So you win 0.14853 CHF for each $.
That makes 14,853 CHF or 17,734 USD.
Of course you need a broker that accept your orders for that, not sure this was happening for retail traders.
And if you also had 500:1 leverage..... :)
This comment response is directed to angevoyageur.
I realize this may not have happened in the retail market; however, I've been sitting with MetaTrader 5 for a while, watching the market, and although the USDCHF market looked flat to me for some time, without realizing what was happening, as the intervention was happening, I did see enough activity that I might have entered the market at 0.98605 if OANDA would have permitted me to do so in a live account. I am prospecting on the idea that this could have happened, and that I could have committed up to $100,000 in capital. That is to say, not 1 lot, but whatever I would have been permitted to leverage with that amount of capital. Based on your math, and the possibility that I would have had no less than a 20:1 leverage, and more than likely a 50:1 leveraged position, it seems like the profit would have been 20 to 50 time your 17,734 USD calculation. I wasn't aware that there was a 500:1 leverage account available. If there is, I agree with your smiley face. The likelihood of seeing this kind of move happen again, even with one of the other major currencies, seems highly unlikely... BUT certainly possible. And, it is this possibility that makes the Forex marketplace look interesting to me. The trick would be not to be on the wrong end of a move like the USDCHF move. I guess that's what happened in many FXCM brokerage accounts.
I noticed that you are a "Moderator". What does that mean? I might like to continue this kind of conversation with you offline, if you are available.
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2015.01.21 06:51
Q & A About CHF (based on dailyforex article)
Q: What actually happened last Thursday?
A: The SNB (Swiss National Bank) made an announcement that caused the CHF (Swiss Franc) to suddenly soar in value. The extent and speed of the price rise had never happened before to a major global currency, although there were similar incidents involving the CHF in 2011 and the GBP (British Pound) in 1992. The size and speed of the change meant that most banks effectively stopped buying or selling the CHF for several minutes, which had all kinds of bad effects (more on that later).
Q. What was it exactly that the SNB announced?
A: The SNB announced that they were no longer going to support a cap of the value in the CHF against the Euro. For more than 3 years, they would intervene to make sure the CHF was worth no more than 1.2 Euros. It is relatively easy for a central bank to keep their own currency weak, but it was getting harder for them to do it, as the price kept testing 1.20 and the Euro has been weakening dramatically over several months. The SNB announcement took the market by surprise, as although there was a logical risk this could happen, as recently as a few days ago the SNB publicly declared that they had no intention of abandoning the policy, which now can be seen to be a clear lie. By the way, the SNB also announced a negative interest rate of 0.75%, meaning depositors have to pay for the privilege of holding deposits in CHF. This would usually tend to weaken a currency, at least in the short term.
Q: Why did the SNB Abandon the Cap?
A: There are different interpretations of the SNB’s action so all explanations are controversial. They said that they no longer feel the CHF is as overvalued as it was, so maybe they did not feel that they had to hold the market back so much. However they have also said that they did not expect the CHF to rise by 15% right away. A deeper explanation would be that with the recent strong fall in the value of the Euro, which is by far the currency most strongly linked by trade to the CHF, it was becoming increasingly difficult and expensive for the SNB to keep the CHF as weak as the Euro, so they acted to abandon a position that was becoming untenable. Many have speculated that the SNB were expecting the ECB (European Central Bank) to announce a program of Quantitative Easing (QE) later this week, which might well push the value of the Euro down even further, and at a rapid rate. If the cap had still been in effect, they would probably have had to have spent a lot of their reserves buying Euros with CHF.
Q: What will it mean for the price of the CHF going forward?
A: It is hard to say. Usually when the value of a currency moves strongly up or down quite quickly by this kind of amount, it continues to move in the same direction for a few more weeks or months at least. However, there is some feeling that the move has gone far enough, and that the SNB might act to cap the CHF again at the latest market price, so it may not continue to increase. In any case, it is quite likely that in the short-term, the CHF will swing up and down with high volatility.
Q: What will it mean for the prices of other currencies?
A: The move on Thursday seemed to cause some volatility in other currencies, but that has gone at the time of writing, with nothing but the CHF moving by very much. It could be argued that now that cash can flow into the CHF, it might weaken the rise of the USD a little.
Q: Why did Forex traders and brokers lose so much money?
A: Usually, currencies fluctuate in value by very small amounts, far less than stocks, for example. The Forex market is also usually extremely liquid. This means that traders can place tight stop losses and trade with high margin, in the knowledge that if their stop loss is hit, they will usually not have to pay any slippage. Unfortunately in this kind of case, the price blew right past almost every stop loss without stopping, so traders and brokers could not execute any trade exits until the price of all CHF pairs had moved by far more than 1,000 pips. This meant that instead of exiting at stop losses such as 50 pips of loss, emergency exits had to be made at more than 1,000 pips or more. With leverage, most traders in any kind of short CHF trade would have had their entire deposits wiped out. In fact, many traders suffered losses beyond that, and are now facing negative account balances, which brokers may or may not be able or willing to chase. As for brokers losing money, there are two reasons for this: some brokers hedge their clients’ trades in the real market, where they also experienced the same problems even more strongly than their own clients did, meaning they could not pass on their clients’ losses. The second reason is that anyone who was in a long CHF trade with a broker, would have made a lot of money, and the balance of these trades may not have been covered by the losses of the losers, as the losers would have mostly negative account balances.
This comment response is directed to angevoyageur.
I realize this may not have happened in the retail market; however, I've been sitting with MetaTrader 5 for a while, watching the market, and although the USDCHF market looked flat to me for some time, without realizing what was happening, as the intervention was happening, I did see enough activity that I might have entered the market at 0.98605 if OANDA would have permitted me to do so in a live account. I am prospecting on the idea that this could have happened, and that I could have committed up to $100,000 in capital. That is to say, not 1 lot, but whatever I would have been permitted to leverage with that amount of capital. Based on your math, and the possibility that I would have had no less than a 20:1 leverage, and more than likely a 50:1 leveraged position, it seems like the profit would have been 20 to 50 time your 17,734 USD calculation. I wasn't aware that there was a 500:1 leverage account available. If there is, I agree with your smiley face. The likelihood of seeing this kind of move happen again, even with one of the other major currencies, seems highly unlikely... BUT certainly possible. And, it is this possibility that makes the Forex marketplace look interesting to me. The trick would be not to be on the wrong end of a move like the USDCHF move. I guess that's what happened in many FXCM brokerage accounts.
I noticed that you are a "Moderator". What does that mean? I might like to continue this kind of conversation with you offline, if you are available.
As you said, the "trick would be not to be on the wrong end of a move". Don't forget that the leverage works also for the losses, the first basic rule while trading being to preserve your capital.
Moderators at mql5.com are normal members to which Metaquotes (owner of the site) give some power to manage to forum. Usually they are the most dedicated members trying to help others.
You are welcome to continue the discussion here, or in private if you prefer.
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Hi there guys,
Anyone affected by the CHF news on thursdays or by the closure of a broker due to it??