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  #81  
Old 20.01.2015, 10:29
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Re: In Need of Advice (Huge forex trading loss)

I found this guide to the risks of foreign exchange trading. It's actually entitled "Top Reasons Forex Traders Fail". It's quite readable at my level (complete layman):

http://www.investopedia.com/articles...aders-fail.asp
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  #82  
Old 20.01.2015, 10:47
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Re: In Need of Advice (Huge forex trading loss)

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It was the hyphen that threw me, I know you believe your written English is better than most English, it's clearly not mother tong & that may surprise you.
"mother tong"
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  #83  
Old 20.01.2015, 10:57
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Re: In Need of Advice (Huge forex trading loss)

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"mother tong"
Well, we can all make fun of people with dyslexia, but I think his point is well taken and I also found it hard to read.
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  #84  
Old 20.01.2015, 11:01
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Re: In Need of Advice (Huge forex trading loss)

I think he meant to say "mother thong"!
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  #85  
Old 20.01.2015, 11:06
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Re: In Need of Advice (Huge forex trading loss)

Guys, this is supposed to be a thread about advice for somebody who's been burned on the forex market, not a thread discussing our respective failings with the English language.
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  #86  
Old 20.01.2015, 11:16
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Re: In Need of Advice (Huge forex trading loss)

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Guys, this is supposed to be a thread about advice for somebody who's been burned on the forex market, not a thread discussing our respective failings with the English language.
sd sf g gqa q

(I leveraged the alphabet and lost.)
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  #87  
Old 20.01.2015, 11:17
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Re: In Need of Advice (Huge forex trading loss)

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It was the hyphen that threw me, I know you believe your written English is better than most English, it's clearly not mother tong & that may surprise you.
It does indeed, lol (glass houses and all that)- but agreed with Slaphead- back to advice, and 'don't ask me', not got a clue. I like my hyphens instead of ;- I do the same in French, German and Italian

Us little normal people have to accept being banks to the banks- they borrow our money for free basically, and then lend it to others for interest, much higher in the UK. But we can't or won't take risks, so we have no choice and are lucky to get 1%.

Last edited by Odile; 20.01.2015 at 11:40.
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Old 20.01.2015, 11:27
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Re: In Need of Advice (Huge forex trading loss)

One point of comfort, be thankful this is not UAE.
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  #89  
Old 20.01.2015, 11:40
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Re: In Need of Advice (Huge forex trading loss)

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Leveraged options are high risk investments - so you could argue you were poorly advised. Here is why:
Oh boy! You have probably managed to confuse yourself and a lot of people on the EF. The OP didn't not buy any options otherwise he would have been just fine. The OP was trading FOREX on a margin account. i.e. He puts down a certain amount on the account and the broker lends him let's say 10x This amount to trade. Some brokers even offer 100x leverage. i.e. you put down $1000 and you can open positions worth $100k!!

Now, let's assume the OP has put down CHF10k, with a 12x leverage, he would have been able to open a long EUR position worth EUR100k. The rest of the CHF110k required to open this position would come from the broker and cost a certain amount per day to keep open (That's how they make their money + spread).

EUR100k = CHF120k => (CHF120k = CHF10k from OP + CHF110k from broker)
When the CHF suddenly appreciates by 30% in one go (EUR.CHF hit 0.88 at one point). The OPs position of being long EUR100k is now only worth CHF88k. So the OP managed to lose his own CHF10k + CHF32k that belongs to the broker. The OP says he owes around 4x the amount he put down so he was more than 12x leveraged.

The examples you gave with options are not accurate at all. And though options are a type of leverage product, the leverage varies depending on the options moneyness. Buying a leverage product on margin is even more crazy but even then you would not end up in a situation like this when buying an Out of The Money EUR.CHF option expiring in one year. As the margin requirements for this are probably 100% compared to around 8% in the example I gave above.
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  #90  
Old 20.01.2015, 11:53
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Re: In Need of Advice (Huge forex trading loss)

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But what happens if the value drops to 1chf (as it effectively did) (EDITTED as I have re-read it - and forgot that he could just walk away from the option)

In 1) - you sell (10,000), pay debts of zero), and walk away with 10,000chf. (A loss of 2,000chf)
In 2) - you have lost all the 12,000chf
In 3) - you have lost the 12,000chf - and now also owe 48,000chf for the loan.
Please note that there is normally no "loan" involved when trading options, even if you lever yourself. The mechanism is not that the broker lends you money, but that you only have to post a fraction of the value of a contract as collateral. The idea being that the mandatory collateral should cover most of the expected volatility. To illustrate on a simplified example:

Imagine an option contract with a value of $1000 and a margin of 5%. That means, that you only have to hold 5% of those $1000 to buy or sell this contract. So you pay down $50, and you realize whatever PNL is realized on $1000. Note that there is no loan involved.

