Currency trading

[stefan1]

Hi everybody.Has anyone had any experience with Gold rock from QLD.Sounds good but expensive.

Cheers Stefan

 

[noirua]

Swiss-Franc Move Cripples Currency Brokers - WSJ
http://www.wsj.com/articles/swiss-franc-move-cripples-currency-brokers-1421371654?mod=trending_now_3

 

[noirua]

NZ currency brokers go under:

Swiss-Franc Move Crushes Currency Brokers - WSJ
http://www.wsj.com/articles/swiss-franc-move-cripples-currency-brokers-1421371654

 

[T0BY]

scary.

when the price basically gaps down greatly like EURCHF did, sl won't save you if you're on the wrong side. The only sure way to be safe is to be out of the market when central banks release information I guess.

-and then there's the added risk of brokers entering insolvency..

 

[hhse]

scary.

when the price basically gaps down greatly like EURCHF did, sl won't save you if you're on the wrong side. The only sure way to be safe is to be out of the market when central banks release information I guess.

-and then there's the added risk of brokers entering insolvency..

That, or trade small, trade often and trade uncorrelated.

 

[StockTrader010]

SL becomes a market order once the exchange rate is below your sl .

Some of the big banks (Deutsche bank, Barclays,...) also suffered. If even their risk management is unable to cope with such moves, there's little change for small investors to get out in time.

 

[DeepState]

Been looking at Carry today (Specifically 3-month IR divergence). For major currencies, carry has been stopped in its tracks as a source of return since GFC hit. It has not really returned. Wondering why. Over 20 years, there is no linear or quadratic relationship between interest rate divergence and the strength of carry. So, narrower interest rate divergence is probably not it. Also, Carry tends to work best when VIX is low and, to a degree, moving lower. This has been happening...yet, no joy since 2008. ??


(explanation of the above is in the USD-DX thread)

Daily financial movements in FFX are worth about 100x the daily value of trade, highlighting the relative influences. Cross border credit normally climbs when vol is low. However, this has been broken recently as the cross-border market has fragmented. Portfolio investment as a key source of foreign funds has declined in relative terms. Whilst inter-bank is not in these stats, it probably correlates to some degree given similar underlying motivations (notwithstanding the high degree of risk aversion and need for capital re-build). Official reserve asset accumulation, largely driven by China, has stopped growing materially given the state of its BoP. The drivers of carry profits have decided to stop playing from the GFC period and are probably only just re-entering. The market basically fractured in 2008 and has yet to fully recover.


The cross-border securities market should not be as impaired as the cross-border inter-bank market. So, to me, it is puzzling why this remains so fragmented. I guess everything not on-shore looks toxic to the major investors. Long history suggests that it can take quite a while for internationalisation to return after major shocks and globalisation of capital is hardly something I want to bet against.



I am inclined to look past the 'recent' weak spell in carry. Crucial to its recovery as a strategy are the removal of impediments to cross-border inter-bank flow and improved risk seeking behaviour. Both have worked against carry since the GFC. There is very limited risk seeking behaviour (aka animal spirits). The banks are also really only repairing themselves in a global sense. However, the Basel initiatives and CBs are pushing these in the right direction and it is visible. Some rehabilitation of the strategy appears to be on.

I'm happy to use the concept.

 

[artist]

Been looking at Carry today (Specifically 3-month IR divergence). For major currencies, carry has been stopped in its tracks as a source of return since GFC hit. It has not really returned. Wondering why. Over 20 years, there is no linear or quadratic relationship between interest rate divergence and the strength of carry. So, narrower interest rate divergence is probably not it. Also, Carry tends to work best when VIX is low and, to a degree, moving lower. This has been happening...yet, no joy since 2008. ??

You may find this book, and the interview with its author, of interest.
http://ineteconomics.org/new-econom...markets-and-reregulation-cross-border-finance

"As Gallagher points out in the book and in the interview below, the 2008 global financial crisis has opened a new chapter in the debate over the proper policy responses to pro-cyclical capital flows. Until very recently certain strands of the economics profession as well as industrialized country national governments and international financial institutions have remained either hostile or silent to regulating capital movements. But there is no longer policy unanimity on this issue, which is in marked contrast to the period during the Asian Financial Crisis, where the so-called “Washington Consensus” dominated policy making in both the developed and developing world, and capital account liberalization remained paramount. Today, as Gallagher points out, a number of emerging economies, including Brazil, Taiwan, and South Korea, have been successfully experimenting with new capital account regulations (CARs) to manage volatile capital flows and managed to remain relatively unaffected by the turbulence brought about as the Fed began the process of unwinding its quantitative easing program. Even the International Monetary Fund (IMF) has come to partially recognize the appropriateness of capital account regulations and has gone so far as to recommend (and officially endorse) a set of guidelines regarding the appropriate use of CARs."

 

[DeepState]

You may find this book, and the interview with its author, of interest.

Thanks, it was interesting. The IMF has stuffed so many economies it is astounding. A lot of countries in trouble explicitly stop them at the border, revoking their visas. The over-estimation of their abilities is even visible in the consistent over-estimation of economic outcomes in 'client' states.

Although the barriers to capital flow at the capital account level might be being dismantled slowly with the passage of trade deals and resulting from the complications of hold-outs relating to Argentina and Greece, Basel III puts pro-cyclical debt formation clearly on the agenda via the counter-cyclical buffer requirement. Though each country can translate these for their own circumstance, the tool is there and being taken up. Further, the phrase "Macroprudential" seems to have entered the lexicon in an acknowledgment that monetary policy is not particularly effective if the levers find themselves directing capital to all the wrong spots all the time. "Regulatory Arbitrage", the natural nemesis, turned up at the same time just to highlight the natural forces at play there. Guess who'll win?



We have centuries of evidence that debt cycles lead to booms and busts. Property is involved in a lot of them. This is just our latest attempt to fight yesterday's war. The banking system is being used as a method to finance unsustainable government debt via risk weighted assets applicable for capital requirements. Via acceptable collateral, the central banks are effectively monetising it. Wild West all over again...just with more moving parts.

Meanwhile, every measure taken just moves risk to a different location, as the ECB's Costancio recently recognised:




What it means for carry is that the cycles of profitability will be longer and with less amplitude for a little while as credit formation moves from the regulated banking sector to the unregulated sectors. The direct banking stats will be less important than the securities channel funded via the shadows. It reduces the importance of the intermediated banking channel. However, in my view, LTCM was a glimpse of our future and is more relevant as a lesson than the GFC itself.

In the immediate term, the author's comment about risk rising when the Fed rate rises as the biggest driver of cross-border flows is concentrating a lot of minds at the moment.