News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
More View more
Real Time News
  • Copper prices may continue to push higher despite a worrying surge in Covid-19 cases and the lack of progress in Congressional stimulus negotiations. Get your #copper market update from @DanielGMoss here:https://t.co/N2OW566nID https://t.co/VJfjTNDdZI
  • The US weekly jobless claim number came in at 870k, in line with expectations. This marked a 4th consecutive weekly reading below 1 million mark, but the rate of improvement in the jobs market appeared to have slowed recently. https://t.co/7pEUQk80C8
  • What is the outlook for financial markets ahead of the first presidential debate and how are Democratic nominee Joe Biden and President Donald Trump doing in the polls? Find out from @ZabelinDimitri here:https://t.co/QQwAZTxZFg https://t.co/MSOw9DeSxe
  • Wall Street Futures Update: Dow Jones (+0.415%) S&P 500 (+0.417%) Nasdaq 100 (+0.466%) [delayed] -BBG
  • - Trump popularity slowly returning despite a surge of US-based coronavirus cases - Democrats drafting $2.4 trillion aid package as urgency for more stimulus swells - #AUDUSD testing key support at 0.7018 – will a break here accelerate the selloff? https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2020/09/24/AUDUSD-at-Key-Support-Trump-Popularity-Edging-Up-Despite-Virus-Spike.html
  • Looks like the #nifty50 is heading for its worst week since early May (-6.08%), over 4 months ago, granted we still have Friday's session left $USDINR has also been climbing lately Might this continue? Stay tuned for a technical special later today! https://t.co/1vdbgAWs0s
  • The US Dollar could gain as it forms bullish technical formations against the Singapore Dollar and Malaysian Ringgit. USD/PHP may have bottomed, will USD/IDR rise next? Find out from @ddubrovskyFX here:https://t.co/3UIKmbLIvD https://t.co/vdL3w1KxIZ
  • Australian Dollar Outlook - via @DailyFX: AUD/USD bulls search for support around two-month lows as market sentiment seemingly improves, but the Aussie could remain under pressure as volatility lingers. Full Analysis - https://www.dailyfx.com/forex/market_alert/2020/09/24/australian-dollar-outlook-aud-usd-drops-to-fresh-two-month-low.html $AUDUSD $AUD #FX #Forex #Trading https://t.co/HJqlMqAvt2
  • $USDCNH reversing lower after bursting over 1.5% from the yearly low. Could this be indicative of firming market sentiment? https://t.co/9CDc2Lukuc
  • Heads Up:🇬🇧 Gfk Consumer Confidence (SEP) due at 23:01 GMT (15min) Expected: -27 Previous: -27 https://www.dailyfx.com/economic-calendar#2020-09-24
When Risk Doesn't Pay, Beware

When Risk Doesn't Pay, Beware

2017-12-29 17:15:00
John Kicklighter, Chief Strategist
Share:

Talking Points:

  • Most market participants worry about opportunity while too few consider where value is coming from
  • There are times when market levels diverge from value - high return and low risk is a 'free lunch', the alternative a problem
  • Our current market conditions reflect a troubling over-indulgence that could very well have no alternative end but a crisis

See how retail traders are positioning in the FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.

Do you pause to consider what the true value of a trade you are going to place? I don't mean an assessment of the technical pattern the asset may be carving out or even the favorable data print's contribution to an underlying fundamental theme. The value I am speaking of runs more to the systemic level. At its foundation, all investment is placed in the pursuit of return at the risk of possible loss of one's initial funds. The basic equation amounts to a higher risk earning greater return and vice versa. This may seem obvious on the face of it, but I certainly don't consider the weight of this arithmetic enough; and my impression is that many others forgo that very assessment for a temporary trade setup - what most investors would consider chasing 'noise' in the overall 'signal' of the trend. Yet, when the cost to enter the market deviates significantly from the true value of the market, it could be a signal of considerable opportunity or potentially destabilizing risk. We face one of those scenarios right now.

Situations do occur in the annals of market history where there is an inordinately high rate of return despite a low accompanying risk to the exposure. This is often referred to as a 'free lunch' and you can imagine what happens when they pop up: well-informed and very-observant market participants jump on them. Though imperfect, I use the analogy of exchange rates keeping close relative value through cross exchange rebalancing (what is in financial circles referred to as 'triangular arbitrage'). If there was a difference between EUR/USD and a synthetic of the same pair approximated through a EUR/JPY and USD/JPY exposure, there would be a virtually risk-free trade. Yet, in a market this liquid and transparent, rarely does such an instance occur. There are large market participants that dedicate a lot of money to exactly this game. When 'free lunches' do occur, they are snapped up and their 'resolution' can be abrupt but is rarely disruptive. That is not true for the opposite scenario.

More frequent than free lunches in the financial markets are instances when prices for assets far outstrips the value they represent. We currently find ourselves in just such an environment from the most familiar benchmark (like the S&P 500) to the most arcane (high risk derivatives). What leads the market to such situations changes from period to period. One of the most obvious and powerful forces in our current off kilter market is central bank policy. The world's largest monetary authorities scrambled at the height of the Great Financial Crisis to stabilize the global system and to ward off a more crippling recession. They were successful after an aggressive effort over the span of 2 to 4 years. But then they kept on going. They lower rates to near zero - some actually to zero and a few even into negative territory - and continued to venture into unorthodox stimulus programs. This flooded the market with an abundance of capital to invest, yet the opportunities remained the same and even contracted in some instances. The result was rapid asset inflation - an increase in cost without the value. What is most troublesome in this gap is that the rebalancing is nearly always disruptive, frequently spurring on economic and financial crises. So, what is the value of your exposure? We focus on the imbalance of risk and reward for traders and entire markets in today's Strategy Video.

When Risk Doesn't Pay, BewareWhen Risk Doesn't Pay, Beware

To receive John’s analysis directly via email, please SIGN UP HERE

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES