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Chapter 38 Securities Market: "Gold Panning" in Opportunities and Risks (4)
Beginning in 1979, the European Economic Community, which did not have a unified currency, unified the currency exchange rates of various countries to form the European Currency Exchange Rate Consolidated System.The system stipulates that the currencies of various countries are allowed to fluctuate up and down within a range of 25% that does not deviate from the "central exchange rate" of the European Community. If the currency exchange rate of a member state exceeds this range, the central banks of other countries will take action to intervene.However, the economic development of the member states of the European Community is uneven, and the fiscal policy cannot be unified at all. The currencies of each country are affected by their own interest rates and inflation rates in different ways. Voluntary actions such as those central banks have to buy weaker currencies and sell stronger currencies to keep the foreign exchange market stable during times of strong volatility in foreign exchange transactions.

In 1989, after the reunification of East and West Germany, the German economy grew strongly and the Deutsche Mark was strong. However, in 1992, the UK was in a period of economic recession and the pound was relatively weak.In order to support the pound, the interest rate of the Bank of England continued to rise, but this would inevitably hurt the interests of the United Kingdom. Therefore, the United Kingdom hoped that Germany would lower the interest rate of the mark to ease the pressure on the pound. However, due to the overheating of the German economy, Germany hoped to cool the economy with a high interest rate policy.Due to Germany's refusal to cooperate, Britain continued to fall in the currency market. Although Britain and Germany jointly sold marks to buy pounds, it was still useless. In September 1992, the head of the German Central Bank published an article in the "Wall Street Journal", in which he mentioned that the instability of the European monetary system can only be resolved through currency devaluation.

Soros had a premonition that the Germans were about to retreat, and Mark no longer supported the British pound, so his Quantum Fund borrowed a large amount of British pounds with a 5% margin to buy Mark.Soros's strategy is: before the exchange rate of the pound falls, buy the mark with the pound, and sell a part of the mark after the exchange rate of the pound plummets to repay the pound borrowed at the beginning, and the rest is a net profit.In this operation, Soros' Quantum Fund short-sold the British pound equivalent to 70 billion U.S. dollars and bought the equivalent of 60 billion U.S. dollars in marks, making a net profit of 15 billion U.S. dollars in more than a month. A total of 60 billion US dollars was damaged!
This classic case has become a must-read case for the financial community to study hedge funds.Soros explained with incredible clarity how his fund hedged.

Hedge funds (also known as hedge funds or arbitrage funds) mean "risk-hedged funds" and originated in the United States in the early 50s.The purpose of the operation at that time was to use financial derivative products such as futures and options, as well as the operational skills of real buying, short selling and risk hedging of different related stocks, so as to avoid and resolve investment risks to a certain extent.Although hedge funds appeared in the 20s, they did not attract much attention in the next 50 years. It was not until the 30s, with the development of financial liberalization, that hedge funds had a broader market. Since then, the investment opportunities have entered a stage of rapid development. In the 80s, the threat of world inflation gradually decreased, and at the same time, financial instruments became more mature and diversified, and hedge funds entered a stage of vigorous development.According to the British "Financial Times" report, as of October 20, 90, the total assets of global hedge funds have reached 2005 trillion US dollars.

But after decades of evolution, hedge funds have lost their initial connotation of risk hedging.Hedge funds have become synonymous with a new investment model.That is, based on the latest investment theory and extremely complex financial market operation skills, make full use of the leverage effect of various financial derivative products, assume high risks and pursue high-yield investment models.This investment model has two main characteristics:

1. The means of investment are extremely complex.All kinds of financial derivative products, such as futures, options, and swaps, with increasingly complex structures and constantly refurbished patterns, have become the operating tools of hedge funds.Due to the characteristics of low cost, high risk and high return, these derivative products have become a powerful tool for modern hedge funds to conduct speculation.Hedge funds match these financial instruments with complex portfolio designs, operate when the market fluctuates in the short term in the middle of the market according to market forecasts, and obtain huge price differences when the market returns to normal. 2. High leverage of investment effect.Typical hedge funds often use bank credit to expand their investment funds several times or even dozens of times on the basis of their original fund amount with extremely high leverage, so as to achieve the purpose of maximizing returns.The high liquidity of securities assets of hedge funds makes it easy for hedge funds to use fund assets for mortgage loans.For example, a hedge fund with only $1 million in capital can lend out billions of dollars by repeatedly mortgaging its securities assets.This kind of leverage effect makes a transaction, after deducting the loan interest, have a net profit far greater than the profit that may be brought by only using a capital of 1 million US dollars.But at the same time, it also faces a huge risk of excess losses.

