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Daily Archives: February 6th, 2015

2014 was a year of I don’t know what to say!

Practically, the first half the year was dead boring with the markets not really moving anywhere and we saw that in the low volatility.

Nonetheless, we as traders owe it to ourselves to sniff out trades to the best of our abilities.

What made me feel very uncomfortable was the fact that the global economies were diverging which means that through time uncertainty will spike up volatility.

I decided to reduce our leverage in our trading from our usual 5X to 10X down to 3X to 5X, this of course, means that our absolute returns will also be affected.  However, my view is that it is better to be safe than sorry.

Our average leverage throughout the year was 4X of our principal.

We did 28 trades throughout the year both spot trades and options which was less than half of the trades we did in 2013.

We decided to stop trading at the end of October as the markets was just getting too crazy with too many central bankers talking too much and at the wrong time.  The markets was just swinging like a see saw………violently.

We locked in an absolute return for 2014 of 68.36% p.a., a far cry from the 290% p.a. we did in 2013.

I shall be writing my thoughts for 2015 in the near future.

Ever since RBZ lowered its rates last month, speculation was building in the marketplace about whether the RBA would or wouldn’t lower its interest rates as well?

A week coming up to Ferbruary 3rd saw numerous analysis put out by Bloomberg, Reuters and of course, the banks.  Speculation that the RBA wouldn’t lower rates because it is concern about the high property prices and high cost of living.

Guess what?

At 11:30am, the RAB announced a 0.25% rate cut down to 2.25% from 2.50%.  Surprise surprise!!  Then again, I do not believe it was a surprise, however, none of us have a crystal ball, so he really can’t say for sure what the RBA was going to do.

However, my hunch was that it would cut rates because of mounting pressures.  So I placed a stop if offered level at 0.7765 when the spot rate was 0.7805, about 10 minutes before the announcement.  I also placed a stop if bid at 0.7835.  In addition, since my inclination was rate cut I decided to gamble with buying a put option at 0.7765 for one day with a premium of 35bps, expiring on February 4th 10am NY time.

When the announcement came out, the AUDUSD fell off the side of the cliff falling over 100bps within 5 minutes.

My stop if offered order was activated at 0.7770 and I squared the spot trade at 0.7659 for a trading profit of 106 bps.

I also decided to buy back the option and locked in another 100bps trading profit.

Thank you RBA, I secured a 206bps trading profit within 10 minutes of the announcement.

What a great start to the month of February.