"Why did it open so much lower?"
Seeing the pound's exchange rate open significantly lower, directly falling below the 1.5300 mark after being stimulated by weekend news and market sentiment brewing, Gu Chijiang's brows furrowed noticeably at 9 AM during the Asian trading session, inside the main fund trading room of Tianhe Capital in Hong Kong City.
After continuous capital injection…
Currently, the long positions held by Tianhe Capital's main fund product, which he manages, have reached over 60,000 lots, and nearly half of these positions were established at a cost above the 1.5300 mark.
The significant lower open of the pound's exchange rate at this time directly caused the floating profit on his held positions to approach zero.
If the pound's exchange rate continues to fall further.
Then his more than 60,000 lots of long positions would collectively fall into a loss-making state.
"It's mainly because Saturday's meeting negotiations didn't release the results and expectations everyone wanted,"
Xie Hongxing responded.
"Also, at yesterday's financial summit, the clear bearish views from institutions like Huayi Capital, Huayin International, Aberdeen Asset… also impacted market sentiment."
"But it shouldn't have opened this much lower,"
Gu Chijiang sighed lightly.
"Didn't the preliminary vote estimates suggest that over 60% of people supported remaining in the EU? This means there should be no major surprises in the June 23rd referendum results. With such expectations… can't it hedge against the negative news and sentiment in the market?"
"The short-term trend of the market is always difficult to predict. However, based on underlying logic, I believe that the expected outcome of the June 23rd referendum and the direction of the Bank of England's monetary policy have not changed, so I don't think there's too much to worry about."
Xie Hongxing said.
"I hope so. Otherwise, we might have to passively reduce our positions."
Gu Chijiang said.
Compared to the main bearish institutions in the market like Huayi Capital, Huayin International, Aberdeen Asset… and the main bullish forces like Pacific Capital, UBS International, and Huifeng Bank, their Tianhe Capital does not have strong financial backing.
For Gu Chijiang, over 60,000 lots in long positions is already a very heavy position.
If the pound's exchange rate continues to underperform expectations.
He might not even wait until the June 23rd referendum day and would be forced to reduce many positions to control the holding risk within a reasonable range.
Just as Gu Chijiang was expressing his thoughts, feeling that the pound's gap-down open was largely unexpected.
In the trading room of Huifeng Global Asset Management Universe Hedge Fund, also in Hong Kong City, Godfrey, as the manager of the Universe Hedge Fund, also appeared somewhat surprised by the pound's opening performance.
However, despite a slight look of surprise on his face, he showed no signs of worry or concern.
"Mr. Godfrey, this opening performance of the pound's exchange rate directly below the 1.5300 mark…"
said Gerald, the trading team leader of Universe Hedge Fund.
"I'm afraid it will greatly shake the confidence of the longs in the market, especially many overnight long positions that have already incurred floating losses."
Godfrey smiled and said,
"No worries. The underlying logic for going long in the market is still there, and there's also relatively consistent expected support for the June 23rd referendum results. In this situation, even if the shorts try harder, even if they continue to inject funds to guide the market, it will be difficult for it to continue plummeting.
On the contrary… once this initial wave of overnight stop-loss selling is completed, the pound's exchange rate will have a good opportunity for long positions."
"I'm just afraid everyone's confidence in holding positions will be shaken,"
Gerald said.
"That shouldn't be the case. Look at the trend in the half-hour after the pound's exchange rate opened significantly lower. It's clear that the market volume hasn't rapidly expanded. This indicates that neither the main short institutions nor the long investors holding positions are rushing to increase short positions to continue selling off, or panicking to close out and cover."
Godfrey said.
Hearing Godfrey's words, Gerald carefully examined the changes in the pound's exchange rate volume.
And indeed, it was true.
Thus, his previously somewhat nervous mood gradually relaxed at this moment.
At this time, the number of pound long positions held by their fund had exceeded 230,000 lots.
Although this position size is not high compared to the fund's multi-billion dollar scale, their holding costs had been significantly raised due to continuous position increases in the earlier stages.
At this moment, although the fund's long positions still had a slight floating profit.
The floating profit was already minimal.
