Last week’s unexpected move by the SNB is still the main discussion topic in forex traders’ circles, so my article today will also relate to it, albeit from a different perspective. If you will, it’s a continuation of my previous article.
One of the main attractions, at least as far as I’m concerned, of the forex market is its liquidity – a few trillion (yes, with a “t”) dollars on average are traded every day. This makes currency trading the most scalable form of trading but also gives one the ability to apply a rigid risk control, knowing that the bid and ask are always present. There are a couple of known exceptions though: As the markets are closed over the weekend, there’s always the risk of an opening gap on Monday, which sometimes can be quite big. Then we have important announcements like the NFP or Central Banks’ statements that can also lead to gaps. Because we know of these events beforehand, we can prepare for them – either by lightening positions or by closing them altogether. And now let’s see what SNB has to do with all this.
Since they introduced the EUR/CHF rate floor at 1.2 in September 2011, they not only made this pair untradeable – the most obvious effect, but they also attached a ticking time-bomb to all CHF pairs. A bomb which finally exploded on Thursday, January 15th, 2015.