The BLACK SWAN Events in Financial Markets

The BLACK SWAN  Events in Financial Markets

The BLACK SWAN Events in Financial Markets

The last time that the DXY index crossed the 104 ,was after the stock market bubble burst in 2000!
Usually when the dollar goes up, equity and crypto and other assets decline in value – there is an inverse relationship…realizing that the stock or crypto market is currently at levels where some are calling for a bear market must always consider unexpected scenarios (Black Swan)!

Black Swan Events :

The concept of black swan events was popularized by the writer Nassim Nicholas Taleb in his book, The Black Swan: The Impact Of The Highly Improbable (Penguin, 2008). The essence of his work is the world is severely affected by events that are rare and difficult to predict. The implications for markets and investments are compelling and need to be taken seriously.

Some Example for black swan that turned the financial markets upside down!

-The Great Depression of 1929

A prime example of the Black Swan and one of the most devastating events in history was the Great Depression of 1929-1933. This event was so intense that most economists use it to describe the impact of financial crises on the global economy. The Great Depression in the United States began with the stock market crash on October 29, 1929, also known as Black Tuesday. This sudden collapse devalued the global stock market and severely slowed the growth of the global economy.

-The Asian Financial Crisis of 1997

One recent example of a black SWAN in financial markets was the 1997 Asian financial crisis. Formerly known as the “Asian Tigers” and the “Asian Economic Miracle,” the countries saw their currency and stock markets depreciate by 70 percent. Indonesia, South Korea and Thailand suffered the most from the crisis, followed by Hong Kong, Laos, Malaysia, and the Philippines. Singapore, Taiwan and Japan were also relatively less affected by the crisis than other countries.
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-The Dot-Com crisis of 2000

One of the black swan events that most stock traders remember happened on April 14, 2000. When the Nasdaq Composite Index fell 9 percent, ending the weekend with a 25 percent decline. The .com bubble, also known as the Internet bubble, emerged in the stock market in the late 1990s, largely due to excessive speculation in Internet-related companies.

The advent of the Internet and the widespread adoption of computer technology have led to the emergence of new Internet-focused companies such as Pets.com, Webvan and Boo.com. By 1997, approximately 35 percent of all American households owned a personal computer, reflecting the popularity of the information age.

-The Great Depression of 2008


One of the recent events of the Black Swan was the Great Depression of 2008, also known as the Global Financial Crisis. This severe financial crisis began with the housing market bubble in the United States and quickly spread to other parts of the world. Commercial banks took out huge risks with mortgage-backed securities that plummeted in value after the US housing bubble burst.

Many economists consider the 2008 financial crisis to be the worst economic collapse since the Great Depression of 1929. The Financial Services Renovation Act of 1999, also known as the Gramm-Leach-Bliley Act, allowed banks to use customer deposits to invest in financial derivatives. Mortgage-backed securities were one of those derivatives in which banks took a lot of risks by lending to owners (even unreliable owners).

The TED spread (in red), an indicator of perceived risk in the general economy, increased significantly during the financial crisis, reflecting an increase in perceived credit risk. The TED spread spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008.

– Flash Crash 2010


The image below is from the fall of the S&P index, which occurred in 2010 and became known as Flash Crash 2010. In this rare event, the value of the US stock market suddenly fell by $ 1,000 billion. Shares of some companies, such as P&G, fell as much as 1 cent ($ 0.01) and shares of some companies, such as Apple , rose to $ 100,000. Some organizations point the finger at supercomputers operating high-frequency ( HFT ) transactions and blame them. Of course, this problem took about 15 minutes, and quickly everything returned to normal.

-Elimination of the Swiss franc fixed rate in 2015


Another example was the BLACK SWAN that hit the forex markets and affected Forex traders. This very simple example shows how sudden and unexpected events can take markets by surprise. On January 15, 2015, the Swiss central bank shocked the markets by lowering the rate of 1.20 Swiss francs against the euro . The news shook the foreign exchange markets and the Swiss franc strengthened sharply. At the same time, the Swiss national currency immediately rose 30 percent to 0.90 against the euro .

-Global quarantine 2020


Unlike other examples of the Black Swan, the Corona virus epidemic, which began in China in late 2019 and spread rapidly to other parts of the world in 2020, claimed many lives. In addition to the human aspect, the disease also caused the worst recession since the Great Depression of 1929, as countries entered quarantine, the global flow of goods and services declined dramatically, and in one month, 20 million people lost their jobs in The United States lost.

>>Consequences for traders

You might say that events like Black SWAN are very rare. But you only have to catch them once to destroy all the profits you have made in the last year or even a decade. Therefore, it is important to take all precautions. But what are these measures? For example, take your profits consistently and do not put all your life capital into one trading account.

– Sometimes the loss limit does not work so should hedge your positions
Have you ever read the risk acknowledgment statement given to you by an exchange or broker? Most likely you will say no and just sign it. The statement said that loss orders do not protect you in all cases and do not end your trading risk.

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