If the pound's exchange rate continues to fall and touches the 1.5200 level again, their operations on the pound exchange rate might turn from active to passive.
However, it was clear…
Godfrey did not believe there was further room for the pound's exchange rate to pull back and fall.
In fact, the subsequent trend of the pound's exchange rate was largely as Godfrey had anticipated.
As the Asian trading session continued, the heavily gap-down open pound exchange rate began to gradually recover, bolstered by increased long positions in the market and the intervention of bottom-fishing speculative funds.
It once again challenged the 1.5300 mark, a psychological barrier for the longs in the market.
At 10:36 AM, the pound's exchange rate recovered the 1.5300 mark.
At 11:09 AM, the pound's exchange rate refreshed its daily high to 1.5320, thus completely recovering all the day's opening losses and returning above last Friday's closing price.
"Alas, the pound's exchange rate has returned to the oscillating range between 1.5300 and 1.5400!"
Noticing the pound's exchange rate returning above the 1.5300 mark, someone among the group of forex investors and speculators gathered on an online discussion platform sighed lightly, saying,
"I originally thought about following CEO Su to continue shorting and earning dozens of pips in short-term profit. Who would have thought… I tried to get a chicken but lost the rice, instead losing several hundred dollars."
"Clearly, today's lower open was a bear trap designed to entice short sellers."
"If you ask me, before the June 23rd referendum results, which is this Thursday, whether the pound's exchange rate breaks out upwards or downwards, it's highly likely to be a false breakout."
"Unless there's a concentrated liquidation of long and short positions in the market, or large-scale covering, leading to a stampede by either the main long or short forces, otherwise, it's highly probable that the pound's exchange rate will fluctuate around the 1.5300 and 1.5400 levels these days."
"Looking at the opening situation, I thought the shorts would continue to sell off, but I didn't expect…"
"As I said, going long near 1.5300 and short near 1.5400 is absolutely correct. It's impossible to expect a major market movement at this time."
"Looking at the number of open long and short positions in the market, the overall long and short orders have increased again!"
"The number of long and short position orders in this market is indeed becoming more frightening."
"It feels like the calm before the storm."
"It's definitely before a storm, but this market trend can hardly be called calm. Fluctuations of around 100 pips are common, which is already quite dramatic."
"Besides the sharp fluctuations in the pound's exchange rate, spot gold has also become more volatile these days."
"Definitely. The referendum on Thursday, the 23rd, will affect not only the pound's exchange rate but also the global financial community and even global economic expectations."
"It feels like some funds are using spot gold to hedge against their exposure to the pound's exchange rate, right?"
"I have that feeling too, hehe… Honestly, now is a very good time to speculate on spot gold. After all, leverage for spot gold is not currently restricted, so small capital can leverage large profits."
"Go long, or go short?"
"If the pound's exchange rate plummets, shouldn't spot gold soar correspondingly?"
"Not necessarily. It also depends on how the US dollar index moves. Relatively speaking, the trend of spot gold is not strongly correlated with the pound's exchange rate; gold is more of a counterparty to the US dollar."
"If you can't completely hedge the trend, then there's no point."
"I think it's better to just watch the show. In the pound's exchange rate market, with such massive open long and short positions, once one side's power is instantly unbalanced, extreme market movements are bound to erupt. In such a situation… if you take the wrong direction, you might not even have time to place a stop loss. It's better to just observe."
"It feels like this long-short battle in the pound's exchange rate market has evolved into a long-short battle between our Chinese-funded institutions and international capital."
"It certainly feels that way."
"I've looked at the short-side and long-side reports from various major institutions right now, and they all seem reasonable and logical!"
"That's for sure. Otherwise, how would so many institutions invest huge sums of money in such a big gamble?"
"The key is to see if Huayi Capital, led by CEO Su, can exit with a profit this round. Before… I always felt CEO Su was a bit underpowered, but I didn't expect Huayin International to be so deeply involved now."
"It's not just Huayin International; Citibank, BNY Mellon, Aberdeen Asset, Blackstone Group… these are all big-shot institutions!"
"Alas, with so many large capital institutions playing in it, honestly… I really want to take a gamble."
