Biggest black swan events in forex history

The forex market is the most liquid market in the world, with $5 trillion being exchanged daily by institutions, businesses, and retail traders. Sometimes, unexpected events can cause huge price swings in currency values, leading to substantial losses for traders. These unforeseen events are commonly referred to as “black swan” events.

What is a black swan event?

A black swan event is a rare and unpredictable event that has a significant impact on the markets. These events are difficult to anticipate and can have serious consequences for forex traders who are overly exposed. While it’s impossible to predict when a black swan event will happen, traders can mitigate their risk by diversifying their portfolios and most importantly managing risk.

Let’s take a look at some of the most notable black swan events in forex history.

The Swiss Franc Crisis of 2015

On January 15, 2015, the Swiss National Bank (SNB) stunned the markets by abandoning its three-year-old peg of 1.20 Swiss francs (CHF) per euro. Consequently, this triggered a massive surge in the value of the CHF, with it soaring by up to 30% against major currencies. The sudden move caught numerous traders off guard, resulting in substantial losses and the insolvency of several forex brokers. Additionally, this action wiped out 9% of the value of the Swiss stock market, marking its most significant one-day decline in over 25 years. The market reaction was described by one trader as “complete carnage.”

The Brexit Referendum of 2016

In June 2016, the United Kingdom held a referendum on whether to leave the European Union (EU). The result of that vote was 51.9% in favour of leaving, while 48.1% voted to remain. The unexpected outcome led to significant volatility in the forex markets. As a result, the British Pound (GBP) experienced a sharp decline against other major currencies. Against the US dollar, the pound plummeted by 7.95%.

The Lehman Brothers Bankruptcy of 2008

The bankruptcy of Lehman Brothers in September 2008 triggered a global financial meltdown that profoundly impacted the forex markets and virtually every other financial market across the globe. Consequently, this resulted in substantial and unexpected currency movements, with the US dollar (USD) and Japanese yen (JPY) strengthening significantly against other currencies, as investors and institutions scrambled to salvage whatever they could.

Dotcom Bubble 200

The “Dotcom” crash, also known as the “Dotcom bubble,” occurred in 2000 having been bubbling since late 1995. During this period, there was a significant increase in the stock prices of Internet companies, particularly American ones, and the emergence of numerous new Internet-based companies. The value of shares in companies promising to integrate Internet technology soared.

However, many of these new business models proved to be ineffective, leading to a wave of bankruptcies. Speculation and unwarranted optimism played a role in inflating the bubble. Ultimately, when the bubble burst, many of these technology companies failed, resulting in significant losses for investors. It is estimated that around $5 trillion was lost by investors during this period.

Covid-19 Pandemic

Many people commonly perceive the COVID-19 pandemic as a ‘black swan’ because it was unexpected for the global community. The pandemic caused isolation, division by borders, economic chaos, and delayed and contradictory recommendations from organisations like the World Health Organization (WHO).

The economic impact of the pandemic triggered in early March 2020 when the global outbreak began is referred to as “Black Thursday”, which marked a catastrophic decline in the markets, with the S&P 500 experiencing its worst daily fall since October 19, 1987. The US dollar (USD), the Japanese yen (JPY) and the Swiss Franx (CHF) all strengthened as investors scrambled to safe haven currencies.

Takeaway

Black swan events have proven time and again that they can disrupt the forex market and catch traders off guard. From the Swiss Franc Crisis of 2015 to the Brexit Referendum of 2016, and the Lehman Brothers Bankruptcy of 2008 to the Dotcom Bubble, these unexpected events have caused significant losses. The recent COVID-19 pandemic serves as a stark reminder of the unpredictability of the world and its impact on global economies. As forex traders, it is crucial to understand that black swan events cannot be predicted with certainty.