At the same time that Su Yi was analyzing the current market trend of the GBP exchange rate, fully anticipating its subsequent movements, and providing new trading strategy guidance.
At the same time, in Hong Kong City, inside Mitsui Kaiyu Investment Company's main fund trading room.
Sato, who had already established immediate communication with Godfrey, the principal of 'Huifeng Global Asset Management Universe Hedge Fund', looked at the GBP exchange rate, which was still fluctuating downwards and had begun to test the 1.5320 level.
He also observed the real-time changes in the number of long and short positions in the GBP exchange rate market and asked Godfrey:
"Old friend, the short positions in the GBP exchange rate market are still surging, it feels like the market's long-short dynamic is reversing!"
Godfrey smiled and replied:
"Mr. Sato, there's no need to be nervous. In the financial market, the price of any underlying asset cannot rise indefinitely.
At this moment, under the large-scale counterattack of the main short-selling funds in the market, influenced by market sentiment, many short-term speculative long positions are bound to cover their shorts and close positions. Therefore, the brief pullback of the GBP exchange rate is normal.
As far as I know... Currently, the Bank of England's monetary policy direction has not changed, and its open market operations have not stopped. Also, regarding the referendum results on the 23rd next week.
Although the main short-selling institutions in the market are heavily exaggerating the uncertainty of the outcome, based on our preliminary research data and the unanimous opinion of almost all officials within UK government agencies, they all believe that a 'Brexit' outcome is simply impossible, and in the future, the UK will remain a core member state of the EU.
Therefore, fundamentally speaking, the underlying logic for the GBP exchange rate to rise has not changed in the slightest.
Moreover, due to the short-selling narrative heavily promoted by the main short-selling institutions in the market this time.
From another perspective, the expected difference for the GBP exchange rate to rise in the future has actually widened. Once the referendum results are announced on June 23rd, and everyone confirms that the 'Brexit referendum' is a farce, the GBP exchange rate will definitely recover quickly upwards.
At that time, let alone reclaiming the 1.5500 level, even the 1.6000 and 1.7000 levels above are to be expected."
Sato replied,
"I'm not nervous. It's just that I find it somewhat surprising that the main short-selling institutions in the market can still heavily promote their short-selling logical views at this time, guiding market sentiment, and massively continuing to add short positions to suppress the GBP exchange rate market trend. Especially the movements of 'Aberdeen Asset' and 'Huayin International' at present.
Looking at the view of Mr. Frederick, the chief hedge fund manager of 'Aberdeen Asset Evolution No. 1', he intends to use the tens of billions of dollars under his management to fight to the bitter end with the GBP exchange rate.
And 'Huayin International' entering the market at this time...
Based on my past dealings with 'Huayin International', it's clear that this international financial investment institution, with its Chinese capital and state-owned background, is very conservative in its investment strategy style.
I truly didn't expect this institution to cooperate with 'Huayi Capital', which is deeply entrenched in the market, and openly short the GBP exchange rate at this position."
Godfrey said,
"This point is indeed somewhat surprising. Mr. Su from 'Huayi Capital' still cannot be underestimated. He actually managed to persuade 'Aberdeen Asset' and 'Huayin International' to jointly short the GBP exchange rate. His influence is truly extraordinary.
However... Given that there is no change in the GBP exchange rate trend and its underlying logic. I actually think that the concerted counterattack by the main short-selling forces in the market at this time, and the sharp increase in short positions due to continued short-selling, are actually a good thing."
"A good thing? How so?"
Sato was slightly stunned.
Godfrey replied:
"The heavier the short positions in the market, the greater the pressure the shorts will face if the long positions in the market then consistently go long and force a short squeeze.
Moreover, the larger the short positions in the market.
The greater the market movement space created by the shorts being forced to stop-loss and cover in the future, the higher our expected returns will be."
Sato said, "The premise of your assumption, is that the short forces in the market must be crushed."
Godfrey said:
"As the referendum day on June 23rd approaches, and with further open market operations by the Bank of England, as well as increased long positions by institutions like you, me, and other long players in the market to force a short squeeze.
When everyone fully understands that the 'Brexit referendum' is a farce and completely realizes that neither other EU countries nor the UK economy can do without the entire EU system and that the vast majority of UK government officials will further resolve this round of Brexit crisis.
Then continuous short squeezes by longs and forced stop-loss covering by main short-selling forces in the market are foreseeable events.
Furthermore, I wonder if Mr. Sato has noticed...
Although in the past two days, with the counterattack of the main short-selling institutions and the covering by short-term long positions in the market, the market's long-short dynamic has temporarily favored the shorts.
