What is a Black Swan Event?
Black Swan Event
Forex Trading Glossary
Quick Answer: A black swan event is a rare, unpredictable shock that creates extreme volatility and can overwhelm standard risk controls.
What is a Black Swan Event?
A black swan event is an unpredictable market shock with outsized impact, such as the 2008 financial crisis or the Swiss National Bank removing the EUR/CHF floor. These events create extreme volatility that overwhelms standard risk models.
Defining Traits
- Rare and unexpected: Traditional probability forecasts miss it.
- Massive consequence: Causes dramatic repricing across assets.
- Illiquidity: Spreads widen and fills slip sharply.
- Hindsight bias: After the fact, participants claim it was obvious.
Protect Your Account
Limit leverage, diversify strategies, and maintain emergency cash so one shock does not erase years of progress.
Response Checklist
- Cut exposure: Reduce position size while spreads normalize.
- Monitor correlations: Safe-haven currencies such as USD, JPY, and CHF often surge.
- Review broker risk: Confirm the stability of your trading venue.
- Update contingency plans: Incorporate new scenarios into stress-testing.
Related Terms
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