By definition, Black swan events Unexpected and very difficult to predict. We could see huge gaps, sharp swings, and increased volatility during big events… or we might not see any movement at all.
Do you remember the time when the Swiss National Bank (SNB) surprised the markets with the decision to stop defending the EUR/CHF floor at 1.2000?
The move has gone down in history as a black swan event, an unexpected and unforeseen event that had a significant impact across financial markets.
The SNB’s decision has cost many market players a lot of money and even forced some brokers and other financial institutions to close their shops due to lack of capital.
Ordinary retailers were also caught in the SNB storm. We’ve heard stories of trades being triggered hundreds of pips away from their orders, brokers who are now incommunicado, and Investors who lost everything But the shirt is on their back.
So how can you protect yourself from the losses of a black swan event? Or how can you extricate yourself from your trading losses?
Here are three things you can do:
1. Manage your risks
This is a no brainer. The first defense against unforeseen and unexpected events is to limit your potential losses.
Use stop losses on every trade and always be aware of your account exposure. Make sure you don’t put all your eggs in one basket.
If anything, trade many small, uncorrelated positions and only take larger trades if the trade goes your way and you expect it to continue. Most importantly, never risk money that you cannot afford to lose.
2. Be aware
Do your research and ask your broker to clarify any concerns you have. If you can’t contact your broker, try interacting with them Commercial societies In case someone has more information.
If you are one of the unlucky people who have suffered significant losses and have brokers that are suddenly no longer available, the best first step is to talk to the regulatory bodies to find out your rights as a client.
Just because you can’t predict the markets doesn’t mean you can’t predict what could happen to your hard-earned profits in the event of another black swan.
3. Create a backup of your account
Once you accept your losses and do your homework regarding future trades, all you have to do is collect the rest of the money and build your account back up.
Trade demo accounts if you can’t afford another live account yet. This way, you can still fine-tune your operations and keep your trading skills sharp.
Either way, the best way to protect your account is to prepare for as many scenarios as possible and always manage your risks.