"I also want to heavily bet, but I'm hesitant about whether to bet on the long side or the short side."
"Then it must be gambling on an extreme market movement in the short direction. Anyway, I've decided to side with CEO Su."
"I lost a lot by following CEO Su to short before, alas… I don't know how the market will move on the 23rd, but no matter how it moves, there will definitely be extreme market volatility."
"You could trade both sides and set double stop losses."
"Oh, that's a good idea…"
Just as people were discussing, and someone proposed a strategy of trading both sides with double stop losses.
Tokyo, Nomura Bank headquarters, foreign exchange investment trading center.
In the Bridge FX hedge fund trading department, Shangbin Heyi, as the manager of this main hedge fund, was employing this speculative strategy of trading both sides with double stop losses.
He instructed his traders to heavily build long positions around the 1.5300 level.
At the same time, he also instructed his traders to extensively build short positions around the 1.5350 level.
For the long positions, he set the stop loss at 1.5000, and for the short positions, he set it at 1.5500.
After doing this.
Regardless of which direction the pound's exchange rate breaks out in extreme conditions.
After hitting the stop loss, he would still be able to reap huge profits from the extreme market fluctuations.
Moreover, this strategy also avoided continuous losses during periods of pound exchange rate volatility, forming a perfect hedged trade.
"Mr. Shangbin, I heard that Mr. Sato's hedge fund product at Mitsui Sumitomo Investment Company has already established over 100,000 lots of long positions in the pound exchange rate,"
reported Xinzawa Tarou, a market researcher at the company's foreign exchange investment trading center, while Shangbin Heyi was feeling smug about his own insurance strategy.
"It seems Mr. Sato has staked his entire future and fate on the pound's exchange rate."
"Haha… such a reckless gamble is simply foolish," Shangbin Heyi commented unceremoniously.
"I also think betting on a one-sided extreme market movement is too risky. However, currently, 90% of our domestic institutions are bullish on the pound's exchange rate, and Mitsui Sumitomo Bank internally also supports him in doing so."
Xinzawa Tarou said.
"That still doesn't change the fact that Sato is a fool. This round of the long-short battle in the pound's exchange rate market involves not only Chinese-funded institutions, once considered easy prey, but also a host of Wall Street giants like Aberdeen Asset, Citibank, BNY Mellon, and Blackstone Group.
Forcing these large institutions into liquidation or concentrated stop losses, or taking profits from them, might not be as easy as before. What if the market's general expectations are not met, and the pound's exchange rate experiences extreme volatility towards the short side on the 23rd?
Then Sato… can just wait to ruin his career and resign in disgrace. With huge losses, those within Mitsui Sumitomo Bank who are now letting him gamble recklessly won't say a single good word for him."
Shangbin Heyi said.
"Originally, I also thought that in this long-short battle for the pound's exchange rate, the direction of extreme market volatility would definitely lean towards the long side. But looking at it now… especially with the failure of Saturday's negotiations, the uncertainty is truly growing, and the outcome of the June 23rd referendum is really hard to say."
Xinzawa Tarou said.
"This is also why the rate of new short positions in the current pound's exchange rate market has begun to surge. The market's net long positions are gradually decreasing, and it's estimated that by the time the 23rd arrives, net long positions will return to a relatively reasonable range."
Shangbin Heyi said with a smile.
"However, no matter what the outcome of the June 23rd referendum, it won't have a significant impact on us. Trading both sides, double stop losses. Under a double-insurance strategy, I don't believe I can't make money in this market?"
After speaking, Shangbin Heyi continued to instruct his traders to increase positions, while his gaze also returned to the market trend of the pound's exchange rate.
As trading time continued to advance.
The pound's exchange rate at this moment had recovered to the 1.5330 mark after repairing the day's opening gap.
However, due to the influence of weekend news and market sentiment.
Although the pound's exchange rate was slowly recovering, through the market data, changes in long and short outstanding orders, and changes in intraday volume.
It was still clearly perceptible that the upward pressure on the pound's exchange rate.
Was much greater than when the main long forces had absolute initiative in the market last week.
(End of chapter)