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How to avoid the swiss franc crash while trading forex?

The Swiss franc is one of the most widely traded currencies in the world, and it is also one of the most stable. However, in January 2015, the Swiss National Bank (SNB) surprised the financial markets by removing the cap on the franc’s exchange rate against the euro, causing the franc to surge in value and resulting in huge losses for many traders.

This event, known as the Swiss franc crash, serves as a reminder of the importance of risk management in forex trading. In this article, we will discuss some strategies that traders can use to avoid the swiss franc crash while trading forex.

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1. Stay Informed

The first step in avoiding the swiss franc crash is to stay informed about what is happening in the markets. Traders should keep an eye on news releases and economic data from Switzerland and the eurozone, as well as any statements from the SNB.

In particular, traders should watch for any signs that the SNB may be considering a change in policy regarding the franc. If there are indications that the SNB is planning to remove the cap on the franc’s exchange rate, traders should be prepared to adjust their positions accordingly.

2. Use Stop Loss Orders

Stop loss orders are an essential risk management tool that traders can use to protect their positions. A stop loss order is an order to sell a currency pair at a predetermined price level, which is set by the trader.

If the price of the currency pair falls to the stop loss level, the order is executed automatically, limiting the trader’s losses. Traders should always use stop loss orders when trading the franc, as this can help to minimize their exposure to market volatility.

3. Reduce Leverage

Leverage is a double-edged sword in forex trading. While it can increase profits, it can also magnify losses. To avoid the swiss franc crash, traders should consider reducing their leverage when trading the franc.

By reducing leverage, traders can limit their exposure to market volatility, which can help to protect their positions. Traders should also ensure that they have sufficient capital to cover their margin requirements, as this can help to prevent margin calls.

4. Diversify Your Portfolio

Diversification is a key strategy for managing risk in forex trading. By diversifying their portfolio, traders can spread their risk across multiple currency pairs, reducing their exposure to any single currency.

Traders should consider adding other currencies to their portfolio, such as the US dollar, the euro, or the Japanese yen. By diversifying their portfolio, traders can minimize their exposure to the swiss franc and reduce their risk of losses.

5. Monitor Your Positions

Finally, traders should monitor their positions closely when trading the swiss franc. They should be prepared to exit their positions quickly if market conditions change, and they should also be willing to take profits when the opportunity arises.

Traders should also keep an eye on their trading platform and their account balance, as this can help them to stay on top of their trades and avoid any unexpected losses.

In conclusion, the swiss franc crash serves as a reminder of the importance of risk management in forex trading. Traders should stay informed, use stop loss orders, reduce leverage, diversify their portfolio, and monitor their positions closely to avoid losses when trading the franc. By following these strategies, traders can minimize their risk and maximize their profits in the forex market.

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