While, as already reported (OmiCronFX
Mandelbrot software timing element saves the day), we were unaffected by
the aftermath of the shock Swiss National Bank decision last Thursday to
abandon the cap it had placed on appreciation of the Swiss currency against the
Euro, others were not so fortunate.
Traders who had decided to take the
SNB “jawboning”, to the effect that the cap was a sacred and unwavering line in
the sand, at face value and place their bets accordingly, suffered badly. The
Everest Capital Global fund, a well-established hedge fund, lost
$830 million and was wiped out. In many cases, smaller individual, but very
high cumulative, losses suffered by traders wound up being the responsibility
of their brokers, when the large institutions who provide liquidity to the same
brokers insisted on settlement and the brokers’ clients were not in a position
to pay up, their equity accounts having gone well into negative territory.
The OmiCronFX brokers, Dukascopy,
somewhat ironically headquartered in Geneva, Switzerland, were well on top of
this situation. Four months ago they had foreseen the possibility of exactly
such an occurrence and had restricted the leverage on client accounts
accordingly. Dukascopy, which itself enjoys the status of being a Swiss bank,
has issued the following statement:
“CHF dramatic shift
Dukascopy Group
announces that it has safely passed through the CHF dramatic price shift. It
was achieved thanks to advanced execution technology, careful risk management
policy and reduced leverage on EURCHF till level of 1:10.
The scenario of
such shock had been anticipated four months in advance as shown in Dukascopy
news published on 3rd of October 2014: "Due to the possibility of a break
of the 1.2000 floor in EUR/CHF which may see significant price gaps and cause
negative equity on client accounts, Dukascopy Bank is forced to implement a
maximum leverage for EURCHF exposures of 1:10 as of 12 October 2014".
Dukascopy well
known ECN business model and careful risk management approach proved once again
to be reliable and trustworthy.”
A
perfect example of a “Black Swan” event
Our friends over at Darwinex, UK FCA regulated
both as a broker and as an investment manager, also survived the Tsunami. As
well as providing a good
commentary on the background and mechanics of the event, Juan Colón, Co-Founder, is forthright in his comments about their experience. Among other
things, he has this to say:
“We
came out of this just fine, mainly because we did most things right,
and partially because we were lucky.”
The whole thing is a perfect example
of a “Black Swan” event, first identified by Nicholas Taleb in his book of the
same name. This was the subject of an OmiCronFX commentary some time ago. Youcan access it here.
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