- Unexpected market closures (i.e. after 9/11 the NYSE was closed for 4 days);
- Unexpected power blackouts;
- Earnings surprises or disappointments;
- Company takeovers or acquisitions (or the cancellation of);
- Companies being delisted, or a dilution of shares already in issue.
However, in these examples, the end result can be a major price movement, which could go against you, causing significant losses either in open profits or in cash equity, with no chance to exit your position.
As always, prudent risk control can help you, but it will not completely eliminate the possibility of a loss far greater than anticipated from occurring.
When attempting to construct a risk management model, people need to be aware of these possible scenarios, and how they would effect them, both from a financial and equity point of view, but also psychologically. It is for no reason that a lot of traders risk no more than 1% - 2% per trade.
From my own experience, in 2008 the FSA here in the UK banned the shorting of certain stocks during the market downtrend. This included banking stocks, that I was already short. Overnight, there was a big gap up in those stocks, and I was stopped out of those short positions as a result. However, within a matter of days those same stocks were at lower levels than prior to that announcement.
Thinking further back, the day after the 1987 stock market crash, US government intervention meant that traders such as the Turtles suffered significant drawdowns. In his book Way of the Turtle Curtis Faith talked about a 60% drawdown, and the elimination of several months profit, overnight.
I will have more to say on this in the coming days.