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The Swiss Franc Tsunami: Who Is Affected and How Often Are We Going to Witness Such Disasters?

In my yesterday’s market analysis, I explained a little about the strong, sudden and strange CHF cross currency pairs movement. The number of comments, emails, phone calls, text messages and… from traders, investors and also financial companies and brokers made me write a small post and clarify a few things about this event.

1. First of all, this strong movement was related to sudden, unexpected and unscheduled change in Libor Rate. Nobody expected this change, and there was no Libor Rate change listed in any of the economic calenders. Even the most famous brokers, financial companies, liquidity providers and and banks didn’t expect such a news release and change.

This is to answer those of you who commented that although we tell them that when they trade the long time frames they don’t have to check the news, still they’d better to do it to avoid such strong movements. It wouldn’t help if you did it, because as I mentioned Libor Rate change was not listed on any of the economic calenders in advance. It was listed only after the change and the big movement yesterday at 4:30am EST. Learn about Libor rate and its importance in the markets: LIBOR and Its Importance

Most of those whose accounts were wiped out are among day traders who were long with CHF cross currency pairs based on the shorter time frames long trade setups. Those who trade the longer time frames either had no positions (because there was no trade setup on the longer time frames), or were short because of the too strong short trade setups like what GBP/CHF formed on the daily chart. So once again it is proven that it is safer and better to trade the longer time frames.

2. Why they changed the Libor Rate and why this change caused such a strong movement doesn’t matter for us. It just happened (Libor Rate was used to be 0.25% since March 2009. Then it was cut to -0.25% on December 2014, and it was cut to -0.75% today).

Something that matters is that…

  1. What happens if such a sudden and strong movement wipes out your account? What happens if the stop loss or target orders don’t get triggered? Is it the broker responsibility to recover the loss? How do the brokers get affected by such movements?
  2. How often are we going to be faced with such disasters? Are we supposed to lose our accounts once in while because of similar issues?

So there are two things when events like this occur. One side is the broker, and the other side is you and your account.

The bad news is that if your account gets blown up because of the events like CHF most recent crisis, then not only your broker doesn’t take the responsibility, but also he is usually affected very badly and chances are they get bankrupt and get out of the business completely. As far as I have seen, this is something that is already happened even to some of the most famous brokers.

As you know there are two kinds of brokers. Market Maker brokers who don’t transfer your orders to any interbank, and ECN/STP brokers who route your orders to the interbanks also known as liquidity providers.

Market maker brokers lose money if you make profit, and visa versa. It means your loss is their profit and your profit is their loss. When events like yesterday’s CHF movement occur, if it wipes out most of traders accounts, market maker brokers feast. Easy money…

However, if such a movement causes the traders positions to become positive, then a market maker broker has two options. Either he has to pay the traders profit, or make an excuse and deny to do it.

It all depends on the case. Sometimes market maker brokers prefer to handle a small loss not to mess up with the clients. But sometimes the loss is much more than what they can handle. Therefore, they have to make an excuse not to pay the clients’ profits.

It is a different story with ECN/STP brokers. Your profit is not their loss, and your loss is not their profit. But the problem is when a sudden and too strong movement occurs, it usually causes most of the clients accounts to reach the margin call and stop out levels, and get wiped out, because usually most traders always have wrong positions. The bigger problem is that as the movement is too strong and sudden, stop loss orders don’t work, and even if a position doesn’t have any stop loss, the broker’s automatic system cannot close the position when the account reaches the stop out level. Therefore, the account will go to a negative balance. For example a +$5000 account becomes -$50,000.

Indeed, it is the trader who has to pay this $45,000 loss to the broker, but almost in all cases traders walk away and the broker cannot take this money from them. So, either the broker has to pay this money to the liquidity provider from his own pocket, or they have to face insolvency. This is something that happened to some of the brokers because of the yesterday’s CHF crisis as of writing this post.

What if such a movement causes you to make profit with your ECN/STP account?

Again, that is the broker’s problem. If they can take the profit from liquidity providers, then they will pay you. If the liquidity providers refuse to pay (because they are also in trouble because of the strong movement), then either the broker has to pay it from his own pocket to keep you happy, or refuse to pay your profit and make you file a complaint. However, as I already mentioned, usually most traders have a wrong position and the broker not only cannot pay the liquidity providers losses, but also cannot pay the profitable traders.

