《外汇交易实战图表与交易心理 》 作 者：(新加坡)许强 (美国)Gary Weiss

To address this point it is useful to view hedge funds as being, in many ways, the first level of critics to a central bankpolicy mandate in general. The reason for this is that hedge funds as a group are mostly concerned with valuation models that appear unsustainable. When analyzing broad policy, the issues of whether this disagreement can then be turned into a trading expression, is mostly how the larger hedge funds tend to formulate their decisions. The situation involving the Bank of England was a classic case of just this type of dynamic. Prior to the breakdown of price support for the Pound Sterling a gainst the Deutschemark, the Bank of England had intervened unilaterally on multiple occasions, for the purpose of supporting the currency against the perceived outside policy band at the time. The hedge funds, did not take immediate action at this stage however, but rather chose to watch the situation unfold. During the initial phase of the exercise, the policy of the Bank seemed to hold.

Only after watching the market for a number of days however, did the hedge funds come to realize that the intervention would be unsustainable. This led to the hedge fiinds betting in huge numbers against the success of the single bank being able to support the rate on a unilateral basis. In doing this，the hedge funds chose a very particular sense of timing and began to sell increasingly larger amounts of sterling at the end of the European trading day. Additionally, these trades were mostly executed through dollar equivalents as opposed to the outright cross rate. The thinking of course, was that these two trading parameters would be the most difficult for the Bank to defend against. Which, of course proved correct. The point here however, is that even though hedge funds can trade in sizethat is big enough to move the market, often times these trades are done in a reactive mode against a view towards unsustainable policy. This means, once again that the real issue for trying to follow the impact of a hedge funds trading, may actually go back to an analysis of the underlying economic environment in the first place.

Against this backdrop of action versus reaction between the central banks and the large hedge funds that try and second guess their policy initiatives, is the environment for “cor porates” or what might be termed as real money users of the foreign exchange market. In this case, as opposed to the two other types of trading vehicles, corporate users, access the foreign exchange market usually for the purpose of physically transferring funds, or, in certain situations, to hedge against price movements related to production activity in the future. Unlike the central banks and hedge funds，however, the trading related to this specific group of users is not necessarily indicative of price movements in the future. The reason for this tends to relate, interestingly to the issue of leverage. When a corporate user trades foreign exchange it is usually for a specific amount that will eventually be physically delivered at maturity, or for an amount that represents the same.

This is very different from either a central bank or a hedge fund. In the case of a central bank, they will trade in large part as to their position against either existing reserves, or the implied shift that will eventually change the makeup of those existing reserves. The hedge fund, while not dealing withreserves exactly, can also be looked at within the same context. Meaning that the amounts traded relate to nothing more than the leveraged amount of capital that would be used to fund a particular trading strategy. The net result of these issues is that they both result in enormous multiples of positions being put on, that in many ways bear no resemblance at all to the physical needs for delivery that might be expected to take place within the market at some future point in time. While noting that the movement of certain large corporate users may at times provide a short term price spike in the market, this is generally quite limited. Also, because these trades occur somewhat independent of policy moves by central banks or intervention programs in general, they are often much more difficult to discern.

With regard to the last broadly defined trading group, these being the speculative, or chart traders in general, they tend to view the category of corporate or real money trading as being particularly less useful to observe, as opposed to that of either the hedge funds or central banks. Which is interesting given the context of what the speculators tend to do in general, that is, identify and follow technical as opposed to the fundamental issues within the market.

The result of this particular dynamic is that technical price levels which are initially established by the hedge fund and central bank trade activity, will often times be then further exaggerated by the additional add on trading done by the speculator group. All of which goes to the argument as to why markets tend to overshoot price levels or areas that are agreed to be representative of parity or sustainability in the first place. As a practical matter, chart and speculative traders tend to form one of the largest parts of the foreign exchange market. However, they are also one of the least understood. Since, others often dictate market direction, it can be argued that there really is no mandated reason for the existence of this category of traders. Further, this reactive type of trading atmosphere often creates a self fulfilling type of trade cycle because others can often anticipate the movement of markets in and around certain known chart points. Including in this context, the hedge funds and the central bankers that, as I have mentioned, tend to initiate the oianic movements within the market by virtue of their own activity.