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More than fifteen hours ago as I was authoring today’s market commentary, the cryptocurrency market started to plummet as the US dollar gained monster ground across the board in a matter of minutes. I quickly realised I needed to update my levels, both in my commentary and my own real-world risk management.
My technically-savvy colleague, Jefe Caan, today referred to this as a “flash crash” so I will refer to today’s market violence using the same term.
As a veteran of capital markets trading, I’ve experienced my fair share of “flash crashes.” I’ve been on the right side of some of them and the wrong side on others of them. On 6 May 2010, there was a flash crash in the US market in which a trader named Navinder Singh Sarao reportedly wiped out about US$ 1 trillion in market value over 36 minutes using E-mini S&P 500 stock index futures contracts. That was one of the most acute moves I’ve ever seen or experienced.
Another major flash crash involving the Swiss franc took place on 15 January 2015 as soon as the Swiss National Bank removed its EUR/CHF floor at CHF 1.20. The central bank had been accumulating massive EUR reserves through actual market intervention to try to prevent EUR/CHF from moving below 1.20 in a long-standing bid to protect Swiss exporters like watchmakers, cheesemongers, and chocolatiers. Even SNB realised it cannot spend all those euro, apparently. That move was extra perilous because many spot foreign exchange positions are highly leveraged, sometimes as high as 200x or even 500x in the retail market.
On that crazy day with the Swiss franc flash crash – now called “Frankenshock” on trading desks (H/T Mary Shelley,