So if your account is gone, it is gone. And if your broker is down, it is down, and there is nothing you can do about.

Traders who didn’t have too big accounts, can easily start from the scratch with another broker. Although some brokers are out of the game for good, this is not the end of trading. New brokers always come and traders will keep on trading. But the other important question is are we going to lose our accounts every now and then because of these events?

The good news is NO. Such events are not supposed to be seen even once in ten years. Indeed, what you witnessed yesterday was the biggest FX shocker in years, and I don’t think we will ever see it in future.

However, let’s say it happens even once in 5 or 10 years. Is there anything we can do not to lose our accounts? Obviously, stop loss cannot do anything in this case. So what is the solution?

The solution is what I already told you in several occasions during the past several months that I have started writing on LuckScout:

  1. When you become a consistently profitable trader and you become able to repeat your success with your demo account, for 6 consecutive months at least, and so you decide to open a live account, you should open a live account with an as small as possible balance.
  2. Trade with this account and double your money first, no matter how long it takes.
  3. Withdraw your principal and keep on trading with the residual balance which is your profit indeed.
  4. Grow your account to a reasonable balance with the power of compound interest, and then withdraw the profit all at once.
  5. Repeat the same process over and over again.

Imagine I open a $10,000 account and double its balance first. Then I withdraw my $10,000 principal and keep on trading with the residual balance ($10,000) which is my profit in fact. Then I decide to withdraw $90,000 when the account balance turns into $100,000. But, yesterday’s tsunami occurs when I am at the middle of the way and the account balance is $50,000. Let’s say the account gets wiped out (of course this happens only when I have a position against the market movement). Or the broker gets out of the business and defaults to pay my money. So I don’t lose my hard earned capital. I only lose the profit I have made, plus the 15-30 minutes time I have spent to work on the account every day goes down the drain.

What if this $50,000 was from my retirement savings? What if it was the money I could not afford to lose?

Trading is not all about learning the techniques and taking the positions. What I explained above is even more important. Most traders always care about taking positions, having as many trade setups and making as many pips as possible, but the currency market ocean is not supposed to be calm and quiet all the time. You will be faced with tsunamis too and you have to get prepared for it.

Stay away from these kinds of disasters and don’t risk your hard-earned money. Use the markets to increase your wealth the right way:

  1. The Easiest Way to Get Rich Fast
  2. How a Reliable and Strong Source of Income and Proper Investments Make You Super Rich
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88 thoughts on “The Swiss Franc Tsunami: Who Is Affected and How Often Are We Going to Witness Such Disasters?
  1. Singh says:

    What happen yesterday was a very good lesson for me but I am glad I didn`t learn in hard way. I would love to hear from followers to share their Good/Bad stories if someone had open positions yesterday. It will benefit all.

    Thanks Chris for your article.

    • Sylvester says:

      Thanks Chris for sharing this article. I have to admit openly that I’m feeling devastated. I have had 6 months for really good profitable trading following two years of struggling and losing, losing, losing. Now just when I was really getting into second gear WHAMMMM!!! I’ve lost approximately 80% of my money (profits + capital). Key Lesson here: Follow Chris advice on trading, profiting, & then withdrawing capital + some profits.

      I must admit that I got adventurous (gentler term for greedy) and I got suckered BIG TIME!!! Now it’s time to dust myself off, stand up tall and start all over again. I did it before and I can do it again, this time just operating a bit more smarter.

    • eftihis says:

      I had a long position at chfjpy and my broker close it that day of franc tsunamis
      How can I handle it.??

  2. Adam says:

    I have a small live account with a UK broker which entered in to insolvency today. My funds should be segregated, so hopefully I will get this returned. UK regulator is involved so will probably be a long drawn out process. This is very frustrating for me as I just returned to in the last month having not traded for a couple of years having been disillusioned with not being able to be consistently profitable. It feels like a sign that I should just walk away for good………

    • ren says:

      Hi Adam were you with Alpari UK? I have a live account with them also

      • Adam says:

        Yes it was alpari. Now looking for another ecn/stp broker based in UK who is FCA regulated, decent spreads etc. Fx open looks a possibility

        • Ren says:

          Yes me too this will set us back a few week before we gets our funds back I did not loss any money with this Swiss move thou hopefully our funds is safe

          • Adam says:

            Below is latest update on alpari site, so not in insolvency yet and looking for a sale. I was using MT5, up until close Friday it was still possible to trade a number or pairs. Still not able to log in to withdraw my credit balance though.

