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Black Swan

A Black Swan is an event that is most commonly associated with an unexpected surprise or catastrophic event. Most commonly, this designation is used for financial markets, yielding disastrous consequences for multiple parties or individuals. Despite the severity of a Black Swan, these events are considered as extraordinarily rare in frequency, yet are seemingly predictable in retrospect. Black Swan Event Convulses FX MarketIn the forex space, the most noteworthy of these events over the past few decades have been the Swiss National Bank (SNB) Crisis which convulsed currency markets back in January 15, 2015.In this specific episode, the SNB abruptly abandoned the Swiss franc (CHF) currency peg with the euro, effectively causing an upheaval in liquidity.The aforementioned cap had been designed to keep the franc pegged at 1.20 to the euro in a bid to shield exporters and mitigate deflationary pressure. This had been in place for years, and was seen as a steady fixture.However, with the sudden removal of this currency peg, the rate plunged to 0.86 francs per euro, before ultimately recovering slightly later. Consequently, the move led to total wash outs of positions and margin calls that placed extreme stress on brokers and traders alike. The fallout from this event led to an ongoing debate over negative balance protections and other lingering effects on the FX industry. These have remained controversial ever since and have gone a long way in shaping the industry over the past five years.Moreover, other examples of Black Swan events can be associated with the US housing market crash in the aftermath of the 2008 financial crisis, as well as the hyperinflation of Zimbabwe with inflation rates that peaked at 79.6 billion percent and the dot-com bubble of 2001.Many experts have posited whether the outbreak of Covid-19 can be characterized as a Black Swan event, given its widespread influence on equity markets in March 2020. Currently, there is no uniform consensus on the pandemic being a Black Swan event given the crisis is still ongoing.

A Black Swan is an event that is most commonly associated with an unexpected surprise or catastrophic event.

Most commonly, this designation is used for financial markets, yielding disastrous consequences for multiple parties or individuals.

Despite the severity of a Black Swan, these events are considered as extraordinarily rare in frequency, yet are seemingly predictable in retrospect.

Black Swan Event Convulses FX Market

In the forex space, the most noteworthy of these events over the past few decades have been the Swiss National Bank (SNB) Crisis which convulsed currency markets back in January 15, 2015.

In this specific episode, the SNB abruptly abandoned the Swiss franc (CHF) currency peg with the euro, effectively causing an upheaval in liquidity.

The aforementioned cap had been designed to keep the franc pegged at 1.20 to the euro in a bid to shield exporters and mitigate deflationary pressure.

This had been in place for years, and was seen as a steady fixture.

However, with the sudden removal of this currency peg, the rate plunged to 0.86 francs per euro, before ultimately recovering slightly later.

Consequently, the move led to total wash outs of positions and margin calls that placed extreme stress on brokers and traders alike.

The fallout from this event led to an ongoing debate over negative balance protections and other lingering effects on the FX industry.

These have remained controversial ever since and have gone a long way in shaping the industry over the past five years.

Moreover, other examples of Black Swan events can be associated with the US housing market crash in the aftermath of the 2008 financial crisis, as well as the hyperinflation of Zimbabwe with inflation rates that peaked at 79.6 billion percent and the dot-com bubble of 2001.

Many experts have posited whether the outbreak of Covid-19 can be characterized as a Black Swan event, given its widespread influence on equity markets in March 2020.

Currently, there is no uniform consensus on the pandemic being a Black Swan event given the crisis is still ongoing.