Black Swan

A Black Swan event is most commonly associated with an unforeseen calamity or event.

In its most basic form, this event results in disastrous consequences for multiple parties, markets, or individuals and are characterized as extraordinarily rare in frequency, yet are seemingly predictable in retrospect.

In the foreign exchange space, the most noteworthy of these events in recent memory was the Swiss National Bank (SNB) crisis which roiled currency markets back on January 15, 2015.

During this instance, the SNB abruptly decided to abandon the Swiss franc (CHF) currency peg with the euro, convulsing markets.

In particular, the aforementioned cap was designed to keep the franc pegged at 1.20 to the euro in a bid to shield exporters and mitigate deflationary pressure.

With the removal of this peg, the rate plunged to 0.86 francs per euro, before ultimately recovering slightly.

The resulting move led to total wash outs of positions and margin calls that stressed brokers and traders alike.

The aftermath led to an ongoing debate over negative balance protection and other lingering effects on the FX industry and has remained controversial ever since.

Other Black Swan Events

In addition to the SNB, other examples of Black Swan events include the US housing market crash in the aftermath of the 2008 financial crisis, the hyperinflation of Zimbabwe in which inflation rates peaked at 79.6 billion percent and the dot-com bubble of 2001.

More recently, many experts have posited whether the outbreak of Covid-19 can be characterized as a Black Swan event, given its seismic influence on equity markets in March 2020.

Ultimately, there is no uniform consensus on the pandemic being a Black Swan event given the crisis is still ongoing.