Monday 26 January 2015

Lessons We Can Learn From The Swiss Franc Debacle

As the dust begins to settle around the Swiss Franc revaluation saga and normality starts making it's way through the confusion, many questions are being raised around the stringency of the regulations regarding the amount of leverage a broker may offer traders which in this case has left many Forex brokers reeling in shock as millions of dollars in losses have been incurred as a result of a lapse judgement or simply pure greed.

Being an astute student of the market, events such as these do highlight the real risks of trading in the fast pace world of financial markets. Every so often shocks to the system like these occur which leave media outlets with much to report on and becomes the benchmark to future activity. Although there is much conversation and debate around these events my mind often wonders to the traders who sit with the accounts that have been beaten all the way down to zero in a matter of minutes. 

In situations like these I always try imagine myself in these kind of positions and think of how I would react to such an event. Quite honestly I think I would be devastated. Its really difficult to place yourself in situations as these and it's the type you hope and pray doesn't happen to you anytime soon out of the fear of not knowing how to properly deal with it.

But if I think about it again, can we really know when these infrequent occurrences happen? Do we have sufficient knowledge and proper safety precautions to prevent such a  personal financial disaster? We could employ good risk management but chances are they would stand no protection against a wave of abrupt economic data on a scale such as this.      

Reflecting back I always think of a client of mine who I've come to know very well over the years. One day while in conversation he told me of an experience when he was much younger, he suffered from a leaking valve in his heart. This was back in the late 1950's before the first heart transplant had taken place and cardiac research was starting to gain momentum. 

His parents couldn't understand why their baby was in such distress all the time and their worries grew, until a ray of hope was sent their way in a opportunity to go see a leading pioneer in the field, Dr Chris Barnard who later became famous for performing the first heart transplant.  Dr Barnard said that he could correct the defect in the child hearts with a new procedure which involved open heart surgery by placing the patient on a heart lung machine. 

However because the child was so young there was a chance of an unsuccessful result. So they had to decide if they could place their little 6 year old son's life in the hands of this bold and courageous man. 

Meanwhile little Jan didn't realize the profound effect this was to have on his life. He had only known life living on a farm, he had no idea the enormity of this breakthrough operation which was going to give him a second chance at life. As time drew closer to operation day he nerves began to sink in, loneliness of spending hours waiting in the ward for the all clear. But they were always comforted by the visits from his new friend, Oom Chris.

Whenever I hear Jan speaking about that moment 58 years ago I really find a sense of realization of the way he navigates his way through every challenge in his life. I've known him for a few years and I've always been in awe at his remarkable ability to stay composed in some of the hardest decision making choices in life. I truly believe that his experience he encountered as a young boy has moulded his mind to not allow fear to overshadow those decisions that make all the difference.

Having faced such a deathly experience at such a young age made him recognize the uneven pathway life sketches for us all and sometime sudden abrupt halt in normal living in favour of despair. And while that event was not the only or last obstacle he'll ever face, the ability to realize that we are not entirely in control of the way things happen but we are in the way we deal with it has given him the edge over others in life.

The episode relating to the franc will definitely go down in history just as the Flash Crash or Black Tuesday. In cases such as these most people lose large sums of money and the chance of building up a negative image of activities surrounding trading is high. I wouldn't blame anyone for such view, for some this has become a livelihood which they rely upon.

Some will  effectively end their trading careers and take on a new path of discovery, others will brave their souls and endure through the hardships in the hope of a second chance. However an event as such does highlight that in trading as in life, we are exposed  to risks of irregular occurrences all the time and sometimes there's nothing we can do to mitigate it. Although a bitter pill to swallow, we simply have to accept it has happened and carry on or further risk being left behind.


If there's one thing I've learnt from it, although not directly involved, is my heightened awareness of shocks in a system I never had before and a sudden need to seek out a contingency plan  in the form of backup savings should an event of this nature should happen but nothing can quite prepare a person like living through the experience.

"Life is what happens when you are busy making other plans" ~John Lennon

If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR

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