When Swiss central bank announced that they will stop defending the EURCHF and let CHF appreciate, Swiss Franc shot up 30% on the same day.

What were some tell-tale signs that traders could have heeded to protect themselves from this disaster?

Anyone got hurt by this trade in 2015? What lessons do you carry from this disaster?

The common denominator in a lot of these blowups is a long-term currency peg. The Swiss government decided that it wanted to maintain EURCHF (and USDCHF, etc) at an arbitrary level for what were, in hindsight, arbitrary reasons. Once the government changed their mind, everybody was caught on the same side.

A similar dynamic allowed George Soros to "break the Pound." The British government was trying to protect the Pound, and Soros figured out it was unsustainable - every macro trend was against it. He simply stayed on the other side until the Exchequer capitulated.

Pegs make a chart look easy - just buy whenever the price trades close to the peg, and put a nice tight stop just outside of the peg, and easy money! The minute some treasury official changes his mind (and he won't tell you in advance), those thousands of stop orders trigger at once. The perfect example of picking up nickels (or pfennigs or shillings) in front of a bulldozer.

Just stay away from pegs! You need tremendous staying power and economic insight to trade against it, and you run the risk of losing everything if you trade with it.

hlpm 

When Swiss central bank announced that they will stop defending the EURCHF and let CHF appreciate, Swiss Franc shot up 30% on the same day. What were some tell-tale signs that traders could have heeded to protect themselves from this disaster? Anyone got hurt by this trade in 2015? What lessons do you carry from this disaster?

I'm +1 with @drm7. Stay away from artificial pegs.

Something else I think that the CHF debacle taught, is be careful where your liquidity comes from. This is a warning to most cfd and bucket (,most or even all?) forex traders. If where your trading is somewhere other than a major liquidity point, ie it's dependent upon somebody arbing/porting liquidity from somewhere else, don't be surprised if nothing is available when you need it most. When the CHF debacle happened many people were unable to execute (in either direction) because their liquidity provider stopped quoting. If they were trading somewhere else though, like CME Futures, you could still trade, all be it at very wide spreads.

SMCJB 

I'm +1 with @drm7. Stay away from artificial pegs. Something else I think that the CHF debacle taught, is be careful where your liquidity comes from. This is a warning to most cfd and bucket (,most or even all?) forex traders. If where your trading is somewhere other than a major liquidity point, ie it's dependent upon somebody arbing/porting liquidity from somewhere else, don't be surprised if nothing is available when you need it most. When the CHF debacle happened many people were unable to execute (in either direction) because their liquidity provider stopped quoting. If they were trading somewhere else though, like CME Futures, you could still trade, all be it at very wide spreads.

I wish I could say this screenshot was mine - it was another guy who managed to profit that much from a single event, the same one being discussed here. This was via CME, as SMCJB suggested, given some liquidity must have been available to exit the trade.

My guess is that this fortunate guy must have had a GTC stop order 1 tick below the floor which, when broken, allowed the trade to take off.

It's human nature to chase the past for tomorrows rectification. Hindsight is likened to a picture taken of food. You can gaze upon it from every angle possible but you will never know the exactness of taste unless you were there and ate it.

Any trading instrument at any time can move in excess of it's typical chew of the cud. Spot markets are the most dangerous as they are afforded no breaking systems such as exchange traded circuit breakers. Beit some form of slowing mechanism usually a lock limit engagement far exceeds the average retail traders tradable account balance to be of any tangible benefit.

The short answer to the question is to assume always a run on price can occur in general. And more specific to avoid trading instruments that lose most of their typical up and down range of motion when everything else around it continues trading as usual.

Were in the window of opportunity and misfortune with every trade. Our collective illusion of business as usual comes from the way trading markets are hyped by pundits, media outlets and marketing groups.


As a real time example in current motion consider the GBPUSD one such monster waiting to be tickled. Its quite possible to shoot up 1000 plus pips on a whisper of potential truthful Brexit resolution. As for knowing what to watch for. It's already happening now and it may as well be invisible as generally people are conditioned to wait for that proverbial rain that satisfies reason for building the boat.

As you can see margin on the instrument is considerably low. Don't waste time focusing on the spread. Watch for the sudden change in margin requirements. Time on this matter has drawn in false complacency. If anything the insiders know as infrasound to a coming avalanche can be trickled down to the traders this is it. You wont discern exact direction from this. However you will know a stampede is potentially building.