“Currencies don’t move that much, So if you had no leverage, nobody would trade.”
Hahaha so true until it’s so, so not. Some dumb fake math
No One Was Supposed to Lose This Much Money on Swiss Francs
The move from the SNB constitutes a classic VaR shock following a period in which banks have seen their VaR estimates slip further and further lower following an historic period of low volatility.
As realized volatility gets lower, estimates of future volatility — and so estimates of future losses — get lower. And so position limits get higher, as banks feel safer with the risks they’re taking, because, on a historical basis, they don’t look that risky. And then the risk that didn’t look risky becomes the one that gets you.