The SNB takes away the EURCHF peg and bedlam ensues. Is the risk worth it?

The SNB surprised the market. Took away the punch bowl. Pulled the rug from under you. The peg in the EURCHF is gone.

What has happened...happened. There is little you can do.

If you are caught in anything with CHF in the name, it will simply take time and who knows what may happen anyway.

For others who do not have a CHF position, you have to ask yourself one question. What is the risk if I were to venture a trade in this currency?

There are three basic risks:

  1. Market risk. This is the risk we face every minute that the market is open. The “market” will move the price up and down. We accept that as a trader and smart traders will use tools to determine when they are wrong ( define and limit their market risk).
  2. Event risk. In most cases the event risk is known. The employment report in the US will be released at 8:30 AM ET on either the 1st or 2nd Friday of the month. The Empire manufacturing will be release today at 8:30 AM ET. These are events that traders can at least prepare for in their trading. There are other events that we tend not to anticipate. Russia vs Ukraine conflict. A poll from the Scotland referendum. Japan earthquake. The SNB decision today. These are all events that are not necessarily known but can impact the market – and impact it in a great way.
  3. Liquidity Risk. Typically when there is an event risk there is liquidity risk. The price may gap. You may get rejected when you try to trade at your broker. There is simply less liquidity in the market. Today many brokers are still closed and not quoting. That is liquidity risk.

When event risk and liquidity risk is high (or potentially high), the market risk goes up as well.

Should you trade when all three risk parameters are sky high?

No. Should you get in a fight in a bar when you don’t know your enemy? It is not advised. The risk of getting really hurt or going to jail is simply not worth the risk. Walk away.

Is it worth getting in bar fight today in the market?

If you are a retail trader, no. Risk levels are at red hot levels. There will always be another trade. There will always be less risky markets.

Having said that I will be posting charts on some of the major currency pairs today and there may be low risk trading opportunities. But understand your risk, and trade at your own risk. The EURUSD will be whipped around simply because it is half of a EURCHF pair and because the dramatic fall in the CHF will have economic implications that are yet to be known.

As far as the EURCHF or the USDCHF, the charts and the market will come back to normal. Hourly charts will develop over time but there are not levels to grasp onto in the near term. I don’t even have a feed for anything with CHF in the name at the moment. Of course, the market will calm, there will be levels that "the market" will develop and at that time, the risk-o-meter will start to move from red hot to orange to yellow and green.

Right now though, you need to ask yourself, "What is my risk to my trading?" If the answer is TOO HIGH, sit on the sidelines, enjoy the fight, but wait for another time to get involved.