            Important announcement:

            The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. Retail client funds continue to be segregated in accordance with FCA rules. For the avoidance of any doubt and notwithstanding previous announcements by the company, Alpari (UK) Limited has not entered a formal insolvency process. The board of directors are urgently considering all options including a sale and are liaising closely with the FCA. We hope to make a further announcement shortly.

          • Ren says:

            well at least there’s some news kind of good that they are looking for a alternative I use MT4 I also could a trade till Friday I hadn’t any open position though my last position was gbp/chf short but stop loss was trigger couple days before the Swiss event

  3. Fady says:

    Chris, thank you so much for boosting us positively again. I had a very profitable 3 consecutive weeks, I had all Winnings. And I was very satisfied with the result, until that tsunami. I thank God that I’m still on demo, but still I felt desperate cause I deal with my demo like real. Thanks for the boost. Looking forward to the next week. With positive attitude…..

  4. Miche says:

    Hi Chris,
    I had a GBPCHF long open position, in my account the stop loss worked, I lost 73.2 pips (-$36.12, size: 0.05).
    The thing I do not understand is why with these kind of huge movements the SL can not work if the ECN/STP is an automatic system?
    Regards

    • Chris says:

      It is not the broker that triggers the stop loss or TP orders. It is the liquidity provider who does it. When the market becomes overloaded, liquidity providers cannot trigger the pending orders including the SL and TP orders.

    • KING TIGER says:

      Because it moved so fast even the computors unable to act on it, lighting fast, 1600 pips wow

  5. Otto says:

    Thank you for your great summary. It’s a really shocking event.
    A question: how can we deduct if a broker is real ECN from the reaction they take on this event? Because I read that some brokers just credited the negative accounts so that one can trade further (this is suspicious), but other brokers are requiring the trader to pay (that is logical).
    Thanks!

    • Chris says:

      Brokers who reimburse the losses are all market maker. They have not lost any money because of this movement, because orders go nowhere but on the brokers servers. Just the clients’ accounts are wiped out, and they restore the balances and will keep on working as if nothing was happened. They are always happy with +95% of the traders who always lose.

  6. Mike says:

    I was eagerly waiting for the respond from you about CHF disaster. Thank you for your insightful explanation.

  7. Noah says:

    Thanks Chris.

    Would you advise new learners to stay away from the market for a week or two till the ripples from this die down? Or has it done all the damage it could and its safe to get back in now if a too strong trade setup shows up?

    • Chris says:

      You’re welcome.

      We’d better to wait for few candlesticks first to see how CHF pairs will move. Then we can resume trading them.

  8. Ayobami says:

    is indeed a great school. Yesterday’s occurrence has taught me a great lesson although, i was not all that affected but i felt for those who have lost their hard earn money. Thanks Mr Chris.

  9. Andrew says:

    Hi Chris,

    Thanks for your posting on this issue. Being someone that is just starting out and in a demo account, it is a great lesson to learn about money management and realities of risk in. Little bit scary as I was tracking CAD/CHF long position from Dec. 17, 2014 bullish engulfing, and this would have been a position wiped out yesterday with probable issues relating to the SL.

    Just wondering do you plan on still trading the CHF pairs going forward, or do you feel maybe the actions of SNB (currency pegging and unscheduled major announcements) have made the CHF pairs too risky compared to the other pairs and currencies you follow?

    Regards.

  10. Jeng says:

    Thank you Chris, for yet another timely, and insightfully informative essay. Your passion for and your dedication to we LuckScout followers is both admirable and much appreciated.

    Please keep it up!

  11. Majid says:

    Great article .
    thank you chris.
    bests

  12. Todd says:

    This blog seems as much about imparting universally-applicable strategy skills and thinking skills as about trading. Thanks for another great lesson!

  13. Stanley says:

    It was a big lesson. I had one long EURCHF order open which stayed unfilled at 1.2002 for days (size 0.1 lot). I forgot to set stop loss on that and ignored that open order there everyday as it doesn’t seem to be getting triggered any time soon.

    And of course yesterday I wake up and saw a $2000 loss on that order.

    It would have been disastrous if I didn’t follow Chris’s advice and stayed in demo trading. so it is mentally shocking and stressful, but no really money lost.

