"初生牛犊不怕虎" - true,
Let's see how it works out over the longer term...
(18-01-2015, 12:05 PM)opmi Wrote: [ -> ] (18-01-2015, 09:05 AM)edragon Wrote: [ -> ]A Hedge Fund With $830 Million In Assets Went Bust After The Swiss Franc Surge LINK
" lost almost all its money"
"clients' money?"
No need to see also know the fund used lots of leverage
to magnify 'arbitrage' returns. Or write a lot of naked puts. Never read 'When Genuis Fails'
Without leverage, almost nobody will want to trade currencies.
For example, a normal day fluctuations for Euro/Dollar would be about 80 pips that worked out to USD80.00 for USD10K invested. With leverage of 1:43 you get USD3,440 as a possible gain or loss.
Talking about Leverage. The same with properties in a neighbouring country, the markup of false value is 10% (through discount mechanism) so it used to be 90% loan so in effect one do not need to come up front anything but just the 5K deposit until TOP. With the tighter rules, those times are gone. Even after TOP the leverage is very high if one can get the loan approved. But...
(18-01-2015, 12:41 PM)opmi Wrote: [ -> ] (18-01-2015, 12:21 PM)Musicwhiz Wrote: [ -> ]The dangerous effects of leverage can be seen from this CHF debacle.
The same may also happen for real estate, though people probably can't imagine it occurring. Real estate is much more illiquid than currency, so sharp falls may be exacerbated.
Coz they are 30-40somethings who were still in school
when the AFC erupted. 初生牛犊不怕虎
Ya! Here the happenings:-
Key people
Myron S. Scholes
Robert C. Merton
Products
Financial Services
Investment management
Long-Term Capital Management L.P. (LTCM) was a hedge fund management firm[1] based in Greenwich, Connecticut that used absolute-return trading strategies combined with high financial leverage. The firm's master hedge fund, Long-Term Capital Portfolio L.P., collapsed in the late 1990s, leading to an agreement on September 23, 1998 among 16 financial institutions — which included Bankers Trust, Barclays, Bear Stearns, Chase Manhattan Bank, Credit Agricole, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Paribas, Salomon Smith Barney, Societe Generale, and UBS — for a $3.6 billion recapitalization (bailout) under the supervision of the Federal Reserve.[2]
"LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000."
NB:-
Most people agreed "LTMF" failed because of you guess it right-OVER LEVERAGE.
Over leverage is the only common denominator in ALL financial crisis. Even good fundamental ideas can be disastrous once over leveraged.
What is peculiar about Everest case is that they got their risk/reward so wrong. SNB was defending CHF on the upside and Everest was basically betting they will succeed. If they did, the reward is small but conversely will be huge. This is not hind side bias but it's been the case for many soft pegged currency. Because of this asymmetrical return, hedge funds will always bet against the authority, rather than because anti-establishment etc. If central banks understood this they will understand why they should never draw a line in the sand because that automatically attracts all these asymmetrical trades
These are risk that you cant measure just looking at volatility
http://www.valuebuddies.com/thread-6143-...#pid105152
For example in HKD, one would almost always position long HKD, just as Ackman did with HKD options
Gonna exchange my swiss franc now!
Pounds seems to be doing well too now
-- via Xperia Z1 with tapatalk