Public Enemy #1? SNB’s Jordan Defends Shocking Decision That Roils FX Markets
- As the FX industry collects itself and prepares for a new week with the landscape significantly altered, many look to the man who convulsed currency markets, the Swiss National Bank’s (SNB) President Thomas Jordan.
As the FX industry collects itself and prepares for a new week with the landscape significantly altered, many look to the man who convulsed currency markets, the Swiss National Bank’s (SNB) President Thomas Jordan.
To recap, regardless of any reason or rational that may in hindsight have appeared justified, there has clearly been a list of winners and losers as a result of the actions taken late last week by the Swiss Bank.
In addition to the thousands of traders worldwide whose funds have been compromised by brokers, or personal losses incurred as a result of the Swiss franc Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term, many big name brokers such as Alpari UK and FXCM have also been dealt potentially fatal blows.
SNB President Jordan Calls Reaction Overdone
The SNB’s decision to abolish its cap on the value of the Swiss franc clearly has tangible logic behind it – after all, even the staunchest Euro optimists are hard pressed to looked past the mounting dilemma brewing on the continent that have weighed against the euro.
Indeed, the SNB had effectively capped the value of the franc at 1.20 to the euro since September 2011 to help balance the Swiss economy in the face of the global financial crisis. However, with the euro tumbling recently and the onset of additional moves by the European Central Bank (ECB), the SNB decided to act.
According to Mr. Jordan, the results over previous days had made it impossible to continue with the franc cap, and that "intervention can be justified by the economic interests that need to be defended. If the goal is no longer sustainable and justified, we cannot continue. That's the point we reached."
Furthermore, he went on to add, "If the SNB had continued with its policy, it risked losing control of long-term monetary policy. But it's important that the economy does not over-react and analyses the new situation in an in-depth way. You have to remember that the cap had been an exceptional and temporary measure since the start. It was going to have to be abandoned at some point."
Mountain of Criticism?
Jordan attests that the SNB and Jordan were acting in the best interests of Switzerland, and yet given the fallout incurred by the FX industry, many will be keen to point fingers. Not immune to criticism, Mr. Jordan has placed himself in the public crosshairs that will no doubt draw the ire of many brokers or market participants. However, history typically favors the prepared, and for those who were, the recent events were not a setback but a windfall.
As the FX industry collects itself and prepares for a new week with the landscape significantly altered, many look to the man who convulsed currency markets, the Swiss National Bank’s (SNB) President Thomas Jordan.
To recap, regardless of any reason or rational that may in hindsight have appeared justified, there has clearly been a list of winners and losers as a result of the actions taken late last week by the Swiss Bank.
In addition to the thousands of traders worldwide whose funds have been compromised by brokers, or personal losses incurred as a result of the Swiss franc Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term, many big name brokers such as Alpari UK and FXCM have also been dealt potentially fatal blows.
SNB President Jordan Calls Reaction Overdone
The SNB’s decision to abolish its cap on the value of the Swiss franc clearly has tangible logic behind it – after all, even the staunchest Euro optimists are hard pressed to looked past the mounting dilemma brewing on the continent that have weighed against the euro.
Indeed, the SNB had effectively capped the value of the franc at 1.20 to the euro since September 2011 to help balance the Swiss economy in the face of the global financial crisis. However, with the euro tumbling recently and the onset of additional moves by the European Central Bank (ECB), the SNB decided to act.
According to Mr. Jordan, the results over previous days had made it impossible to continue with the franc cap, and that "intervention can be justified by the economic interests that need to be defended. If the goal is no longer sustainable and justified, we cannot continue. That's the point we reached."
Furthermore, he went on to add, "If the SNB had continued with its policy, it risked losing control of long-term monetary policy. But it's important that the economy does not over-react and analyses the new situation in an in-depth way. You have to remember that the cap had been an exceptional and temporary measure since the start. It was going to have to be abandoned at some point."
Mountain of Criticism?
Jordan attests that the SNB and Jordan were acting in the best interests of Switzerland, and yet given the fallout incurred by the FX industry, many will be keen to point fingers. Not immune to criticism, Mr. Jordan has placed himself in the public crosshairs that will no doubt draw the ire of many brokers or market participants. However, history typically favors the prepared, and for those who were, the recent events were not a setback but a windfall.