The risk thus does not come from a loan per-se, but as I wrote before, the fact that your losses can exceed the amount of cash you actually hold on your account. While you might think of this as a loan in very simplified ways, it is much better to be exact about these things because as they say: "assumptions are the mother of all ups". E.g. the legal framework applicable to defaulting on loans might not apply in this case.

Finally, I'm not sure what OPs strategy was, but my guess would be that they were short EUR puts, rather than long CHF calls. E.g. they didn't buy options long term hoping that EUR will appreciate, rather they were advised to sell EUR puts - bet that the peg will stay and collect a steady, "naively risk-free" premium for selling the options. It is tough to lose this much by buying options, it is usually the other way around. Kind of like selling insurance for the peg staying in place. On face value, it could make sense. Very few expected the SNB to do what it did. I can see the sales pitch much better for this scenario - e.g. the SNB is very conservative, they'd never make rash moves etc...

Until they did, the peg was switched off and the puts OP sold rapidly appreciated in value.

Edit: the good doctor above me posted a better analysis. I also had the feeling somehow that OP traded options instead of pure FX.
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  #91  
Old 20.01.2015, 12:08
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Re: In Need of Advice (Huge forex trading loss)

Seriously, op, without know how big a hole you are in NO ONE HERE can give you any meaningful advise, if you're planning on going bankrupt for 10k chf then the advise would probably be a big fat NO, if your hole is 10m chf then it would be a whole different ball game.

these threads are so bloody annoying, you want help? answer the bloody questions.
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  #92  
Old 20.01.2015, 12:28
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Re: In Need of Advice (Huge forex trading loss)

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Seriously, op, without know how big a hole you are in NO ONE HERE can give you any meaningful advise , if you're planning on going bankrupt for 10k chf then the advise would probably be a big fat NO, if your hole is 10m chf then it would be a whole different ball game.

these threads are so bloody annoying, you want help? answer the bloody questions.
Fixed that for you!

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Finally, I'm not sure what OPs strategy was, but my guess would be that they were short EUR puts, rather than long CHF calls. E.g. they didn't buy options long term hoping that EUR will appreciate, rather they were advised to sell EUR puts - bet that the peg will stay and collect a steady, "naively risk-free" premium for selling the options. It is tough to lose this much by buying options, it is usually the other way around. Kind of like selling insurance for the peg staying in place. On face value, it could make sense. Very few expected the SNB to do what it did. I can see the sales pitch much better for this scenario - e.g. the SNB is very conservative, they'd never make rash moves etc...
Stop guessing! The OP was trading FOREX spot on margin! No options! No Futures! Pure spot!
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Old 20.01.2015, 15:10
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Re: In Need of Advice (Huge forex trading loss)

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Stop guessing! The OP was trading FOREX spot on margin! No options! No Futures! Pure spot!
And you know that because..........???

So far the OP has not said how he traded, what he traded and why he lost - and for the popcorn munchers - how much he lost.

Yes, he may have traded Forex spot on margin - he may have also done a number of other things leading to him owing money.
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Old 20.01.2015, 15:21
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Re: In Need of Advice (Huge forex trading loss)

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Insolvency occurs when a company can't pay their liabilities as they fall due. [...]
That sounds more like illiquidity. Insolvency is basically negative net worth. When total liabilities exceed total assets. One can have a lot of illiquid assets, but not have the cash to pay current liabilities, in which case one would be illiquid but not insolvent.
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  #95  
Old 20.01.2015, 15:29
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Re: In Need of Advice (Huge forex trading loss)

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That sounds more like illiquidity. Insolvency is basically negative net worth. When total liabilities exceed total assets. One can have a lot of illiquid assets, but not have the cash to pay current liabilities, in which case one would be illiquid but not insolvent.
"Insolvency is legally defined as follows: A company is insolvent (unable to pay its debts) if it either does not have enough assets to cover its debts (ie value of assets is less than amount of liabilities), or if it is unable to pay its debts as they fall due." -- https://www.r3.org.uk/media/document...tober_2008.pdf
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Old 20.01.2015, 15:29
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Re: In Need of Advice (Huge forex trading loss)

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And you know that because..........???
Fair point.

The majority of all the Forex platforms that have been going to the wall / reporting major losses over the last few days are mostly retail Forex platforms usually offering the ability to trade Foreign Exchange pairs with leverage. Including FXCM, Saxobank, IG Group (Spread betting) etc. The OP is probably a customer of one of one of those.

All of them allow a retail investor (gambler) to open positions he wouldn't normally be able to open without leverage. They don't look to see if their customer can pay back losses if whatever he bought drops 30% or 100%. They just assume that the Margin deposit should cover any losses the customer might incur during normal market circumstances.

