Market shows vulnerability on the back of SNB

This morning we had one of the biggest moves that I’ve seen in my trading career, could be one of the biggest moves ever in terms of the time frame it took place in. The Swiss National Bank decided to remove the 1.20 floor on the Eur/Chf, which led to a 2200 pip move up in the Swiss franc future, and an even bigger move of 3700 pip move down in the Eur/Chf from 1.20 to 0.83 at its lows.

The trading which ensued was super volatile but what was more worrying was the absolute disappearance of liquidity in pretty much all markets. The ES was looking as thin as the Dax, the NASDAQ was trading 5 to 10 ticks wide with 1 and 2 lots on the bids and offers. After an initial sell off in Stocks, they bounced back, but with liquidity disappearing that quickly suggests that any major event that could occur could lead to a bigger flash crash type scenario, where big orders are getting out at market with literally nothing in the book, leading to massively exacerbated moves. This is what happened with the Swissy, where the CME halted trading a number of times, as the market was so thin, and large stops were getting triggered. Given that pre announcement we had 6S (Swiss franc) future trading at roughly 0.99 and I saw up the ladder large orders getting executed up until the 1.21 region.

This type of move was the type that could put firms out of business as proper stops couldn’t be executed and so risk controls at many brokers being left vulnerable which left many accounts with a losses far exceeding their deposit. One of the firms which has been reported to have this problem is IG index, which reported a loss in the origin of £30 million on that move, as the hedge wasn’t large enough to cover the excess losses in client accounts due to low liquidity.

I personally have had a 6k floating profit on an MT4 broker turn into a 13k loss instantly as the spread on the NZD/CHF which was already 400 pips at the time, (usually 15 pips) go out to 7000 pips!!! Triggering the account stop out leaving me in a huge loss. This surely will have to be sorted out with the broker and their liquidity providers as its simply market manipulation, and there is no way I could be paying a price that high above the underlying price at the time but the point being is the number of accounts this must have happened to must be enough to bring many brokerages down.

So the question is how prepared is the world for an unexpected event such as one today. Sure doesn’t look like they are. With no one willing to take the other side in times of extreme volatility, and with so much stimulus in place, the eventual unwind could be nasty. The SNB the biggest buyer of Euros, decided to pull the plug on the Eur/Chf floor today in anticipation of European QE, and the reaction was massive, when this happens on a bigger scale, well let’s hope you’re on the right side.