In short, modern hedge funds have evolved into a high-risk, high-return investment method, which is no longer the original meaning of risk hedging.The scale of the deals is also often staggering.

Foreign exchange market: foreign exchange speculation is also a kind of market

In ICBC's spacious foreign exchange trading hall, Xiao Lin was looking up at the constantly flashing foreign exchange quotes on the large quotation screen when he was tapped on the shoulder suddenly.

"Xiao Lin, long time no see!" Looking back, Chen Jun stood behind him with a smile on his face.

"Yeah! I haven't seen you lately, what are you up to?"

"No, I went on a trip to Southeast Asia on 'Eleventh', and when I came back last Friday, I caught up with the U.S. non-agricultural employment data that was lower than expected, which made all non-U.S. currencies rise." Chen Jun said while sitting It came down, "I bought the euro at 1.2330, which was not bad, and ran away at 1.2400. No, the euro fell again on Tuesday, so I came to chat with you."

"Oh!" Kobayashi raised his glasses on the bridge of his nose and said, "Tuesday's fall in the euro was mainly due to the high take-back of previous profit taking, and the bad data in the euro zone. But now it is just close to the lower edge of the previous upward channel at 1.2300. Short-term There should be some support." As they spoke, the two looked up at the quotation together.

After a while, seeing the euro fluctuating up and down, Chen Jun was a little eager to try again. He said: "The euro RSI index dropped to 50 three times and then turned up. Is there still a chance to enter the euro in the short term?"

"It's hard to say. On Thursday, the United States will announce the August trade deficit data. I think it is a bit risky to absorb the euro before the data is released." Kobayashi is like an analyst.

"Is that still the old way?"

“对！周四晚上8：30公布数据，8：25在欧元现价上方20点挂止损单买欧元。”

"It's the safest way to do it!" Chen Jun said firmly.

It seems to be a habit, Xiaolin and Chen Jun always meet in the bank like this, and then discuss the foreign exchange market together.

Kobayashi used to be a bank employee and has been working in the foreign exchange market. He has rich experience and a peaceful mind. He has maintained substantial profits in the foreign exchange market in recent years.Chen Jun was an upstart when he started business in his early years, with high savvy and quick start. After repeated trials and failures in the foreign exchange market, he has now "abandoned business and turned to foreign exchange". Xiao Lin said that investment is also a fashion now.The two met in the Huishi hall in the capital just like this, and became a pair of friends.

Foreign exchange is the abbreviation of international exchange.The concept of foreign exchange can be divided into static and dynamic.Dynamic foreign exchange refers to the financial activity of exchanging one country's currency into another country's currency to repay international debts.In this sense, dynamic foreign exchange is the same as international settlement.Static foreign exchange has a broad sense and a narrow sense.Foreign exchange in a broad sense is the foreign exchange referred to in the Foreign Exchange Control Act.It generally refers to all external financial assets.Article [-] of my country's current "Regulations on Foreign Exchange Administration of the People's Republic of China" stipulates that foreign exchange refers to means of payment and assets expressed in foreign currencies that can be used for international settlement.Foreign exchange in a narrow sense refers to the means of payment expressed in foreign currency for international settlement.

The foreign exchange market refers to the market for the trading of securities such as foreign currency and foreign currency-denominated bills, and is a major component of the financial market.

Due to international trade, investment, tourism and other economic exchanges, there will always be a relationship between currency receipts and payments.However, the currency systems of various countries are different. If you want to pay abroad, you must first purchase foreign currency with your own currency;This creates the problem of exchanging domestic currency with foreign currency.The parity between the currencies of the two countries is called the exchange rate or exchange rate.In order to implement foreign exchange policies and influence foreign exchange rates, the central banks of western countries often buy and sell foreign exchange.All commercial banks that buy and sell foreign exchange, banks specializing in foreign exchange business, foreign exchange brokers, importers and exporters, and other foreign exchange suppliers and demanders operate various spot and forward foreign exchange transactions.All these foreign exchange businesses constitute a country's foreign exchange market.

In the past, most people's understanding of the foreign exchange market was only a concept of foreign currency. However, after several periods of evolution, it has been better understood by ordinary people, and foreign exchange trading has been used as a financial management tool.

