Have you ever wondered what it'd be like to make thousands of dollars in your sleep?!... Well, so do I! Lol... I currently have started investing in the Foreign Exchange Market. This is 5 trillion $$$ industry that has an extremely high volatility rate and liquidity. Unfortunately, the truth is 95% of traders wipe out their account within 3-6 months and only 5% are actually successful, but if you take the time to educate yourself in how to trade the market as well as understanding how to control your emotions you could be just as successful.
So now for the real reason for today's blog...
On January 15th 2015, The Swiss National Bank announced that they would be discontinuing their minimum exchange rate for CHF (Swiss Frank) 1.20 per EURO. This caused a frenzy within the foreign exchange currency market, ultimately making CHF pairs like USD/CHF & EUR/CHF plummeting thousands of pips (price interest point). It was so bad most brokers froze trades prohibiting traders from exiting or entering CHF pairs. The pairs were frozen for almost an hour before traders could access the damage in their accounts if the trade went against them. Many traders who bought the pair lost thousands to millions of $$$ and will never get reimbursed. Keep in mind trading will always a potential for huge losses and most successful trader know that you should never risk more than what you are willing to lose, but what happens when you limit your losses and your broker fails to uphold that standard. Remember what happened with Swiss Frank pairs can happen with any pair. Therefore, I share this post as a warning to all as the ugly truth within the trading world. With that said, I want to share with you a conversation I had with my broker in regard to this unexpected event.
**Conversation with my FOREX.com broker in regards to CHF.. **
APRIL: Does forex.com have any protocol set in place to protect accounts from being wiped out from negative/adverse news events? i.e the example of CHF pairs from last week?
Adam: Unfortunately, the client will be responsible for the negative balance.
APRIL: So if a client placed a stop loss at a certain pip limit and it was 'skipped over' allowing for more loss than what should have originally been acquired, they are responsible for the 'glitch' in YOUR system?
Adam: The stop losses are not guaranteed in situation where there is a big jump in the market.
APRIL: LOL, that's an understatement. So since the stop loss isn't a guarantee, brokers are free and clear from reimbursing clients on losses from huge jumps in the market.
APRIL: So what makes FOREX.com a better broker than anyone else in times of high/expected volatility?
Adam: When there is high volatility the price movements are fast and there are big jumps, the stop losses won't be guaranteed in situation like that. There is a high risk.
APRIL: My question is: If FOREX.com can not ensure my equity when a stop loss is placed during high volatility market movements, what's the point in keeping my account open with you and not trying to find a broker who would be interested in protecting my best interest? ie my equity
APRIL: Why doesn't FOREX.com just offer reimbursing a client's account to whatever their initial stop loss was?
Adam: Unfortunately, I don't think that there is any registered broker who will guaranteed a stop loss.
Before you decide to invest make sure you do your research and have a fully understand of YOUR worst case scenario risk before even fathoming any type of reward. Also, just know no matter how great your strategy may be you may never be prepared mentally or emotionally for an unexpected drop in the market. Luckily, I DID NOT have an entry place on any CHF pair. Below is a screenshot of USDCHF falling 2K+ pips as well as more links for you to review as enlightenment for your senses.
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http://www.forexfactory.com/news.php?do=news&id=521891
http://www.forexfactory.com/news.php?do=news&id=521776
https://www.youtube.com/watch?v=1JpetT9W4gY
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