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SoftBank sits on $4B profit on options trade – FT

  
  Analysis
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SoftBank up $4B

SoftBank up $4B
All the talk Friday was about SoftBank’s huge position in equity options and how it may have contributed to the blow-off moves we saw in the tech sector last week.
The FT reports that the trade is sitting on a $4 billion trade.
For all the attention it has gotten, that strikes me as a small number. Founder Masayoshi Son once lost $70B in the dot-com crash and the company is worth close to $100B. SoftBank lost $17.7B on WeWork and Uber last year.
The strategy has focused on options related to individual US tech stocks. In total, it has taken on notional exposure of about $30bn using call options – bets on rising stock prices that provide the right to buy stocks at a preset price on future dates. Some of this position has been offset by other contracts bought as hedges.
“It’s just a levered punt on the market,” said one person with direct knowledge of the trades. “The whole strategy is just momentum buying.”
Without knowing the details of the trade — including the timeline — it’s tough to evaluate. However if the whole strategy is really just momentum buying, then Thurs/Fri showed how quickly it could blow up.
For me though, the whole thing is overblown. $30B is notional (again, depending on the details), really isn’t that much.

Has the dollar lost its grip on the iron throne?

  
  Analysis
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What is next for the dollar?

FXTM
If one could describe the Dollar’s performance over the past few months in one word, the best fit would be vulnerable.

The once king of the FX space has weakened considerably in Q3, depreciating against every single G10, most Asian and emerging market currencies. This is despite its safe-haven status and the global reserve currency title. For those who are wondering why the Greenback remains depressed and unable to shake away the blues despite the general uncertainty, the first clues can be found in the US economy. (more…)

Reminiscences of a Stock Operator by Edwin Lefevre -My favorite 15 quotes

  
Analysis, Education
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1/ The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professional.

2/ In this business a man has to think of both theory and practice. A speculator must not be merely a student, he must be both a student and a speculator.

3/ When you know what not to do in order not to lose money, you begin to learn what to do in order to win.

4/ Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.

5/ They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.

6/ When you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford.

7/ The big money was not in the individual fluctuations but in the main movements— that is, not in reading the tape but in sizing up the entire market and its trend. It never was my thinking that made the big money for me. It always was my sitting.

8/ One of the most helpful things that anybody can learn is to give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world.

9/ The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.

10/ I don’t buy long stock on a scale down, I buy on a scale-up. Remember that stocks are never too high for you to begin buying or too low to begin selling.

11/ When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions—or my prepossessions either—to do any thinking for me

12/ The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa.

13/ A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him.

14/ A man can excuse his mistakes only by capitalizing them to his subsequent profit.

15/ Of all speculative blunders, there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.

EuropeFX: Everything you need to know about CFDs trading

  
  Analysis
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What you need to know about trading CFDs

EFX
Contracts-for-difference (CFDs) are popular trading instruments that provide investors with unique potential opportunities to profit in specific markets. This includes taking advantage of certain assets price movement, without actually owning the asset itself.

Thousands of CFDs exist, which are now a common fixture amongst brokerages’ offerings. CFDs are quite simplistic, as profit is calculated as the difference between the entry point of the trade and its exit point.

Popular types of CFDs

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Why the US dollar continues to rebound and what’s next

  
  Analysis
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The pressure is on

Dollar
The US dollar has extended its gains as market participants get caught wrong-footed in a rebound after multi-month lows.
The dollar looked to be breaking down yesterday and today but stabled itself and is making a move to the upside. There are two near term factors to watch:
1) The 20-year auction
The US is selling $25B in 20-year bonds at the top of the hour. Last week there was a strong 10-year sale and a very weak 30-year sale so the bond market is off balance. A higher-than-anticipted yield could boost the dollar further.
2) The FOMC minutes
The Fed is a below-the-radar risk at the moment. The strong belief in markets is that they’re creeping towards doing more for the economy but an improvement in US virus cases, decent economic data, higher inflation and the stock market at record highs might make them slow their roll. If so, the dollar could climb further
Overall, this looks like a position-squaring squeeze in a quiet mid-August market to me but you can’t take anything for granted. If it spills over into a broad risk-off move, then the dollar could have a lot of room to run.
The EUR/USD chart to me looks like a retest of the range break before a further breakout but a close over 1.19 today would add confidence.
EURUSD chart

What’s priced in for the US election

  
  Analysis
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It’s 76 days until the election

Biden and Trump picture
The deadlock in US economic stimulus negotiations highlights the political risk for the US coming out of the election. The sides simply can’t compromise.
At this point, you have to assume that most Americas have made up their minds about Trump, Biden and how they will vote.
In normal times, a Biden win would be the consensus. National polls in the past week show him from +4 to +11. Of course, these aren’t normal times and no one has forgotten the surprise on election night in 2016. Even with that, it’s worth remembering that Clinton won the popular vote by about what was expected, it was that a handful of states surprised. Her polling average was also only about +3% and she never reached this kind of spread.
Here’s how BMO sees it:

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Why Africa is now the biggest new market for forex trading

  
  Analysis
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Forex trading is on the rise in Africa

FX
In recent years there has been a significant rise in demand for forex trading in Africa, with the majority of the estimated 1.3 million traders in Africa residing in South Africa and Nigeria.