  14. Roy says:

    Thanks for the great article Chris.

    I was with CM and the situation is a mess now. I am looking to change brokers. What are the choices for a US citizen in terms of choosing a broker where the risk is minimal? I am very confused as to which broker to choose and any guidance is greatly appreciated.

    Thanks
    Roy

    • Chris says:

      Roy, Sorry to hear that. Unfortunately we don’t recommend any broker on this site.

    • KING TIGER says:

      CM will come out ok, because I am also with them in UK.

    • Singh says:

      Hi Roy,

      I was thinking about opening account with CM. Would you mind sharing your experience with them ?

      Thanks

      • Robert says:

        I trade with CM US. From all of the brokerages I have used in the past, I have had the best experience with them. They have good liquidity with STP and have the lowest spreads I have seen anywhere. On occasion I have even seen inversions, where the bid is higher than the ask, but only for fractions of a second. The disadvantage is that CM US (just like all other US FOREX brokers – thanks FINRA!) follows the FIFO rules, therefore there is no hedging allowed on the same currency pair or trailing stops on individual positions. Also, CM does not offer any kind of other financial instrument other than spot currency pair trading. The other broker I would consider is Interactive Brokers, which allows you to trade spot, as well as hedge using other instruments such as currency options and futures.

  15. KING TIGER says:

    SWISS CHF pissed me off back in 2011 and I never traded the pair ever since and I am happy I did not. Now most traders will not look at this stupid pairs, why? sad to say I did lose a lot back in 2011. EMPTIED MY ACCOUNT

    • John H. says:

      Yeah, that was pretty irresponsible on the part of the SNB. If they really didn’t know it would have such an effect on the market, they don’t belong at the helm.

      Of course, my practice account is with Oanda (marketmaker/bucketshop) so my stops worked just fine.

      It’s a cold splash of water, just the same. At least with equities it’s easy to get options for extra insurance. With Fx, whoa baby, you’d better watch out.

  16. Di says:

    Hello, thank you for this article. I am still on demo account and very satisfied about what i learned from LuckScout. My broker has all the chf pairs blocked. What does this mean?
    Thank you!

    • Chris says:

      They don’t want you to trade those pairs, because they are afraid of losing money. It is possible that CHF pairs to form a too strong long trade setup after this huge down movement. If clients go long, then market maker brokers will lose a lot.

      • Di says:

        Market Maker?

        Only market maker blocked the chf pairs or ecn stp too?

        My broker is ecn stp and i am sure ” I think!”

  17. Lawrence Smit says:

    I started opening trades with stop losses and one of my trades took 1004 pips for a spread. I was very upset and decided to get it back. It is one of my risky micro account so it was no big deal. I just opened reversal trades and grew my account by 500%. When I wanted to start closing trades my battery of my tablet died. I ended up where I began. All my stop losses hit. I guess that is not the way to trade, but I were so happy that I could be part of the experience.

  18. linda martin says:

    Thank you for this article Chris…. i log onto your site every day and have learnt quite a bit re your trading Strategies
    yesterday i was long USDCHF thank god a micro account at the moment as i have had great losses in the past, but i put a very tight stop in place so it triggered very early in the trade thank god, i feel so lucky that i just lost a little BUT ive now learnt that i will never load my account with more than £500 and then i hope i can make some profit on this and i’ll take any profit out and hopefully if.. god forbid something like this happens again at least i wont be losing my capital… makes great sense, thank you.

  19. Robert says:

    The tsunami we saw with the Swiss Franc currency pairs does not happen very often, but when it does, it can wipe out even the most experienced traders. Something similar could happen with the EURUSD for example if a Grexit were announced over a weekend, or a drastic regime change when the FOREX markets are closed. The market sentiments in some currency pairs are so large, that a sudden change in policy would have a magnified impact on the underlying currency pair.
    I have been considering using Currency Options on Currency Pair Futures (CME Globex http://www.cmegroup.com/trading//g10/euro–swiss-franc_quotes_globex_options.html?optionProductId=114#optionProductId=114) to hedge exactly the sort of risk we saw with the Swiss Franc. Granted, the premiums are very high but if we purchase options that are many months out, the time value decay will be less than the profits made on the spot trade. This would provide insurance during events of no/low liquidity or when markets are closed, that may occur with increasing frequency with volatility picking up. Any thoughts on using currency futures options to hedge risk?

