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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Thursday, June 24, 2010

Technicals are everyrthing

Market of any particular asset is like a tube with a ball inside. Collectives of Bulls and Bears are two people blowing into this tube from both sides simultaneously. The stronger one moves the ball away from him. if there are more bulls then bears, market rallies and vice versa. The problem is if you blow too hard the ball ends up in the mouth of another person and you have to start again. And you definitely need at least two people for this...

The more people follow the same technical indicator the better it will work. Obviously if there are two many people then you know what happens. Why am I mulling about this?

Yesterday I made wrong conclusion in the market analysis of copper charts. Absence of strong resistance levels determined by moving averages in this case should not have resulted in conviction to sell even if correlations held. In other words there was not enough selling power. Technicals are indeed everything!
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