Curious about flash crash or zero liquidity risk

Hi,
I am interested in trading forex as a hobby (not to get rich :slight_smile:) . However having read about the swiss flash crash, and brokers chasing traders for millions in negative accounts, I’m worried that my hobby has an (admittedly small) risk of ruining my family’s future.

Am I right? Is there really a risk of owing $100,000 to my broker even if I do everything right? I understand I can reduce risk by sticking to more stable currencies, utilising stop losses and limiting leverage, but even with that, can anyone help me understand what the worst case scenario is? If I pay extra spread for ‘guaranteed stops’, have I completely mitigated the risk?

Appreciate your insight friends. I want to avoid investing 1000s of hours of research only to find that I don’t have the stomach for the risk.

Thank you

1 Like

LMFAO ROFL
well. you would the first mate, Most people want to have $2,000 a day
you couldn’t care less :stuck_out_tongue:
Mate, PICK ANOTHER HOBBY

because…

No… LARGE RISK of Ruin
Hobbies are supposed to be fun
THIS WILL MAKE YOU MISERABLE

You’ll keep reinvesting EVERYTHING YOU HAVE and Lose all your money and life will become crap.

No Problem
AVOID THE THOUSANDS OF HOURS AND …PICK A DIFFERENT HOBBY

You’re Welcome

I think @eddieb from here survived the 2015 flash crash in EURCHF. He can tell you what to do :slight_smile:

1 Like

Hi rattler.
Fully understand the desire to have fx as a hobby, why not? I suppose I’m in a similar position, I started out of curiosity just to see if I could do it.

If you get yourself a reputable, regulated broker (not Cyprus or offshore regulated), and check their terms and conditions or email/online chat them to verify they don’t chase negative equity (save a copy of the conversation) you should be okay.

After the 2015 black swan event some brokers did try to claim back negative equity, I don’t believe they had much success, but since then properly regulated brokers who I’ve looked at state they wouldn’t do this.

Start with a demo account, experiment with different trading styles, and don’t commit real money until you’ve proven you have a system that works.

One word of caution. Not needing the money can be a double edged sword. I find it makes trading more relaxed and enjoyable, however it can make me sloppy (especially in the early days) as losing a few hundred was no big deal. When I find myself slipping back into that type of behaviour, I close my trades and take a few days/weeks break, sort of resetting myself.

Namaste

Hi rattler - Welcome to trading.

If you’re getting into trades that need a guaranteed stop-loss, you’re in the wrong trades or the wrong markets, especially as a new trader. GSL’s are too expensive and unnecessary for most trades and most traders never need to use one.

I can relate to your desire to “Play the game” - for the game’s sake.

Yes you are right about the risk. Most unusual that it happens to any individual, but very Possible !

You could look at buying “OPtions” - REAL OPTIONS - NOT, NOT, NOT Binary OPtions. Options have fixed downside risk, but they also have disadvantages. “Losing everything” is not one of them, except for those Offering the Option “Naked”.

1 Like

Thanks for all the replies, that ranged for hilarious to helpful. Quite a bunch of characters in these here forums it seems.

At the risk of being judged extremely lazy for not DYOR…I went for Oanda - do they fall into the ‘reputable’ category?

1 Like

Oanda is one of the better one’s … YES
but… i gotta ask hehe

Did you click the ad on the right side of this page to get there :stuck_out_tongue:

My advice is to look for a strategy that already works…especially one that has techniques that will help you to avoid or profit from Major Market Turmoil like that one…

Finding sonething that already works will save you a lot of time energy and money compared to trying to do it all on your own.

For example just before that Swiss Bank nightmare, I spotted an opportunity on the NZD CHF to trade what appeared to be the start of a Consolidation Breakout in early January 2015.

A Bullish Candlestick Signal appeared above Resistance indicating the start of the move …

DAILY CHART SIGNAL

The target was set at an area called the Breakout Equivalent, which is the area I discovered to be where all Consolidations break towards before pulling back - the ideal profit target for Breakouts

DAILY CHART TRADING TARGET

These were the details of Entry, Stop Loss and Limit Order for the Trade

4 HOUR CHART

For my Strategy, FXCM Charts are used to identify Market Direction and Entry Signals based on the New York Close of the Daily Candle…while back then…my Live Trades were done on my Dukascopy Platform ( better execution)

As you can see, the market rallied as expected, giving me a gain of 231 Pips

…just days before the Swiss Bank madness that affected all CHF pairs…

What I have found was that this area of the Breakout Equivalent is not only one of the best areas to exit your trades… but it also tends to predict the start of strong reversals…(both Normal and Abnormal like this) that can take us by surprise.

So having a strategy that allows you to accurately identify overbought and oversold conditions will go a long way in helping you to avoid these types of situations because most major Crisis Related Reversals or Bank Interventions tend to occur at these areas.

This was why even during the Euro Debt Crisis…I was also able to successfully trade the currencies most affected by the periods of Safe -Haven trading…

EURO JPY

USD CAD

Good luck

Duane

DRFXTRADING

Hi @rattler888,

You may find this related discussion helpful: Can I lose more than my deposit?

@anon81929759 - lol, no I didn’t pick Oanda via an ad on babypips. I went only sliiiiightly better, spent 5 minutes reviewing one of those ‘top 10 forex brokers’ websites.

@DRFXTRADING - Thanks for that detailed answer, a little beyond my current level of understanding for now

It seems like if I don’t go crazy with leverage, and keep trades to 1% of account balance, then I should be able to ride out even a 2000 pip disaster.

Flash crash was actually the earthquake of forex market. You never know when it will come. I think many brokers if not all give negetive balance protection. So you will lose only what you have. Brokers won’t ask you the negetive amount.

so it looks like OANDA is only supplying 3 months of trading history. Does that sound right? That’s what I’m seeing in MT4 strategy tester - can’t get any earlier than Jan 7 2018.

