Thursday, April 02, 2015

Break in transmission

I had been planning to post today, but then I ran out of time. In honour of Easter and because I need a break, a chance to reflect, I am stopping all posting until Wednesday next week. Feel free to talk among yourselves in the meantime - that gives rise to some pretty good conversations!


2 tanners said...

In line with the title of this blog, and regardless of personal beliefs, I hope everyone is able to take some time for reflection over the break. Many thanks to the much more regular contributors.

Jim Belshaw said...

Hi 2t and thanks. Long may the conversations continue!

A Trader said...

Hi Jim - The RBA decided to hold interest rates at 2.25% today which was totally out of sentiment with what had been expected. The Australian dollar went up as a result, however what is more interesting is that the dollar moved up 71 pips, 30 seconds PRIOR to the official announcement. What's the big deal you may say. Well the big deal is this. The total movement of the Aussie dollar was approx 100 pips. So 71% of the movement of the AUD occurred prior to the announcement. It was in a direction totally unexpected. What's a pip worth? It can be worth $1, $10, $100, $1000, $10,000 or more whatever you can afford. Get the picture. Big institutions or more likely those with deep pockets can afford to place large bets on currency fluctuations particularly if you know which way a currency is going to go before anyone else. For us mugs who waited for the official announcement we were left to fight over the scraps, around 30% that was available. Was there a leak from the RBA? I doubt we will ever know but maybe Glenn Stevens as well as show boating his grandiose intellect on all things monetary might like to plug a few holes in his board.

Jim Belshaw said...

Hi Trader. Didn't this happen last time as well?

Anonymous said...

For us mugs who waited for the official announcement we were left to fight over the scraps

Tried hard to find even the slightest glimpse of self-awareness in this.

But I failed :)


A Trader said...

Yes Jim it happened last time and apparently the time before that, ASIC is investigating.

To KVD "slightest glimpse of self awareness" what do you mean? I am fully aware that to make money in this business fairly, a level playing field is required. I am also fully aware that it is my money on the line not yours although as a tax payer you are supporting ASIC whether you like it or not. It's my business how I earn a living. I pay my taxes and don't participate in insider trading. So what's the problem KVD?

Anonymous said...

Hi Trader

to make money in this business fairly, a level playing field is required

- that would be 'fairly' as between you and the other bottom dwellers? Or do you mean 'fairly' as in what actual 'good' (I know it's hard, but it's only four letters) you produce?

it is my money on the line not yours

- so Trader, you had a spare $1Bn lying (sorry, that should be 'laying') around just waiting for the chance to bet on an up/down/no-move decision of the monthly RBA meeting. Your money? Anyways, 30% of a potential $7M on a $1Bn wager is not a bad day's work, surely? And you call that "scraps"?

as a tax payer you are supporting ASIC whether you like it or not

And it's 'industries' such as yours that require such (ineffective) government supervision. So, I should thank you for your ability to clip the ticket every time some poor sod is sent into bankruptcy, or saved, by the monthly roulette wheel that you've turned currency futures trading into? It used to be about guaranteeing that somebody who promised to produce something in the future (think pork bellies or corn - no don't!) could be assured of a reasonable return for effort.

It's my business how I earn a living

Agreed, and I will leave you to wrestle with your conscience about that. But just don't come complaining when some other bottom feeder gets an edge you temporarily can't match, because unfortunately, your turn will no doubt come.

And more's the pity.


John Stitch said...

Dear A Trader - Please forgive
kVD who prefers the jackbooted approach to anyone he disagrees or has an issue with. He regularly hijacks any civilised discussion on this blog preferring to use his superior knowledge to bludgeon those that cross his sensibilities and buck his moral high ground on any number of topics.

He describes you as a "bottom dweller" (where the hell did this gem come from?) this being the usual level of discussion emanating from his poisoned pen. He is one of those jumped up hippies who doesn't like banks, finance or anything that wasn't made on the farm. Of course he is the first to spring to the defence of more powers for police, ASIO or any other tin pot authority he deems fit. And don't bother replying to him as he likes to pay out but has a hide as thin as an Ansell prophylactic and should you do so you're sure to stir up a hornet's nest of personal vitriol aimed at you. Or maybe it will come my way. Either way kVD how about trying some discussion without getting personal and nasty you supercilious twat!

Anonymous said...

Hi John, and Happy Easter to you, and much personal reflection, as Tanners wished.

Without getting in any way personal, may I suggest you actually consider what sort of pernicious, unproductive, basically barnacle on the arsehole of society you choose to defend by way of personal insult?

I am sure Trader is a loving father/mother/person, and has a dog/cat/goldfish, and a wife/husband/partner, or maybe not - whatever floats his/her boat. I would never attack (i.e. disagree with) that.

