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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Monday, June 21, 2010

I am back!

It is nice sometimes not to follow the market for a week and then, having cleared your mind, to have a fresh look at the charts... So what's going on?

1. My gold trade idea was wrong as gold in dollars continues making new highs... here's a lesson for me: even if charts look good, going against the trend is a tricky business. Luckily (not a good word for trading ;-)) hypothetical stop order was tight.
2. The other market I liked since the start of this blog - Nymex gas - continues its trend higher having risen by over a dollar since mid May. July contract is consolidating comfortably above $5/mmbtu.
3. Correlation between the usual suspects of risk trade has dropped:

Not sure what to make out of this... will have to look at it further.

4. Correction in risk assets: metals, oil, currencies continues. I will refresh the charts tomorrow as we approach key moving averages:



5. I would have thought that market reaction to news on Chinese currency would be more aggressive. hmmm...

Otherwise there is nothing else interesting to mention today.
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