I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

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Friday, May 7, 2010

2010 May 07 - Note for today

Have electronic trading just saved us?

For those who do not know what happened yesterday, check any financial or general news website.

I mentioned already that since Tuesday this week it was fear that was driving the market. In normal conditions it would take weeks to hit that many stop loss orders and margin calls. Now many people that were invested suddenly aren't any more. So it is time to reassess your views and decide which way to invest your money.

But the story goes on, which country will investors choose to test its credibility? Mr Trichet did not say anything meaningful yesterday about EU crisis. I actually think it is a computer that writes speeches for him.

Looks like markets will take a breather for today and focus on NFP instead.
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