Here’s [B]one broker’s opinion[/B] about why and how [I]Black Thursday[/I] happened, what we can learn from it, and (controversially) what should be done about it.
I was going to post this in Kevin LaCoste’s thread, but unfortunately that thread has been knocked completely off the rails by some guys arguing about [I]whether stop-loss orders are pending orders.[/I]
While they head-butt each other, I’ll just post Juan Colon’s article here, in its very-own thread.
If you’ve wondered why so many NDD/STP brokers (like FXCM in the U.S., for example) have suffered huge losses in the SNB crisis, while most retail market-makers came through the crisis with small losses, or even with profits — [I]Forex Magnates[/I] has an article you should read.
I particularly like this bit, which articulates why it is
SO DIFFICULT NOT TO GET STUNG BY SUCH ‘PERFECT’ SET-UPS when confronted with similar
’safe’ technical scenarios:
[I]
‘Lastly, market making brokers also absorbed losses on hedged positions they took on the Swiss franc. Due to the EUR/CHF holding above its 1.20 price floor for over three years, it attracted scores of traders who bought the forex pair near the floor and profited on small moves higher. As the trade had been performing well for many traders, it led to some brokers hedging a portion of their client’s exposure. While the hedge limited their risk to their customers’ short term profits against them, it ultimately led to losses as the EUR/CHF crashed.’[/I]