It would be quite handy to make a list of brokers that continued to execute CHF trades with no interruption on Jan 15, 2015. Probably any positive example should be backed by a screenshot of an account statement to be considered valid.

@Alex

Many good sounding words there. Lets be more specific. In pratice, how do you protect yourself against a situation like the one Antonio described except never getting into the trade in the first place.

Do you mean "to protect" as "to limit loss for this particular trade"? No way. Do you mean "to protect" as "not to suffer much from this event"? I have to repeat: proper money management and risk diversification. Say, one of the strategies goes short and suffers a loss while another one goes long and possibly dampers the loss, or in the best case even brings in some profit. Again, depends on your definition of "to protect".

OK Alex. Apart from proper money management which of course is essential. To simplify, in Forex, trade many pairs. Agree.

Alex, given the sequence of events described by Antonio, having at least a protective order could have minimized his loss, even with slippage. Of course that should be just one element of a comprehensive risk and money management framework of his trading strategy.

Hi Antonio,

Yes, you have a point. Developer are in general no fools but assume that the current structural market environment is stable. A trading strategy is always premised on the tenet that market liquidity is available and that there is no "model risk" in financial jargon.

When you have a systemic disruption, the reference "market model" can change brutally and you face a totally different game.

Historical examples are abundant: the banking holiday enforced on March 6 1933 by Franklin D. Roosevelt and the ensuing criminalization of gold ownership by US citizens as well as the end of USD convertibility into gold under Nixon on August 15 1971.

Even the Hunt brothers with their huge long silver position in 1979 learned the hard way that the "system" can change the rules whenever it sees material reasons to do so. Remember the Cyprian bank deposits?

No matter how good you think your trading strategy might be...the reality and the fact remains that you will be caught out when you least expect it, you just cannot be prepared for some unexpected events like the Swiss bank activity in the markets a few days ago causing a sudden tremor in Forex - I am sure the vast majority of traders and EA's were caught out unexpectedly...any experienced trader knows that this is the nature of the markets.

I personally do not use auto trading systems...you can not programme 'intitution or gut' feelings in any system not matter how good the developer or the software.

Makes me rethink an idea I had earler. I am running an EA (robot) on forex that trades many forex pairs.What can happen is that I have several open profitable positions running. I could look at this as a black box and introduce system black box TP and SL. As an example, close all position if total open profit is 5% of capital and close all positions when open loss is 2%. Just to get out of the market now and then.

With all do respect why does this type of question or concern always relate to losses and never profits? In my opinion what 30 odd years in the industry has taught me is that nothing works all the time and that is what makes a market.

In relation to the issue of the trading platform failing [internet based] - you can have a BCP program i) of two accounts in different brokers [this only negates if your primary broker platforms freezes and not to counter your internet connection failing] ii) telephone orders in as Plan B iii) light a candle and pray to your Gods (s)

As to the issue of the USDCHF - any trade that requires 400:1 leverage to get some nickels or is a contrived security - lesson learnt

As to flash crashes : this is more prevalent across fixed interest, individual stocks and indices - no solution as I see it as must be considered par for the course nowadays

On the issue of diversification : many new to trading don't have the funds, knowledge or systems/ resources to diversify beyond say beyond 2 -3 trading instruments so are at risk of 1 failing and failing big $ - so stay with v liquid instruments

Outside of flash crashes most other issues can be mitigated to some degree - even to the extent that you can get guaranteed stops [pay a higher price for guarantee], can ensure money segregated from broker money = segregated accounts [do the necessary research as simply requires thinking the appropriate questions] so you don't have counterparty risk or minimise money at broker to absolute minimum and keep surplus trading money outside but easy to access [but then the GFC told you even the big banks are riski]

What makes me query the risk profiles of trades is that FXCM got itself into the position where it put all its equity [10 + years worth of earnings] at risk on 1 trade [MFGlobal with Greek debt if memory serves me] - such that it must have been promoting this trade to its clients [what would the notional exposure been to suffer a $225,000,000 hit ==> $1 billion + which makes the issue of adviser recommendation to newbies something to consider

Even hedge funds from v experienced players went down - other peoples money but they usually have skin in the game ...such is life

Thank you, Richard. Excellent commentary. Also, enjoying the entirety of this thread immensely. It resembles the dialogue running through my mind during the past several days. I am humble in the presence of those sharing their knowledge and thoughts in this space.

I saw the terms and conditions on FXCM financing = not nice - the cost of financing will kill them or they are to sale within 3 years - shareholders diluted by 50% mamma mia what a slow moving train wreck - perhaps management shakeup, maybe even some risk guys to replace all the marketing spives

It might also beg the question = were these events [such as the USDCHF] outliners - that is unknown unknowns [apologies to Mr Rumsfeld] or merely events that were predictable but given that the punters were being rewarded for risks undertaken [even if they knew the music may stop] they played the game [apologies to Mr Prince, ex Citi CEO]....we forget hard earnt lessons or repeat them at our peril - this sounds the same lessons we give to newbies : discipline, rules, patience or losses - break the rules, simple as they are and face the consequences

carry trades are not riskless, nor is stat arbitrage, neither is automated trading, neither is HFT, neither is technical analysis in all its guises - hard yakka to make an honest quid in trading

Are these new risks or are these the same old same old sheep in new clothing - any grey haired trader who has memory not diluted from too much drinking can tell you it is dejavu all over again

So I was shocked by the losses experienced by FXCM, interactive brokers, IGmarkets, SaxoBank, CitiBank, Goldmanbloodsucking*&^%$ : given their institutional memory or business models ......surprised yet not

Apart from who where the big losers in this event. Who where not? I am looking for a new forex Metatrader 5 broker after the breakdown of Alpari UK

"Also, don't equate bucket shops where client money is the same as the company money with the fx market in general. There are many reputable prime brokers and banks that keep client money separate."

True, but big banks also remarked trades on CHFEUR whose level they decided wasn't correct after the fact.

"With all do respect why does this type of question or concern always relate to losses and never profits?"

Absolutely correct. A huge unexpected profit would scare me as much as an unexpected loss. There would have been people who made big profits on this move. They aren't in the news, of course. But hopefully they have the sense to realise that this was a wake up call, a bullet they dodged, and they were doing something terribly stupid and just got lucky.

Alright, alright, alright , Richard. Regards from a grey-haired trader...

I have used a set of rules for cash derivative naked puts and calls on the OEX, DIA, and SPX that are part of a methodology used for ten years successfully. High frequency trading,or rules set elsewhere don't effect or affect how I trade these front month options in any way. I am trading against bid/ask and following strict buy and stop loss, and it's simple.

I believe the answer to Antonio's question is that it depends upon what part of the market you are trading.

@Alex, great points! So few "manage" risk because so few research and try to understand risk so that a system can be robust. Systems are robust b/c the rules are tested over variety of time scales, securities, and stressed-scenarios, and not just over past history but even incorporating Monte Carlo Sims looking for worst cases and probs, and what runs of losses look like...

I had an 'event' like that once also. Rules became, bullish '1st time ever s,' because who bets against? Everyone. That's whom the markets are after. 2. Stops 100% always, stay exposed to the market as little as possible? It's sad but new players have arrived. Cus Seg. funds are stolen or speculated with,,,,

Also in your example, I didn't realize CHF/EU was against a currency band. That is like being short pork bellies 5 pips off limit up. Don't let it mess with your brain is most important.

even immortals catch a "silver bullet" time to time, but it doesn't kill them just set them back a bit.