  20. Di says:

    Hello Chris,

    maybe you answered this question before but i am very confused. what is a cTrader accounts?

    Thank you

  21. ziza says:

    i wished to have a real account not a demo to witness this tsunami …as im brand new at market and still practicing ..i have opened more than 20 position as i have experienced all the short positions profited way too much however all the long positions made only loss and big loss..
    anyway the word tsunami making me really laugh hahah.
    thanks for this gread read.

  22. Izhar says:

    I once read in your writting about untrigerred stoploss.

    Now it happen to me. With a money i cannot afford to loose.

    🙁

  23. redpants says:

    A big lesson learned to grow accounts and withdraw and not leave to much capital at risk . If your account goes in to a negative you are still liable for it depending on your broker .
    I was not affected and feel for those who are , my broker CM lost 225 million and I put in a withdrawal straight away best be top of the list the money is segregated anyway .

    Latest info
    http://www.bloomberg.com/news/2015-01-16/cm-said-to-be-in-talks-with-jefferies-for-200-million-rescue.html

    With respect to Chris I will comment further on this company . But will update if my funds are returned . Good luck to all.

    • singh says:

      Yes please keep us updated. I also want to open another account with CM. Would love to listen from their customers

  24. Kent says:

    Hi Chris, how about investing the profits into stock market ? would it be different? will the stock broker go bankrupt?

    • Chris says:

      Any company can get bankrupt. Even big banks and financial companies can get bankrupt. We cannot stay away from investing and trading because of this.

      Stock trading/investing is also a good idea. A consistently profitable trader who knows how to analyze the markets can be a consistently profitable stock trader too.

  25. Moku says:

    Hey Chris, But the Swiss Banks knew of the impact the change will have on the market. Why wasn’t there some sort of release or something? aren’t we supposed to know about it? I bet they were the lucky ones. Thanks for the info.

  26. Nihal says:

    Hi Chris,
    I wonder why would the interest rate cut, increase the CHF against most of the currencies. In this case it’s not even only cut but deduction from the amount deposited in the banks. Or the increase in CHF was because of the abanoned ceiling?

    Thanks

    • Chris says:

      Indeed it was not because of interest rate mainly. Swiss central bank had a ceiling of Sfr1.20 per euro to stop the currency’s appreciation. CHF value went up when they abandoned the ceiling. I think LIBOR was changed after that.

  27. Di says:

    Only market maker blocked the chf pairs or ecn stp too?

  28. Ali Mojtabaei says:

    Thank you Chris. such experiences are very instructive.
    One of the brokers had issued a news on 03 October 2014. the content was:

    “Reduction of maximum leverage on EUR/CHF exposures
    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,….”


    It seems the Tsunami had not been sudden, unexpected and unscheduled for them!!!
    the link to the news: http://goo.gl/qcTUuk

  29. GregorJ says:

    Hi Chris,
    Your reason explained here for the CHF bomb was not the LIBOR decision alone, moreover it has been the announcement to abandon the exchange floor rate line between CHF – EUR which was defended not to fall lower than the 1.20. This was introduced in April 2011 and you can see how the pair was like being glued there. SNB bought EUR like hell for this defense line. Such policy could not be followed any longer with the recent rumours of ECB to flood the market with liquidity in near term future by buying EUR debt bonds. The pure amount of money, which ECB will be using, will outpace SNB market power by far.

    This scenario reminded me at the famous battle in 1992 between George soros and the Bank of England, known as the “man who broke the bank of England”. Similar to the CHF-EUR situation until this Thursday the pound was bound at the European Exchange rate mechanism, which was unfavorable for the UK economy. The BoE decided to withdraw from this fixed rate providing Soros a 1bn $ winner trade.

    The damage in the broker universe is well reported meanwhile. Status reports you can read here.

    http://www. crunch.com/snbomb-reactions-from-10- -brokers/

    http:// magnates.com/is-your-broker-weathering-the-chf-storm-real-time-updates/

    Best, Gregor

  30. AlBran says:

    First of all, great article, very interesting read!

    However there was something I’ve been wondering about:

    There are news of some brokers altering/amending already filled stop loss prices to much lower levels (e.g stop originally showing position closed at 1.197 on EURCHF getting “revised” to close at 1.05 or even lower).