The frequent trade exchanges and the increase of international investment make the economies of various countries form an inseparable relationship. Global regular economic reports such as inflation rate, unemployment rate and some unpredictable news such as natural disasters or political instability, etc. can be a factor affecting currency value.Changes in the currency value also affect the international supply and demand of the currency.And the volatility of the dollar continues to compete against other currencies in the world.The result of international trade and exchange rate changes has created the world's largest trading market - the foreign exchange market, a first-class world-class market with high efficiency, fairness and liquidity.

The foreign exchange market is a cash interbank market or an interdealer market. It is not a physical market in the traditional impression. There is no physical place for transactions. Transactions are conducted by telephone and through computer terminals all over the world. Direct interbank The market is dominated by dealers with qualifications for foreign exchange clearing transactions. Their transactions constitute a large amount of transactions in the overall foreign exchange transaction. These transactions have created a huge amount of transactions in the foreign exchange market and made the foreign exchange market the most liquid market.

The "arbitrage" that people flock to

In 2008, under the expectation of RMB appreciation, international hot money was continuously flowing into China.The main purpose of hot money inflows is short-term arbitrage.Only through arbitrage, hot money can get 3% -5% of the income.

In the first quarter of 2008, foreign exchange reserves increased by US$100 billion per month.There are two reasons for the frantic influx of foreign capital into China. The first is the interest rate differential, and the second is the expectation of the appreciation of the renminbi, because the appreciation of the renminbi against the U.S. dollar is relatively fast. In the context of further recession in the US economy, this expectation is even stronger. In the first quarter of 2008, the exchange rate of RMB against the US dollar appreciated by 4.17%, which was the largest quarter of RMB appreciation since the establishment of China's foreign exchange market in 1994.As the outside world expects the magnitude and speed of RMB appreciation to be relatively fast, the speed of short-term capital inflows is also increasing.According to the analysis of authoritative departments, arbitrage and arbitrage can make hot money earn more than at least 10%.

Arbitrage is a form of speculation in which hedging prices in different markets is used to profit from slight price differences by buying or selling a credit instrument while simultaneously taking an equal amount but opposite position in the corresponding market.Using different foreign exchange markets, different types of currencies, different delivery times, and differences in some currency exchange rates and interest rates, you can buy from the low-priced side and sell from the high-priced side to earn profits from foreign exchange transactions.

Arbitrage can generally be divided into three forms: location arbitrage, time arbitrage and arbitrage.

There are two types of location arbitrage, the first is direct arbitrage.Also known as arbitrage between two places, it is to use the difference in the exchange rate of a certain currency in two different foreign exchange markets to buy cheap and sell expensive in the two markets at the same time, so as to earn profit from the difference in exchange rate.

The second is indirect arbitrage, also known as three-place arbitrage.It is to use the same currency to buy cheap and sell expensive at the same time when there are exchange rate differences in three or more places, and earn difference profits from it.

Time arbitrage, also known as swap trading, is a trading method that combines spot trading and forward trading for the purpose of value preservation.Generally, spot and forward transactions are carried out simultaneously between two fund owners, so as to avoid risks caused by exchange rate changes.

Arbitrage, also known as interest arbitrage, is to use the difference in interest rates in the foreign exchange markets of two countries to transfer short-term funds from a low-interest rate market to a high-interest rate market, thereby earning interest income.For example, 1 US dollar can buy 0.7 pounds, 1 pound can buy 9.5 francs, and 1 franc can buy 0.16 US dollars.A person who implements this trading method can get 1 US dollars for 1.064 US dollar, and the profit rate is 6.4%.

In recent years, arbitrage has also become an investment channel for many small and medium-sized investors other than stock funds.

Arbitrage transactions have three characteristics: first, large commercial banks are the largest speculators in arbitrage transactions; second, the amount of arbitrage transactions is generally large, and the arbitrage profits are correspondingly large; third, arbitrage transactions all use wire transfers.These three characteristics constitute the charm of arbitrage, which attracts many people.

Arbitrage business is generally divided into two-corner arbitrage and triangular arbitrage.Two-corner arbitrage is a transaction that uses the difference in the exchange rate of a certain currency between two foreign exchange markets in different locations, and simultaneously buys and sells the currency in the two foreign exchange markets to earn the exchange rate difference; Triangular arbitrage is a foreign exchange transaction that utilizes the currency exchange rate differences between three different foreign exchange markets, simultaneously conducts arbitrage transactions in these three foreign exchange markets, and makes profits from the exchange rate differences.A successful triangular arbitrage transaction must start with one currency and end with the same currency.But any currency can be used as the initial currency type.

(End of this chapter)