A low-risk/high reward Soros Style trade

[marbig]

I see that the Swiss National Bank (SNB) has again intervened to hold the Euro/Swiss Franc to 1.20
Swiss National Bank steps back into currency markets - Telegraph

The Eur/Chf of 1.20 will collapse.

Any budding George Soros traders will know that a Central Bank that attempts to hold a currency at a specific level will ALWAYS get beaten by the market.
The Money Market/ Hedge fund sharks can smell the blood in the water as the SNB bleeds from all the Euros that it bought. (It has been buying Euros with Swiss francs so that the Swiss franc would be weaker).

The SNB is now taking sizable losses from its purchases of the Euro over the last 8 months when it started to try to weaken the Swissie. (The Swiss Govt is desperate to weaken the Swiss franc to keep its industries competitive)

But the STREAM of money from Greece to the safe haven of the Swiss Franc has turned into a RIVER of money as Spain and Portugal now weaken and their citizens also send their money to the Swissie safe haven.
It will soon turn into a FLOOD of money to the Swissie as Italy and France get weakened by the elections in the near future and the increase in bond yields.

(High reward) The fall in the euro/swissie is guaranteed by the inevitable and impending future TORRENTIAL FLOODING into the Swissie.
(Low risk) The chance of the SNB being able to engineer a substantial and ongoing weakening in the Swissie is neglible. NO country can continue indefinitely to buy Euros that keep falling in value.

In summary, SELLING the Eur/Chf is an exceptional low risk/high reward trade. It may take a while, but it will happen!

 

[x4x]

Always: COULD, SHOULD, MIGHT - never WILL, DEFINITELY, GUARANTEED.

 

[scose-no-doubt]

How is it low risk? What if they change the peg to 130 today, tomorrow, next month? They did it from 1.20 to 1.30

The fact that we're in an environment where interest rates aren't rising makes this a completely different kettle of fish to Soros's BOE trade.

 

[rsh01]

I see that the Swiss National Bank (SNB) has again intervened to hold the Euro/Swiss Franc to 1.20

Any budding George Soros traders will know that a Central Bank that attempts to hold a currency at a specific level will ALWAYS get beaten by the market.

The SNB successfully pegged their ccy in 1978, how did you do on that trade?

 

[new_trader]

The SNB successfully pegged their ccy in 1978, how did you do on that trade?

For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!

 

[rsh01]

For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!

They succeeded for a 4 years.how long is the OP expecting to hold the trade for?
Quite a few CBs have pegged/floored their ccy successfully, contrary to what the OP is stating.

 

[new_trader]

They succeeded for a 4 years.how long is the OP expecting to hold the trade for?
Quite a few CBs have pegged/floored their ccy successfully, contrary to what the OP is stating.

*LOL*

I knew this would turn into 10p/pip on a 5min chart type conversation...

 

[scose-no-doubt]

For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!

so what happened to the rate after inflation? must have fallen, no?

 

[rsh01]

*LOL*

I knew this would turn into 10p/pip on a 5min chart type conversation...

*LOL*

You £1/pip Y4+ chart type snobs crack me up.

 

[new_trader]

*LOL*

You £1/pip Y4+ chart type snobs crack me up.

Touché!

In late 2009 I sold my flat in the U.K and put more than 50% of the proceeds into another currency and I have been selling the £ every month since then. The point being that you don’t need to be as wealthy as George Soros in order to take a longer term view. If you really think the Swiss National Bank is going to fail (as I do) then you could open a Swiss bank account and start buying the physical currency, this is not a trade suggestion this is just a way to take a longer term view. However you would need to be selling a currency you think is flawed. I would probably do it if I was earning Euros but I am earning GBP and I am already selling it for other stuff.

 

[rsh01]

Touché!

In late 2009 I sold my flat in the U.K and put more than 50% of the proceeds into another currency and I have been selling the £ every month since then.

Congrats on your ccy investment.
Long term v short term trading wasn't the main point of the thread though, if I read the OP correctly. It was that the market will prevail over CB intervention, and 'always"in the opposite direction. Which I disagree with.
Fwiw I also believe SNBs eurchf floor will fail, but in the interim I won't let my long term view get in the way of any day trading opportunities. So I will be looking for longs and shorts in markets regardless of long term bias. Horses for courses.

 

[new_trader]

It was that the market will prevail over CB intervention, and 'always"in the opposite direction. Which I disagree with.

I would advise you to read up as much history as you can on Governments/Central Banks attempts at price-fixing, anything. If there is a Government attempt at price fixing it is usually because the fundamentals and as a result free market forces want to do the opposite. Whether it is the price of gold, wages, interest rates or currency they almost all invariably ended in disaster and abandonment. If it is a bet between free market and Government I would bet on the free market any day. Governments are utterly clueless. Read up about the London Gold Pool or Nixon’s price and wage controls.

 

[rsh01]

I would advise you to read up as much history as you can on Governments/Central Banks attempts at price-fixing, anything. If there is a Government attempt at price fixing it is usually because the fundamentals and as a result free market forces want to do the opposite. Whether it is the price of gold, wages, interest rates or currency they almost all invariably ended in disaster and abandonment. If it is a bet between free market and Government I would bet on the free market any day. Governments are utterly clueless. Read up about the London Gold Pool or Nixon’s price and wage controls.

Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.

But we and the OP were specifically talking about the currency market, and I will repeat- CBs / govts have successfully pegged their currencies (if you had bet against them you wld have lost), please read up on Japan and China pegging to usd (much to the annoyance of the US govt) also.

Its back to that perennially used quote again re the markets can stay irrational much longer than you can stay solvent. And I'm not going to bet against that, but go ahead.

 

[Shakone]

Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.

How sure are you of this? I can think of some markets being much more rigged in the past. Then again, it's hard to measure isn't it.

On EUR/CHF, I think there was another thread on this, and the conclusion seemed to be that the Swiss could print as many francs as they like and use the euros accrued to invest in other areas for as long as they like, until they're ready to change the level.

 

[new_trader]

Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.

But we and the OP were specifically talking about the currency market, and I will repeat- CBs / govts have successfully pegged their currencies (if you had bet against them you wld have lost), please read up on Japan and China pegging to usd (much to the annoyance of the US govt) also.

Its back to that perennially used quote again re the markets can stay irrational much longer than you can stay solvent. And I'm not going to bet against that, but go ahead.

I am replying not because I want to argue (no point) but because I think you have missed the point entirely.

1) The Renminbi is not a free floating currency so it is difficult for people outside of mainland China to invest in it.

2) When a Government price fixes anything it is ARTIFICIALLY keeping the price either too low or too high. That is an indisputable fact and has zero to do with market irrationality. Do you honestly think that if Governments decided to supress the price of gold at US$5/oz that eventually it would stay there of its own ‘free market’ accord? I know we are talking currencies but the principle is the same. Do you honestly think an economy can survive the complete destruction of its own currency? Do you honestly think the SNB is willing to do that?

Anyway, you just keep looking for pinbars or whatever...good luck

 

[new_trader]

Swiss could print as many francs as they like and use the euros accrued to invest in other areas for as long as they like, until they're ready to change the level.

Zimbabwe had the same idea, worked out well if I remember rightly.

 

[forker]

 

[rsh01]

How sure are you of this? I can think of some markets being much more rigged in the past. Then again, it's hard to measure isn't it.

On EUR/CHF, I think there was another thread on this, and the conclusion seemed to be that the Swiss could print as many francs as they like and use the euros accrued to invest in other areas for as long as they like, until they're ready to change the level.

Printing of money is unprecedented
CBs balance sheets growing
ZIRP
Cos the main players are TBTF
Primary dealers can leverage up to 100:1 illegally using customer deposits
Rehypthecation
Fudging of economic numbers
HFTs - flash orders and other nefarious activities allowed by exchanges
Ecb changing retroactively greek bond contracts
Unelected leaders running Eu countries in supposed longstanding democracies
Falsifying sub prime mortagage apps
Illegal transfer of bad assets to off balance sheet - corporate and sovereign

There's prob dozens other more informed ppl can add.

Interesting interview:
Chris Martenson Interviews Charles Biderman: The Problem With Rigged Markets | ZeroHedge

Fire away with yours......

 

[Shakone]

Are you really comparing what Zimbabwe did to Switzerland being able to defend a particular exchange rate? That seems to be a complete misunderstanding of everything involved here.

 

[rsh01]

....That is an indisputable fact and has zero to do with market irrationality. Do you honestly think that if Governments decided to supress the price of gold at US$5/oz that eventually it would stay there of its own ‘free market’ accord? I know we are talking currencies but the principle is the same. Do you honestly think an economy can survive the complete destruction of its own currency? Do you honestly think the SNB is willing to do that?[B/]

Anyway, you just keep looking for pinbars or whatever...good luck

No,I am not thinking / saying any of those things and never have done, you are saying them.

I agree mkt intervention by a CB cld have catastrophic consequences, but I cannot predict when this will happen and by how much. What happens if euro goes on massive bull run now? What as someone else mentioned the floor is risen by SNB to 1.3? Sell some more? I doubt it can happen, but it may.

And how can I be missing the point when once again you bring up markets contrary to the OPs post? I am saying I cannot predict which way the market (any market) is going, and I would definitely avoid betting against a CB peg of its ccy. And I don't care which way it goes cos its irrelevant to my trading.

You obviously can predict which way it is going, and you will bet on it - well done, many congrats seriously. Leave the crap quips (10p a pip / pin bar) aside though.

Fwiw the reason I replied to the OP was cos he seemed to assume selling eurchf is a free money trade cos the CB will always lose - but its not that easy is it (he's betting against the euro so there's a lot more factors to look at rather than just SNB has pegged it = that work! it has been down at this level for 6 mths now). There seems to be a massive focus by ppl wanting to be right everytime re which way the market is going (I did this at the start also) which imo is much harder than finding a strategy that has a win ratio >33% and a RR1:3...whatever your style.

This type of trading/investing (whatever you want to call it) is not for me for reasons outlined above, is that ok?

I am just repeating myself so gonna leave this thread alone.

Happy trading all.