boytoy wrote: Sat Oct 22, 2022 3:54 am
Umm ok. Why do they do this intervening crap? What gives them the right to just manipulate the fx market unannounced like that?
Central banks do intervene probably more often than most realise and it can work to change the tide if it's done covertly and is affective quickly but doomed to fail once the cat's out of the bag. remember the BoE and Soros or the SNB and the EURCHF.
I'll retell the SNB story because it was a wonderful education.
Late 2014- early 2015 the SNB was trying to peg the CHF at a set Euro price, the CHF was getting too strong. But traders found that if they bought any dip the price quickly went back up to the peg level thanks to the SNB.
Some said it was easy money, others said don't mess with CBs. Then one morning I saw on twitter someone said 'the pegs gone', going to the chart it was stunning, eurchf was in freefall. It was like watching Homer Simpson falling down a mountain. Plummet several hundred points then hit a ledge, stumble around dazed for a few minutes then plummet again, on and on it went. Time seemed to stand still and I don't know how long it lasted but I guess about 20 minutes before settling down at minus 2000 points.
Twitter was hysterical, ''I can't get out, I CAN'T GET OUT!!!!'', the 'easy money' crowd were trapped in their longs, price had jumped over their stops and they were smashing the sell key trying to get out while everyone else was smashing the sell key trying to get in. It was pandemonium.
Market orders are useless in those circumstances, orders are processed on a 'first come, first served' basis, the price is long gone by the time you get to the front of the queue. The only hope is a pending order set lower down.
Anyway, when the dust settled many retail traders were minus €25,000 on their account and couldn't pay. FXCM staggered on for a year having taken out a ruinous loan to stay afloat but sold up in the end, I think IG wrote off £6 million and many small brokers went bust.
That drama caused the regulator to slash leverage for retail traders in the EU, introduce negative balance protection and increase the amount you needed in your bank to open an account with a broker.
The SNB had to give up the peg sometime, I remember in late 2014 seeing a SNB statement showing they had spent 18 Billion CHF buying Euros to maintain the peg, in just one day, and they had kept the peg going for months.
Crazy times.