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How Traders are Taking Risk Into Holiday Conditions

How Traders are Taking Risk Into Holiday Conditions

2015-11-25 01:39:00
John Kicklighter, Chief Strategist
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Talking Points:

• A liquidity drain is almost certain the second half of this week, but the market response is far from clear

• Given the market conditions adjustment, we look at the low to high end of the scale in popular positioning

• Range trading markets that aren't exposed to key risks draws serious contrast to shorting volatility

See how retail traders are positioning in the majors in your charts using the FXCM SSI snapshot.

In the most robust of market conditions, squeezing out the last 10 percent of a range or shorting volatility in fundamentally tumultous times is a dangerous endeavor. When liquidity is drained from the system due to holiday conditions, they are even more perilous. These are the circumstances we face heading as the week matures and heading into the final phase of the year. And yet, the risk hasn't sidelined the appetites of the speculative rank. There is evidence of risk exposure from low grade to exceptional. On the left end of the curve, range-based positions on pairs that have immediate sensitivity to key fundamental thems (like the Dollar's response to rate speculation or Yen's affinity for risk trends) is reasonable adjustment to market exposure. On the other end of the scale, options traders looking to scoop up basis points on the hope of stable markets through key event risk like the upcoming Fed decision is ambitious. We look at how traders are taking risk in the FX and broader markets in today's Strategy video.

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