Moon and Star, For ex Crash in the Lira

The Turkish lira crash was described by the Dutch ING Bank as a “Textbook-tic crash”. On the 9th of October in 2017, the Turkish lira experienced a plunge that caught everyone off guard. Turkey's exchange rate against the dollar fell to an 8-month low in the morning. It was also the seventh consecutive day that the lira had fallen, the longest on record since May 2016.

Political factors and insufficient market confidence.

The Turkish liras plummet was driven by the fact that the United States suspended all non-immigrant visas to Turkey and the relations between the United States and Turkey deteriorated. The outbreak of this news was not significant enough to affect the lira on such a large scale during normal trading hours, and the news broke during Asian morning trading hours when the trading volume was small and liquidity was insufficient, which exacerbated the impact of the event. The reason for this flash crash was the lack of dollar sources in Turkey. Meanwhile, Turkey had a serious fiscal deficit under the current account, and the market lacked confidence in lira. The deterioration of the relations between Turkey and the United States triggered the crush. After the Federal Reserve announced its monetary tightening policy, the market was in a very tense state. These factors contributed to the “unexpected” flash crash of the Turkish lira.

What we conclude is that when something unexpected happens to the market, it often causes panic in the market, whether it is the Swiss franc, British pound, or lira. When some people perceive the effects of the accident, everyone else does not want to be the “last fool” and fled one after another. The market is prone to a vicious circle, causing “stomping” incidents. A flash crash is a phenomenon caused by the amplification of market sentiment. The more unexpected the event, the greater the fear it brings. If the Stomping occurs when the liquidity is low. the entire market will be crazy.

However, for individual investors, the influence of a flash crash is devastating. If the frequency of flash crashes increases, or the duration of the crashes lengthens, it may undermine the confidence of the entire market. For investors, the violence of flash crashes does conceal profit opportunities. Investors need to be careful and adjust their positions to avoid excessive leverage and make profits. And losses are controlled within the acceptable range.

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