On March 16th at 5:20pm ET, I lost twenty-five thousand dollars in the
FOREX markets in literally less than two minutes.
The direct cause: the USDJPY “flash crash” of March 16th.
The indirect cause: the Dodd-Frank Act.
Dodd-Frank increased FOREX margin requirements from 1% to 2%. The
intent was to protect American investors, but the outcome was the
During the crash, my account leverage fell to 1.5%.
Prior to Dodd-Frank, the leverage requirement was 1%, no
problem. USDJPY recovered in minutes, and I would’ve been fine.
But, thanks to good old Dodd and Frank, my broker had no choice but to liquidate my
account. By the time I found out (less than a minute later), it was
already too late: the dollar recovered, and my loss was permanent.
Even worse: as USDJPY plunged, more and more investors hit the 2%
limit and got wiped out, being forced to sell at ridiculously low
prices. Of course all that USDJPY selling drove the price down even
more. A 1% limit could’ve prevented the whole flash crash cascade.
Ah, well, retirement wasn’t all THAT great…