Are there any reputable brokers that offer more than this? I want the history for better back-testing.

Thanks

I don’t grasp your breakout equivalent idea. How do you calculate It? I am used to just watching the tape and order book for a sell off in other markets, but I haven’t been able to find a way to gauge it in spot.

It depends on the size of the Consolidation.

For small consolidations like the one below which I call Normal Consolidations…

…you just take the width of the Consolidation and apply it to the expected breakout direction. For others that are larger like the NZD CHF…there is a bit of a trick to it. Cant reveal it cause its something I discovered that I put in my Trading Manual that I wrote.

But this is it for smaller consolidations…

Duane

DRFXTRADING

I can respect that not all the magician’s tricks ought to be revealed. However, I appreciate the explanation! :smiley: I followed a similar idea targeting the widest section of the consolidation as a target, or often as a good deal on a short (if I expected the breakout to fail). I’ve noticed that large consolidations are less obedient, but haven’t figured out their trick yet.

My best luck has been using confirmed breakouts of channels on the daily, as momentum for 1hr breakout trading. That way if the daily is on a breakout short, I usually treat any of the hourly breakouts long, as a chance to get in where I used to get bamboozled as a beginner. Haha. I usually take a short halfway up the width of the consolidation.

Idk if I make any sense, I’m getting imposter syndrome being the fist time I’ve openly shared my method.

These aren’t really like triangular compressed consolidations, more like channels? But it’s my current trade so I’m posting it (still applies)

This is a little $25 sandbox account for brainstorming I trade on Oanda mobile.

I guess if you draw another trendline it looks like a consolidation pattern :slight_smile:

I just realized that the trade I’m sharing had an entry based on a different bias and I didn’t wait to enter at the width of consolidation. It does illustrate the way I use the momentum of the daily breakout to confidently short on hourly rallies. Will it work? We shall see.

Ok well I hardly traded those types of channels…when I did…it was between Resistance and Supplrt…not breakouts…

In fact, because breakouts are becoming kess predictable these days…I stick to trading wirhin them for the most part…

…reduces headache of figuring out false vs true breakouts.

Duane

You trade the top and bottom of the pennant’s first candle as support and resistance? Basically betting against breakouts?

I love consolidation patterns but I get chopped up a lot. I’d like to understand them more.

Short answer is let me Mentor you. Longer answer is below.

  1. First thing to do is to learn how to spot snd correctly draw Consolidations. Many people have different ways of doing this but the way I found to do it is the most accurate. This makes the difference in correctly determining when a Breakout has started or if it is still within Consolidation.

  2. The 2nd thing is to determine if the Consolidation is wide and Stable enough to be traded with little chance of whiplashes etc. Smaller Charts on the 1 Hour and lower are nice to trade because of lower Stop Losses. Howewer…they tend to have setups that are less reliable than those of the Daily and 4 Hour which is why I trade on these time frames. The more stable the setup…the more reliable the signals they provide with less chance of false signals

  3. The 3rd thing is to choose your Entry Signsls. This where you will have those who prefer Indicators vs those who use Support and Resistqnce and thise like me who use Candlesticks. Here are several options that I have tried which are very popular as well as the one that I now use.

  • Indicators…useful…many people use them but I always found them to be slow in indicating the start of the movement back to the other side of the boundary.

  • Resistsnce and Support as Entries . This is where you open positions when these boundaries are hit and then waiting for the reversal. Stop Losses are placed outside the boundaries and the Target Set as the market reverses.

Advantages

This is useful since you can get in early and maximize on the movement. If the boundary is strong enough, you also wont need a large stop loss. This allows you to trade with a large Risk Reward Ratio.

Disadvantsges

Many times the market will overshoot the S/R boundary before Uturning. This can lead to an initial loss which then create a dilemma for you. Was it a temporary spike and you just need to re enter or is it actually gonna breakout?

Also because SR boundaries are not perfect, you never quite know how wide your Stop Losses need to be. Sometimes I only needed 10 or 30 Pips…other times it was 50 to 80.

Also, since the market can reverse without actually hitting the boundary, it was sometimes unclear whether to enter 10…15…20 Pips before the boundary was hit lr to only wait till they are hit to be sure.

Candlesticks on the Daily and 4 Hour

To solve thise issues I decided to focus on trading the Larger and more Stable Setups of these time frames using Candlesticks.

Advantages

These Charts are less likely to give you false signals and the Candlestick Signals act as confirmation of the start of the reversal. This eliminates the uncertainty associated with SR based entries.

With Candles…you also can see exactly where to place your Stops…the High/ Low of the signal.

The key however is knowing which Signals are the right ones to trade and ensurung that they are in sync with the Consiidation type. For example, a Bullish Engulfing Canlde might be appropriate for the Consolidation you traded yesterday but may actually be too weak for the one you trade tomorrow.!!!

Disadvantages

Because we are trading on the larger charts…larger stop losses are needed. This is generally wjy people trade on the smaller charts - its “cheaper”. However the larger number of false signals because of the greater volatility of these charys can make the losses from those smaller stops add up to quite a lot.

However, given the greater reliability of these signals on Daily and 4 Hour and the greater strength of the Stop Loss Areas, fewer losses will be experienced.

Plus…by forgetting about breakouts…you actually will find greater opprtunities for profit. Not only can you trade after the Consolidation has been formed with clear Support and Resistance Lines. You can also trade the waves that form the Consolidation.

Once you can spot these waves early and see that the market is in the process of forming these Consolidations…

…you can take advantage of them for strong gains as you can see here on the GBP JPY 4H a few weeks ago…

Duane
DRFXTRADING