Now that we are roughly halfway through the current decade it is worth taking a look back at what the previous five years have looked like.
Whether you are an avid fundamental analyst or simply watch the news on a casual basis then you are probably more than aware of some of the drama that has played out in the world of finance over the past few years.
Suffice to say, we have certainly seen some tumultuous times, so today we are going to look at five of the absolute craziest trading days this decade.
- The Euro Crashes Against the Swiss Franc
Earlier this year the Swiss central bank decided to pull the plug on the Euro, causing a massive downturn for the European currency, particularly against the Swiss franc.
This prompted the Swiss franc to gain massively against every other currency, with gold jumping by $20 and the Franc itself gaining 13% against the US dollar.
So what caused this?
The European financial crisis led many investors to put their money into the relatively safe haven that is Switzerland, causing the Swiss currency to rally massively.
This large increase in the price of the Swiss franc spelled trouble for the country’s exports, prompting the Swiss central bank to peg itself to the euro in an attempt to bring down the price of the franc.
After some time the Swiss central bank decided to change course by unpegging the Swiss franc from the Euro, essentially allowing the markets to return to a more natural state.
This inevitably lead to the Euro crash.
- The 2010 Flash Crash
The 2010 Flash Crash was a very interesting stock market crash that occurred in the United States and lasted for only around 36 minutes, hence its name.
American stock indexes such as the NASDAQ 100 and the Dow Jones Industrial Average dropped sharply before bouncing back with astounding rapidity. In fact, the Dow Jones experienced what was its biggest ever intraday drop as it fell by around 9% within a matter of minutes.
As it turns out, the Flash Crash had some rather sinister causes.
In April 2015 a trader by the name of Navinder Singh Sarao was charged by the United States Department of Justice with 22 counts of fraud and market manipulation.
Sarao was found to have placed thousands of E-Mini S&P 500 stock index futures contracts with the intention of cancelling them, all the while running spoofing algorithms just before the crash occurred.
The orders placed by Sarao came to roughly $200 million, all shorting the market. These orders were replaced or modified a whopping 19,000 times before being cancelled, leading to a widespread ban on spoofing, layering, and front-running.
- Lehman Brothers Bankruptcy
September 15, 2008 was the day when Lehman Brothers filed for bankruptcy protection, leading to a massive selloff in the commercial mortgage-backed securities market.
As Lehman Brothers were due to liquidate their assets, investors in residential looked to sell their securities. This became especially true as Lehman Brothers unloaded its debt and equity of the $22 billion Archstone purchase.
Archstone was the third-largest real estate investment trust in the United States, with its core business lying in ownership and management of major metropolitan apartment buildings.
UBS Real estate analyst, Jeffrey Spector was quoted as saying “there is no question that if you need to sell assets, you will try to get ahead [of the selloff]. Every day that goes by there will be more pressure on pricing.”
Many money funds and almost 100 hedge funds suffered a great deal of exposure to Lehman Brothers, relying on them for financing.
In fact, Lehman Brothers held almost $40 billion of its clients’ assets at the time of its bankruptcy, $22 billion of which had been re-hypothecated.
Many hedge funds were forced to sit on their cash balances after de-levering, leading to massive risk across the entire market and a decline of as much as $737 billion in collateral outstanding in the securities lending market.
- Chinese Black Monday
Perhaps the most recent event in today’s list is the Chinese stock market crash, which occurred this year resulting in losses to the tune of billions and massive repercussions that were felt globally.
Large amounts of government intervention, including the suspension of the sale of new stocks and a devaluation of the Chinese currency, contributed to the Black Monday crash.
On July 31 the Shanghai Composite ended the month with a 15% loss. This was the worst month the Chinese stock market had seen since 2009 and by mid-August the consequences were becoming apparent throughout the United States, Europe, and Australia.
The Dow Jones Industrial Average dropped 531 points on August 21, and August 24 marked what will forever be known as Black Monday, with Chinese markets opening to huge losses.
These events sent ripples around the globe, sparking fears in all of the world’s major economic centers.
- The August 2011 Stock Market Fall
In August 2011 there was a massive decline seen in stock exchanges throughout Europe, the United States, Asia, and the Middle East.
This was caused by fears sparked by the European financial crisis. Investors were concerned that the sovereign debt crisis would spread to Spain and Italy, not to mention a growing doubt of France’s AAA rating.
During this period gold increased to $1750 as many investors flocked to the commodity as a safe investment.
Some investors also opted for other currencies that are considered secure, such as the Japanese yen and of course the Swiss franc.
On August 6 the United States’ credit rating was downgraded by Standard & Poor’s from AAA to AA+, ending its AAA streak that it had maintained since 1941.
Short selling on banks and other financial institutions was widely banned throughout Europe due to the instability caused by concerns and rumours of banks that were exposed to debt-ridden countries like Greece.
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