    I’m using a cTrader ECN account and the cTrader platform shows my EURCHF longs (less than half a lot altogether) as closed properly at the stop (around 1.199). The platform also provides really detailed information about the matching/fill/execution times (down to milliseconds), prices and even a snapshot of the market depth at the time with bid/ask volumes and prices, etc (showing that there were ample bids to take up my offer at the stop).

    My question is, under these circumstances, with such an account, positions still showing as closed, all statements reflecting that, account still positive, should I be worried about the broker amending my closed positions to land me some 2000 pips in the red instead of where they were showing as closed on jan 15?

    For the record they did send an email to clients yesterday stating that the CHF crash impact on them was minimal and they continue business as usual.

    Thank you to anyone who can provide some advice or answers!

    • Adam says:

      I see that a few brokers are now coming out and saying they are going to amend already filled stop loss prices to lower levels. I do not understand on what basis they can do this and how they can justify. If broker was an ECN/STP then there must have been liquidity from their liquidity providers for the stops to be triggered at the relevant levels. If broker was a MM then it is all internal trading unless some of the MM book was hedged in the market to reduce risk and they could not get filled but internal systems were closing client trades. But then that is the MM’s business model and their problem. Chris, do you have any knowledge/thoughts on this?

  31. Muhammad says:

    Sir, what was happened If i make sell order in gbp/chf before market down and my account gone in big profit, you say about those traders who gets huge profit during CHF bullish .

  32. Antonio Gonzalez says:

    Hi everybody.

    I have to thank Chris one more time for each and every effort he does to keep this blog/site going and for keep us (or at least me) pursuing this lifestyle that offers to anybody willing to take the risks.

    The 2015.01.15 tsunami turned my USD 300 account into a USD 1700 account. I had a short position open (in fact three positions, 0.02 lot each) based on the bearish engulfing pattern formed by 2015.01.02 candlestick on GBPCHF daily chart that was reported by Chris.

    Although the market went against me the days after I was holding the positions in the hope that the bears were strong enough to take the price down again. (Yes Chris, I know this is NOT the right way to trade).

    That morning (2015.01.15), when I opened my trading platform, in the first few seconds I didn’t even understand what was happening seeing that “big” number in my equity. After I saw that huge bearish candlestick on the GBPCHF chart I simply closed the three positions and thanked God for such a good fortune. I know that I could have had my little account blown up.

    Cheers,

    AJ.

  33. Fritz says:

    After this happen, I noticed a few large reputable market maker brokers decided to limit losses to zero account balance instead of demanding extra payments for overdrawn accounts. At least that was something for those traders unfortunate to be on the wrong side.
    Regards
    Fritz
    http://www.brainy .com

  34. alex says:

    If something like this happens again and you have no open positions can it still affect the account balance? I mean can the account be wiped out even if you have no open position when the market collapses?

  35. Sebastian says:

    Thank you very much Chris, that’s one of the best articles and very shocking for someone new to like me.

    If you have some time, I’d appreciate it very much if you could take a look at some of my question I’m just asking myself now…

    – If we trade 20 currency pairs and we use 3 brokers / accounts to split the risk: how would you split the currency pairs? I was thinking about something like this: first broker: only CHF pairs, second broker: all the USD pairs, third broker cross pairs and gold/silver. In another post you wrote you have different accounts and brokers yourself. May I ask how you have split the currency pairs to limit risks for events like that?

    – How do you deal with taxes? My first idea before reading this article was paying the taxes when they are due, meaning that I would keep the taxes in my trading account and thus raise more profit. But now, considering risks like that, I’m scared. If something like that happens, we will not only lose our trading account, we will also be in debt in terms of taxes we still have to pay (because of profits already withdrawn and spent). Now I think it’s probably wiser to monthly withdraw the money one needs + taxes and keep them elsewhere, which of course results in a lot less profit, because we can not use the capital for trading.

    • Sebastian,

      – I don’t split the currency pairs. I just split my capital.

      – You pay tax for the money that you have earned in one year. If you lose money later, it will be deducted from your income, and so you don’t pay its tax. If you earn and withdraw $10,000 this month, but you lose $20,000 the next month, then you not only don’t pay the $10,000 tax, but you will be $10,000 in loss and if you end the year like this, for the $10,000 loss they return from the previous taxes you have paid last year.