But to complain, basically as Dorrie Evans did in her immortal words "why wasn't I told", about manipulation of the futures market in interest rates and the value of our currency? To complain about being left to "fight over the scraps"?

By all means vent your spleen against me, but I do wonder at your judgement, sometimes, about who or what you choose to defend.


ps and what's with the KVD when I always sign off kvd? Is that you shouting? If so, talk to the hand :)

2 tanners said...

Having missed most of this, I thought you did go in much too hard, kvd. Not agreeing with John's description of you, but also I think you jumped to a misinterpretation of A Trader. As A non-Trader, I took him as pointing out that there had been massive inside trading by institutions with massive money behind them and that the RBA should plug this. Not very contentious, I would have said.

Anonymous said...

Hi tanners - accept what you say is the systemic interpretation, but my comment was more directed to the "left to fight over the scraps" remark.

Perhaps too hard, but if you look back maybe 12-18 months ago, Jim and I had a discussion about the pernicious placing of trading computers within the ASX, giving those HFTs willing to pay for the rental of a slot a few milliseconds advantage over the rest of the market. I think there is a very fine line between that and 'insider trading'. So fine that I couldn't and still can't see it.

And if you look at this pic of Tuesday's activity, you really can see just how small the programmed window was, and just how remarkably small those "scraps" were:

- except of course if you are playing with other peoples' money, in which case that's ok? And also, given the small window, I'm intrigued as to how Trader managed to "fight over ... around 30%" of the scraps?

Well I don't think so, but I'll leave you with two further links (not long reads)

- and the question: in terms of down-on-the-ground-real-world benefit, what is your own estimation of the 'worth' of this sort of activity?


ps and if you do manage to find that year old discussion you might understand that I didn't suddenly get mad about this the other day when Trader posted. I accept it is only my opinion, but I think that these sorts of financial activities are basically destructive.

Anonymous said...

tanners, the other thing which irritates is the 'science' behind this sort of trading. Have a read of Gaussian copula:

Understood? No, neither did I.

But just scroll past the eye glazing stuff until you get to its application to derivatives, and ponder the fact that while there are probably only 2,000 people in the world who could actually understand those expressions, there are myriads of traders happily plugging 'stuff' into the variables, and for some reason trusting the result.

And regulators and auditors basically saying to us "well, that's alright then - due diligence observed".

The only thing that saves us, really, is their combined ignorance.

Barnacles, the lot of them :)


A Trader said...

kvd – As it was I who started this maybe I should weigh in at this point. Was it something I said that has offended you. I was merely trying to raise an issue of insider trader. Why you have likened me to a bottom dweller is puzzling. You have every right to express your view on the industry that I work in but your reply is a bit over the top and shows (at least to me) that you have little or no understanding of how it works. So let me enlighten you. I do not trade derivatives, which incidentally have nothing to do with Forex trading. I trade news events that move the currency market. This is a 3 trillion dollar a day (yes 3 trillion) market from which through my own hard work and knowledge I attempt to extract some profit. Given the current interest paid by the banks which as a retiree left me fairly poverty stricken I was grateful to find a mentor who was prepared to teach me the ins and outs of currency trading. Currency is a commodity like any other that is traded openly on the market. It may not be your cup of tea but it provides me with a lifestyle where I can support myself without having to go to the government for handouts. All I ask is that the framework under which I operate be applied equally to everyone. And the government recognises this too which is why the industry is regulated.

But I am not here to convert or insult you I will leave that for others. As this is my first time on this blog maybe Jim could provide some guidelines on what industries are acceptable to comment on.
Regards - A Trader

2 tanners said...

kvd, To answer some questions you asked and others that you didn't: I cant answer how much the scraps were because my interpretation of the graph combined with A Trader's assertion is that both traders and the banks and others constituted that one big jump in the course of a half second. If it was all banks, then the scraps were nothing or negative. I also have no idea how much money was shifting.
As for the real value of currency trading, derivatives trading and the rest, it has very little real world value. As an insurance policy against a real-world trade it is a good thing, but the rest of it is sheer gambling with a poor rate of return. Better to go to a casino and just lose the money in your pocket, while they at least feed you the occasional beer to speed the process.
You didn't ask the final question: I think you weakened your much better later response by a really ad hominem attack. I was quite surprised.

Anonymous said...

kvd, do you really imagine we'd be better off with a fixed exchange rate? We could then just rely on fiscal policy (I suppose)!


Anonymous said...

DG - the short answer is I don't know.

From my limited understanding, a floating currency provides some 'elasticity' in the local economy's reaction to price shocks for the goods it trades - coal price tanks, $Aus to $US moves 'absorbing' some of that reduction, for instance. This elasticity in that conjunction of events seems a 'good thing'.

But I get lost when our currency is said to be floating yet the first thing the new government did was allocate a sizeable sum to the Reserve Bank to assist it with 'defending/managing' the currency - this despite their own dire warnings of budget blowout?

