CHF depth and the memory of January 2015

[Fairman]

CHF depth and the memory of January 2015

When the Swiss National Bank dropped the EURCHF floor, EURCHF fell by around 30 percent in minutes, brokers failed, and traders with stops found no liquidity to fill them. It is the textbook example of what a thin pair can do when the underlying assumption breaks.

More than a decade on, the franc is still a pair that deserves caution. Depth is limited compared with the major pairs, and the SNB has a history of intervening in ways that can move the market abruptly.

For scalpers, the main lesson is not about avoiding CHF. It is about understanding that a pair's normal behaviour is a poor guide to its tail behaviour. A pair that moves two pips a minute for months can move two hundred in a minute when conditions change.

Spread behaviour is a useful warning signal. If spreads on the pair widen without explanation, the market is telling something about depth.

The franc is also a classic safe haven, so it can surge in risk-off periods. Combined with limited depth, that makes it a pair where the typical daily range understates what can happen in a bad hour.

How is exposure to CHF pairs treated in the plan, and has it changed since those events?