By Darrell Martin
It was just over a year ago when the Swiss National Bank unexpectedly decided to no longer cap the Swiss franc to the euro causing a record drop or gap on the EUR/CHF. This, in turn, sent rippling effects throughout the international banking and brokerage communities causing fear, loss and margin calls.
Friday, January 29, 2015, the Bank of Japan (BOJ) announced an unexpected decision to cut interest rates, moving the rate below zero.
An article on Reuters reported, “BOJ Governor Haruhiko Kuroda said the world’s third-biggest economy is recovering moderately and the underlying price trend is rising steadily, ‘but there’s a risk recent further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people’s deflationary mindset.’” To read the complete article, click HERE.
“The Bank of Japan decided to adopt negative interest rates … to forestall such risks from materialising,” Kuroda told a news conference after the decision. BOJ will charge a 0.1 percent interest on selected current account deposits.
This means that BOJ will be charging people to buy bonds, bills and notes. It makes the JPY much less valuable because traders do not want to pay to hold a currency.
This type of announcement tends to blow up the international trading markets. This unwound carry trades and fired off tons of stops on nearly every forex pair. Many of these markets were moving so fast that stops were no doubt jumped. Some of the forex pairs jumped more than 400 pips with the JPY declining in value. In short, the markets went insane! There is no doubt this will hit many brokers and even worse, traders, with margin calls. These traders will have to answer the margin call, meaning they owe more money than what is deposited in their account.
The following image shows the initial reaction in the market to the news.
This is straight up and shows why it is better to trade on Nadex, where your risk is defined. Right around 10:20 PM ET, just before The BoJ was due to release its statement, Nikkei news leaked a headline about The BoJ discussing negative interest rates, then the markets USDJPY and Nikkei 225 went crazy. Shortly after, the The BoJ made their announcement and confirmed the rumored discussions. It will be interesting to see the effect it will have on regular trading hours Friday, January 29, 2015.
One trader remarked, “I cleaned up across the board on this using Nadex, but it could have gone the other way. If it did, my risk was defined and I never had to fear a margin call.”
With all the Fed heads seemingly making surprise moves like the Swiss Bank did last year and now the Bank of Japan, how confident can you be that you will not have a margin call? Seriously consider or reconsider trading with Nadex. In times like these, defined risk is a must have for any trader.
Learn more about trading Nadex spreads and binary options as well as Forex, Futures and CFDs at www.apexinvesting.com. Nadex is a US based CFTC regulated exchange that can be traded in 48 different countries.