We seem to want to be half pregnant most of the time. Maybe you could assist with your own view because I am way out of my depth, except to say that currency traders, living on the edges of the daily movements in our currency don't seem to actually contribute much by way of actual worth by their activities.


Anonymous said...

The other thing which fascinates me is the actual role of currency.

If currency is fixed that seems to be a reliable way of exchanging goods and services between nations. However, if currencies float then the currency itself becomes a 'tradeable good' - no?

Beyond my paygrade :)


Anonymous said...

Reply to Trader @ 2:52 pm, April 09, 2015 - which for some reason or other I guess Jim's settings delayed publication.

Thank you for your further comment, and I accept it in the spirit of this blog - I assume it is given freely and honestly, from your perspective.

I hope you will accept my now several comments in the same way?

2tanners considered some of my comments 'ad hominem' but as far as I understand it, that term refers to dishonest personal attack, whereas I genuinely, honestly, believe that your activities are destructive. This is not personal; simply my honest opinion.

Mr Stitch (here comes the personal) screeches in once here every six months or so, claiming I 'hog the conversation'. But that's all he ever says; on any topic. It is a bit hard to rebutt that, given the only thing contributed is that I must stop talking, when he never actually does.

So now we, hopefully, come back to your first post, in which you say that because of a probable leak you were disadvantaged in your activity. If you have since read my several follow-up comments I hope you will understand that while I accept your (probably correct) analysis, my own comments were more directed to the worth, if any, of your activity.

There is absolutely nothing personal in this, despite JS' wish to interpret it so.


Anonymous said...

Of course currency is a good not unlike many other goods and services. But it also has other attributes.

Traders and speculators contribute to market liquidity and thereby perform a valuable function.

I agree, it is hard to comprehend precisely why the government 'gave' the Reserve Bank $8 billion. This smacks of a 'dirty float' which defeats the purposes of a free market.


Jim Belshaw said...

Hi all. An apology, first, for not responding earlier. I have been having connection problems. An apology, second, for comments caught in my spam trap.

I think that one might call this a robust discussion. I will respond with a few brief comments later. It's quite early, and I should still be in bed!

Jim Belshaw said...

Now following up my last comment.

We seem to be in agreement that insider trading (if it occurred) on the interest rate decisions was/is not a good thing, so we can put that one aside.

In considering an activity, in this case currency trading, we need to make a clear distinction between the activity and the form that activity might sometimes take.

As DG noted, currency trading adds to market depth. If people are not prepared to buy and sell currencies, then trade, investment flows and normal human activity such as tourism suffers. If the relative price of currencies was set just by demand for and supply of particular currencies to meet immediate transaction needs, itself a currency trading activity, you are likely to find considerable short term fluctuations since trade and investment flows in and out at any point do not match.

In a fixed rate environment, central banks effectively provide the matching service by standing ready to buy and sell particular currencies at a price. In a floating rate environment, the market and its traders have to provide the required liquidity. In this sense, currency trading is a necessary therefore good thing.

Now we come to the form of currency trading. The previous discussions that kvd refers to, and they took place here over an extended period, focused on the way that particular types of trading activity in the financial arena acted to distort economic activity, creating risks for individuals, countries and the entire global economic system. Here kvd was especially concerned with losses to individuals who became entrapped in transactions that they did not and indeed could not properly evaluate.

Can currency trading create distortions? Can it trap individuals leading to losses? Of course it can.

Dealing with distortions first, trader pointed to the size of the daily foreign exchange trade. The gap between the size of the currency trade and the size of the real economy and the transactions in that economy, the presence of huge leveraged dealers prepared to bet billions on particular movements, does create distortions and risks.

This isn’t new, of course. If you look back to the age of fixed exchange rates, the discrepancies that arose between those exchange rates and the real economic position in individual countries created its own distortions and trading possibilities. In the end, the fixed exchange rate system broke because the flows associated with globalisation and global economic growth could not be accommodated in a fixed rate system.

On individuals, we all suffer when big players make leveraged errors. However, there is a more personal element linked to the growing presence of individual players. Each morning standing outside the lift at work, I notice the ads for currency exchange trading platforms. That worries me. People risk being sucked into activities and risks that they do not understand.

I am not opposed to individual currency trading. I have friends who make money out of it. I totally understand trader’s views here, for they go to the heart of open markets and the ability of the small guy to survive in often rigged systems. However, I remain worried by the sales and hype.

Drawing this now long comment together. Currency trading is an essential element in the efficient operations of the currency markets. To call a participant a bottom feeder is not very sensible because (to my mind) it confuses what is done with the way it is done. Clearly, trader is not, although others may be.

Whether trader is sensible to do what he does is another question. If he is an informed participant aware of and able to manage the risks, go to it. After all, it’s fun as well as money.