{"id":32856,"date":"2015-01-16T15:59:40","date_gmt":"2015-01-16T15:59:40","guid":{"rendered":"http:\/\/www.tradersdna.com\/?p=32856"},"modified":"2021-03-19T11:35:56","modified_gmt":"2021-03-19T11:35:56","slug":"swiss-franc-black-swan-hedging-volatility-global-economy","status":"publish","type":"post","link":"https:\/\/mktplace.org\/swiss-franc-black-swan-hedging-volatility-global-economy\/","title":{"rendered":"Swiss Franc Black Swan and the Hedging Volatility of the Global Economy"},"content":{"rendered":"

A black swan event is a term coined by Nassim Nicholas Taleb and it works as\u00a0a metaphor that describes an event that comes as a surprise and has major consequences. These kind of events are rare and \u00a0its occurrence deviates beyond what is normally expected of a situation and can create substantial damage and chaos. Black Swans without any doubt are extremely difficult to predict, even in a time of sophisticated trading real time, risk management and predictive capital market algorithms.<\/p>\n

The Black Swan\u00a0term sums up what is happening in the hedging volatility<\/a> of markets after the currency move by the Swiss National Bank and it displays something holistic we perceive at this moment in\u00a0the world’s fragile and sensitive economy.<\/p>\n

This disruptive and influential theory was developed and highlighted by Nassim Nicholas Taleb,\u00a0a finance professor and former Wall Street trader,\u00a0in\u00a0the book with the same name of 2011. This influential concept was drafted,\u00a0introduced\u00a0it before\u00a0in Taleb other\u00a02001 book\u00a0Fooled By Randomness<\/i>, which concerned financial events and the power of random events and things that changes the normal trajectory of things.<\/p>\n

The pillars of the Black Swan<\/a> concept can be summarised in these 3 points in Taleb’s words:<\/p>\n

    \n
  1. “The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.<\/li>\n
  2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).<\/li>\n
  3. The psychological<\/span> biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs.”<\/li>\n<\/ol>\n

    Unlike the earlier concepts and philosophical “black swan problem<\/span>“, the Taleb “black swan theory” refers specially\u00a0to unexpected events of large magnitude and consequence and their dominant role in history. This theory has become special relevant in the capital markets and trading world where the theory became a Bible for traders and part of the implicit DNA of trading.<\/p>\n

    Aerial Photo of Davos – the host Alpine City of the World Economic Forum Annual Meetings<\/p>\n

    Such special and unexpected events, that happen very fast in hawkard circumstance, considered extreme points of no return, or outliers, collectively play vastly larger roles than expected regular occurrences and shift actions and special the players.\u00a0More technically, in another paper, Taleb describes in the scientific monograph Lectures on Probability and Risk in the Real World: Fat Tails, <\/i>a more sophisticated mathematically explanation that highlights and translated\u00a0the black swan problem as “stemming from the use of degenerate metaprobability”.<\/p>\n

    So yesterday move of the global markets after the Swiss National Bank’s sysmic shock move to stop intervening in its foreign exchange market, has been one of the biggest Black Swans of the last years for traders. Special only after three days the\u00a0Swiss National Bank, Vice President Jean-Pierre Danthine had defined the Swiss Franc cap a \u201cpillar\u201d of monetary policy.<\/p>\n

    In these circumstances\u00a0people and special traders, markets, brokers and investors don’t behave normally special when central banks don’t. This has created a butterfly effect in the global markets with riddle effects still difficult to predict.<\/p>\n

    This move all comes in the follow up of the European Central Bank big introduction of quantitative easing when it meets Jan. 22 2015. Switzerland is making its home work and somehow surrendering before a critical and polmic wave of post-QE money fleeing the euro that threatens to make a mockery of its currency policy. It’s also in the follow up of the lower oil prices that brings global deflation ever closer.<\/p>\n

    This move has been affecting the world markets, disrupting even big retail trading players of the industry such as FXCM with its Shares Trading down 85% in Pre-Market Trading and a Massive $225 Million Client Negative Balance Hit Due to CHF Volatility ). IG Group another massive world trading house disclaimed \u00a0losses up to \u00a330 Million, Tip of Industry CHF Volatility Losses. And the most radical case Alpari Uk entered in admnistration following up client losses.\u00a0LCG Group also\u00a0faced up to $2.5 Million Losses.<\/p>\n

    To add a more positive note Gain actually generated profit with this black swan Forex Industry black Thursday. Other retail trading<\/a> players such as Saxo Bank and Mahih FX,\u00a0CMC Markets, City Index continued with their businesses and trading operations despite the\u00a0CHF Convulsion. Also\u00a0IC Markets and Darwinex persisted\u00a0despite Minimal Losses and Setbacks.<\/p>\n

    This exceptional market turmoil following up from the Swiss move has created and trickered a series of events and dsiruption and has extended its impact worldwise. Swiss stocks such as Swatch and Nestle fell sharly and in the same path Asian shares dropped with U.S. index futures, while Japanese and Australian government bond yields had record plunges.<\/p>\n

    This action by the Swiss National Bank taking will put in question the effective strenghts or weakness of the euro polemic currency adventure that started some 15 years ago.<\/p>\n

    Adding to the chaos coming from Swiss central bank unexpected moves there is the Russian ruble and its weakening economy that continues to lose buying power, and a lot of the big Oligark money that has been flowing into Switzerland from that country. The challenge now is how this will affect more the sensible and fragile Russian economy completely fragilised by the lower and lower prices of cheap oil.<\/p>\n

    No doubt this move by the Swiss National Bank is a black swan game changer. And its repercussion will probable continue as the ECB continues its path to a massive action that will intensify new actions and potential disruptions. The US economy probably will be the balance in this complex and fragile system.Investors and traders have to be wise at the moment and eventually move their portfolios to solid commodities. This is the case of gold that will be growing its value. Example of that is the move in its the price that keeps its trajectory of 4 month highs. Gold in these occasions is the traditional safe haven out of paper money.<\/p>\n

    Interesting also that the Swiss Central Bank did this less than some weeks before the global\u00a0Davos World Economic Forum Annual Meetings – that are host in the Swiss Alpine City.<\/p>\n

    Be safe and wise if you are trading these days! and beware of the black swans riddle effects in the hedging volatility of the global economy.<\/p>\n

    \n
    \n
    <\/pre>\n<\/div>\n
    <\/pre>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
    A black swan event is a term coined by Nassim Nicholas Taleb and it works as\u00a0a metaphor that describes an event that comes as a surprise and has major consequences. These kind of events are rare and \u00a0its occurrence deviates beyond what is normally expected of a situation and can create substantial damage and chaos. […]<\/p>\n","protected":false},"author":99,"featured_media":45414,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"codedeyo_gutenberg_meta":"","footnotes":""},"categories":[23],"tags":[566,1269,1270,1271,42,1275,1273,1274,1272,837],"class_list":["post-32856","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-view","tag-alpari","tag-black-swan","tag-black-swan-markets","tag-black-thursday-forex-trading-industry","tag-fxcm","tag-global-economy","tag-ig-group","tag-nassim-nicholas-taleb","tag-swiss-central-bank","tag-swiss-franc"],"acf":[],"yoast_head":"\nSwiss Franc Black Swan and the Hedging Volatility of the Global Economy<\/title>\n<meta name=\"description\" content=\"How the Swiss Franc Black Swan is Hedging and creating a massive forex trading Volatility of the Global Economy\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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