Not only is the number of traders and investors across Africa increasing, but the number of foreign investors is also on the rise, strengthening Africa’s currencies as well as the economy greatly.

With the South African Rand being one of the top 20 most traded currencies in the world at the moment, Africa offers one of the largest markets for forex trading globally.

Some of the world’s largest forex brokers, such as FXTM and HotForex, have become regulated with the Financial Sector Conduct Authority (FSCA) of South Africa, one of the most respected financial authorities in the industry.

With the increase in forex trading in Africa, the FSCA has responded responsibly and enforced a new licensing regime known as the Over the Counter Derivative Provider license (ODP).

The ODP forces all brokers with a local presence to provide transaction data such as price, instrument type, leverage ratios as well as the name and residence of the investor, to the FSCA to ensure safe and legal trading practices.

The FSCA allows these brokers to offer services not only in South Africa, but also to other African countries such as Nigeria, Ghana and Kenya.

The European Securities and Markets Authority (ESMA) enforced new restriction laws on the maximum leverage ratios allowed for European traders, forcing traders to look to other markets.

These new restrictions only allow leverage ratios of 30:1 for major currency pairs, 20:1 for non-major currency pairs and gold, and 2:1 for cryptocurrencies. Leverage ratios as low as these have a massive negative impact on potential profits.

Added to this, the provision of bonuses, promotions and binary options was also banned.

The FSCA allows brokers to offer unlimited leverage ratios, which can potentially maximise funds greatly, and has led to more residents being prompted to start trading the African markets.

Although there are minor restrictions in some African countries to prevent fraudulent activities, there is no complete forex trading ban in Africa, which allows nearly anyone to profit from these ever-growing markets.

Recent lockdown measures as a result of the COVID-19 pandemic and the resulting unemployment have prompted people to explore new opportunities to earn money.

The forex market is easily accessible, holds endless opportunities to make money with little required capital and traded 24 hours, five days a week, allowing people to trade either full-time or part-time.

Where forex trading was always expensive and originally done by large companies and high net-worth investors, it is now more affordable than ever, with some brokers charging no minimum deposits and minimal banking fees.

Another incentive to enter the world of forex trading is the multitude of free tools to ensure success, such as trading courses, demo accounts and webinars that educate beginners on how to trade, use strategies and analyse markets.

Trading is made easy with the internet becoming more accessible across the African continent. All one needs is a smart phone, pc, laptop or tablet, and a good internet connection, to trade from anywhere in Africa and the rest of the world.

Bond’s send out a distress signal

  
  Analysis
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All is not well-

The constant fall in Bond yields is sending out a signal that all is not well in the world. The tail end of last week may have seen some excellent earnings from facebook, apple, amazon and alphabet and that started a fresh equity rally early Friday. However, the fall of Bond yields is saying, ‘look out! There may be trouble ahead. For the uninitiated bond traders tend to take a more long tern macro view. So, when equities rise, but bond yields are falling that is a signal something is wrong.

If you can recall at the start of the year one of the big questions was which market is right? Falling and yields or rising equities? The answer has been, ‘the falling bond yield market’. So, the general rule of thumb is go with the bond yield market. Now, of course this doesn’t mean that a funny divergence can last for weeks and months. However, at the very least it is a warning sign. That warning sign is showing again.

All is not well- 

Yields are dropping

The 10Y Gilt yield (UK bond) hit a record low last week. The 10Y Bund (German bond) closed at its lowest level since mid-May on Thursday last week, while the 10 y UST (US bond) was down towards its lowest ever close last week too.

Bonds

SP500

Why are they dropping?

The proverbial tea leaves are being read and a second wave of COVID-19 is being seen ahead. This will mean more monetary and fiscal policy help to get through the pandemic.So, yes the equity market has been rallying on the central bank support. However, the bond market is saying that the next stage of the global economy is fraught with dangers and a ‘V’ shaped recovery is more hope than reality.

US dollar catches an early bid on Fed day

  
Analysis, Forex
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USD/JPY pops

Short-term speculators are no-doubt short the US dollar so some position squaring early today into the FOMC decision make sense. We’re also closing in on month-end so flow driven trades are going to be a factor.
The Fed decision is at 1800 GMT with Powell 30 minutes later. I’ll be looking for commentary on the economy as the top market mover. If it’s negative, the Fed will have to offer more strong hints at easing to keep the equity babies bulls at bay.
Other economic data today is a mish-mash of second tier data including:
  • US trade balance (advance goods)
  • Wholesale inventories
  • Pending home sales
  • Weekly oil inventories.

Traps and Pitfalls:

  
Analysis, Education
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  1. Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.
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