Anyway this whole discussion is pointless. It's like someone being run over by a bus and people asking "What color was the bus?"
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Old 20.01.2015, 15:41
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[...] GBPCHF actually hit 0.87 on a tick basis which gives an idea of how low it can go.
I don't think I believe this. It's inverted, right? Do you mean that GBPCHF hit 1.15, which is the same as CHFGBP hitting 0.87?

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[...] It amazes me how naive people can be about stop losses and assume that they have limited their losses to a known value.[...]
Yep, stop orders in general don't make sense. Plain old limit orders make sense.

With stop losses, you are saying "I wouldn't be willing to sell at 1.20, but I will sell at 1.10". What? If you are willing to sell at 1.10, then you should absolutely sell at 1.20 in the first place!

I hear the standard explanation of the utility of these things, but really it is a bogus narrative. It is upside down. Decide what you think the value is, and place your normal limit order. If it gets filled, you got equal to or better than the value you placed on it. A stop order, instead, says "there is some price I will trade at that is worse than the price I can get now. Instead of just getting the better price now, wait until the price moves against me, and then attempt (unreliably) to trade at whatever price I can get at that time, hopefully not too much worse than the already worse price I specified in my stop order".

Gah! Great way to buy high and sell low.

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Leveraged options are high risk investments - so you could argue you were poorly advised. Here is why:

Lets say you have 12,000chf to invest and buy something for 1.2 chf expecting it to move to 1.3chf within a year. It does and in a year you sell for 13,000chf - making 1,000chf

Instead of buying it you buy an option for 0.05chf to buy it for 1.25chf in 1 year. At the end of the year it is 1.3chf (as above) you then buy at 1.25chf (300,000chf) and then send at 1.3chf (312,000chf) - making 12,000chf

You can then repeat the above but leverage your "asset" (the options) - and say you get 5x that - so 60,000chf. You can then buy at 1.25chf (1.5m chf) and sell for (1.56m chf) making 60,000chf

It all sounds rather good doesn't it!

But what happens if the value drops to 1chf (as it effectively did) (EDITTED as I have re-read it - and forgot that he could just walk away from the option)

In 1) - you sell (10,000), pay debts of zero), and walk away with 10,000chf. (A loss of 2,000chf)
In 2) - you have lost all the 12,000chf
In 3) - you have lost the 12,000chf - and now also owe 48,000chf for the loan.

Doing the above with your own money without any sort of hedging is very brave
This is probably over-complicating things based on the available information. As your edit implies, mere use of options does not risk incurring a liability greater than your principal, and there is no reason to think options play a part in the OP's predicament. For leveraged trading, read "speculating with borrowed money". If the speculation goes wrong, you may end up losing some of the borrowed money, which will still normally have to be repaid.

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he wasn't 'that highly leveraged'.
20% shift x 20 leverage = 400% loss or gain.
Perhaps the threshold for where one considers leverage to become "high" is somewhat arbitrary. I can assure you, though, that some of us consider leverage of 2 times, let alone 20 times, to be pretty high. It is risky enough speculating with what you actually have, before you start doing so with huge amounts of borrowed money too.

Last edited by 3Wishes; 20.01.2015 at 15:56. Reason: merging successive posts
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  #98  
Old 20.01.2015, 15:56
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Re: In Need of Advice (Huge forex trading loss)

I'm a conservative ETF investor...I just follow the market with my investments so I am not up on all of this; however, I do have a question. The SNB stated that the currency cap was always a temporary situation. Was this not known by the investment houses and investors? If this was always a temporary situation, then a day like this was inevitable and far from a low risk investment.
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Old 20.01.2015, 16:02
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Re: In Need of Advice (Huge forex trading loss)

oh you silly boy, don't you know there is always SOMEONE to blame??
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Old 20.01.2015, 16:10
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Re: In Need of Advice (Huge forex trading loss)

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Us little normal people have to accept being banks to the banks- they borrow our money for free basically, and then lend it to others for interest, much higher in the UK. But we can't or won't take risks, so we have no choice and are lucky to get 1%.
The up side is that the average joe is better informed about the market and investment than he was maybe 30 years ago. Threads like this just show how much interest in this topic there is. Interest, half-truths and parrotted buzzwords do not equate knowledge, but they can sometimes lead to it. E-banking and online trading is open to everybody and so anybody can do a bit of trading on the side and many do. I recently saw a magazine headline saying the savings account was on its way out. Maybe that's an exaggeration but I think a lot of money that would have been on savings accounts back when you still got more than 0.1% interest is now dabbling in the markets (including by people who shouldn't be, but that's another story). So we still need the banks but maybe not quite as much as before and not in the same role as before.

BTW, I don't thin people's savings accounts are that important to banks any more. The money they lend out is not taken out of savings accounts but from the central banks.
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