Auw!The shock of the EUR/CHF move two months ago is a classic. Something you can tell your grandchildren about. Happened the day before the January expiration day – a small reminder to buy back those small short puts.

Today in Der Spiegel a story about a 26 year old engineer. The guy has a nette girlfriend, a well paying job at a medium sized electrical engineering company. Everything fine. Michael Lewis could probably draw a nice profile of a decent regular guy. Only problem is he gambled invested 2800 euro with the CFD shop IG Markets.

Hans Muller, as he is called by Der Spiegel, was caught on the wrong side of the currency move. And with a leverage of 1:400 this is painful. Earlier mentioned short index puts are child’s play compared with this leveraged “Contracts for Difference”. The poor guy lost around EUR 280.000. And will be filing for Privatinsolvenz.

Ironically the gambling shops aim their heavy marketing budget at the little guy – who doesn’t realize he isn’t a client but a counterparty. The CFD shops don’t even have to hedge the trades. Time and leverage will do the trick.  And well, for any tips on trading the forex markets with CFD’s : this is the most useful advice I’ve seen. And it’s from 2010.

Source Capital hurt

Back to the short index puts. The unprecedented move also rocked the equity markets. Not every professional market participant was prepared for such a bloodbath. One could say correlations in the market didn’t behave like expected. Market didn’t behave like usual.

The Zug based trading firm Source Capital had a difficult time. The firm is launched a decade ago by mostly former IMC employees – and has a very quantitative focus. Tim van der Vliet (who is currently a yoga teacher and inspirational speaker) was one of the traders in the beginning. As a result of the January 15th move in the markets, the company was forced to let go a few quants and scale back operations. Seriously hurt, but they will continue operations in a smaller set up.

A pity for Source. But not such a big deal compared with Hans Muller.

Jack