  36. Sebastian says:

    Hello Chris,

    many thanks for your quick reply and help.

    What I meant with question 1 is: I assume you would never trade a EUR-pair with one account and with the other because of doubling the risk, right? So apart from the higher risk, if something goes on with the EUR it also affects only one account. But I think I can answer that myself, because it does not seem clever to trade related pairs and I remember your article about the correlation again.

    With the taxes I’m considering a longer timeframe:
    Let’s say over the year I withdrew a profit of 40.000 and I have to pay 10.000 taxes. Let’s assume I traded with that money and then I lose it all before I have to pay taxes. Then that’s my problem. I still have the obligation to pay the x percent of 40.000 (the earlier profit). Sounds horrible 🙁 But one loses a lot of money when we don’t trade with the money, it would be about 27% for me (monthly).

    • Sebastian,

      I take positions with all the trading account I have when a strong trade setup forms. However, I am not advising you to do the same. You can be more cautious and split the pairs among the brokers as you mentioned. That is a good idea to be at the safe side.

      If you end the year while you have withdrawn $40,000, then you have to pay the related tax. But, if you lose money next year, then you report your loss and they will return from the tax you paid for the previous years. You pay tax for your income. They return your tax for your loss.

  37. Alex Mawkopart says:

    ‘Indeed, it is the trader who has to pay this $45,000 loss to the broker, but almost in all cases traders walk away and the broker cannot take this money from them.’

    So when a trader walks away what can happen next? Can the trader be wanted internationally or localy in the country?
    Can the trader be prosecuted for not paying? or Debt collected to Enforcement Authority?

    Thank you!

    • Alex,

      It depends. If they want to prosecute and follow up, then the trader will have to pay, but I have never heard this happens to retail traders, because if they hear that such a thing is happened to a trader, they will never open an account with any broker. It is the broker problem at the end. They either have to pay it to the liquidity providers or shut down the brokerage.

  38. Alex Mawkopart says:

    Did the same ‘tsunami’ happen to currency market during financial crisis year 2008? Where can I read more about this?

    • It was not too fast on 2008 compared to the CHF movement on January 15th. But it was continuous and strong.

      I don’t have any special article on LuckScout for the 2008 recession movement. However, I have talked about it in many of my articles.

  39. Alex Maweturi says:

    Can the negative balance become bigger if you have bigger position? (with no leverage used)

    Let’s say I start from a $1000 account with a true ECN broker and after a few years I make it to $1,000,000.
    And then opening a position that is $1000000 (no leverage used). How much negative could this position become if a tsunami like swiss franc happens?

    Thank you very much for all your answers.

    • Alex,

      Yes, a bigger position will have a bigger negative balance. The negative balance is because of the price movement that was done while the position was still open and could not be closed. So if it keeps on moving for 100 pips after the balance got zero, it will have a negative balance that equals your position size and the 100 pips movement.

  40. Simon Njue says:

    Hallo Chris Pottorff,

    I am a newbie in trading and i am fond of reading your content in here which i find to be very informative.

    Thank you very much!

    Just had trouble knowing when exactly this tsunami happened but i have since found out.

    I would wish if these articles had dates on them…just a blind suggestion.

    Anyway I wish you all the best! Double times more than your selflessness!!!

    Best regards!

  41. BHAVIK GADA says:

    octa and etoro are market makers.you will loss with them.
    octa say to be ecn but its purely market maker.

  42. Mauer C says:

    Is it possible that the same thing could happen like swiss franc tsunami if I trade E-minis or ETC where the underlying product is a currency?

    • Yes, anything is possible. This Tsunami are the opportunities that make a lot of money for some people. So they create them every now and then.

      • Mauer C says:

        I forgot to say, I meant: is it possible that the position or account goes below 0 when trading ETC or E-minis if tsunami movement happens? the broker says it’s impossible but I trust only your knowledge!

        • LuckScout says:

          E-mini or ES is a futures contract that tracks the S&P 500 stock market index. Your broke says your account will never goes below zero because it is so unlikely that S&P 500 crashes and goes down very badly (because it includes about 500 components that each of them are strong companies and it looks so unlikely that all of them crash at the same time).

          However, if your account is leveraged and you take a big positions, then it is possible that it gets wiped out or goes to a negative balance in cause of a sudden and strong movement.

          Your account leverage and the size of the position you take are the important factors here, not the security that you trade.