However, in terms of the number of newly added long and short positions. Even as short positions in the market increased, long positions in the market were also on a continuous upward trend. This indicates that the newly added long-side strength in the market is still continuously increasing.
And, as far as I know. The hedge fund products managed by Mr. Yabuke of 'Pacific Capital', and the tens of billions of dollars worth of fund products managed by Ms. Andrea of 'UBS International', are also continuously increasing their long positions in the GBP exchange rate."
"Is that so?"
Sato heard Godfrey mention that 'Pacific Capital' and 'UBS International', two major global institutions, were still continuously increasing their long positions in the GBP exchange rate.
His previously wavering confidence became firm again, and he replied with a smile,
"It seems these main short-selling institutions in the market are truly at their wits' end, making a last stand. Alright... since the chips on this long-short table are accumulating more and more, I might as well follow suit and make another bet."
"Mr. Sato, you are wise,"
Godfrey said with a smile.
"With the current accumulated number of short positions in the market, once the short-selling sentiment collapses and they start trampling each other, it can bring at least 3000 points of market fluctuation to the GBP exchange rate. And a 3000-point market movement... is already enough for all of us to make a fortune."
Sato nodded slightly, already looking forward to that scene in his mind.
After their brief discussion...
Sato came back to his senses and instructed Yamamoto Kyuichi to lead the trading room's trading team to continue increasing their long positions in the GBP exchange rate.
"Mr. Sato... perhaps we should wait a bit longer,"
Yamamoto Kyuichi said.
"At this moment, it feels like on the market trend, the short-selling pressure hasn't fully dissipated. From a short-term perspective, the GBP exchange rate still needs to retest the 1.5300 level."
Sato thought for a moment and said:
"As long as the underlying logic is sound, there's no need to overly concern ourselves with a dozen or twenty points of price movement."
"Alright,"
Yamamoto Kyuichi nodded.
He then issued the order to the trading team members behind him to continue increasing long positions.
And with the continuous input from both long and short players in the market.
At 2 PM, the number of open long and short positions in the GBP exchange rate market once again hit a new recent high, while also approaching a 10-year high.
"My goodness, the number of long and short positions in the GBP exchange rate market is still increasing."
Witnessing the open long positions in the GBP exchange rate market once again exceed 2.5 million lots, while short positions also approached 1.8 million lots, Angus, a risk monitor in the Risk Control Department at 'FXCM International' headquarters, was shocked.
He hastily reported to Hubert, the Risk Control Department manager:
"Manager, the number of long and short positions in the GBP exchange rate market is still continuously surging. If this continues... the probability of extreme market volatility erupting will become increasingly high, and market fluctuations will become more violent. Our institution probably needs to further control risk."
Hubert said,
"The national referendum on June 23rd is approaching, coupled with the recent market operations and monetary policy expectations released by the Federal Reserve and the Bank of England, which has led more and more market speculators to flock to the GBP exchange rate market.
Alas... it now seems certain that extreme market conditions will occur in the GBP exchange rate market. We just don't know this time... whether the longs will be forced to liquidate or the shorts will be wiped out."
"It looks like the probability of an extreme upward fluctuation in the GBP exchange rate is higher,"
Angus said.
Hubert smiled and replied:
"Regardless of whether the extreme market volatility of the GBP exchange rate is upward or downward, it poses a risk for our trading platform institution. Take a look... among all our clients' current holdings, is it a net long position or a net short position situation?"
Angus replied:
"No need to look. Among our institution's current client holdings, the net long positions, although slightly reduced compared to two days ago, still stand at 123,000 lots."
Hubert frowned slightly and said,
"Long exposure risk. It seems we need to further restrict clients from opening positions in the 'GBP exchange rate' trading instrument. With 123,000 lots of long exposure, if the GBP exchange rate subsequently collapses instantly, leading to extreme downward market conditions, with just 3500 points of movement, our company would likely face complete bankruptcy."
"Can we use proprietary funds to establish an equivalent 123,000 lots of short positions to hedge the long exposure risk?"
Angus asked.
Hubert replied:
"If our institution were gambling against our trading clients, then naturally that would be possible. But that's not the case right now. If we use proprietary funds to establish an equivalent short position for hedging, then... what if the subsequent trend of the GBP exchange rate experiences extreme upward volatility?
Then our 123,000 lots of short positions used for risk hedging would face liquidation. And for the 123,000 lots of long exposure positions opened on our platform, the profit portion must entirely go to the clients, and has nothing to do with us."
Angus sighed softly and said,
"Alas... It seems... the only method we can use is to continue restricting clients from opening positions in the GBP exchange rate."
Hubert nodded slightly, then quickly found Isaac, the company's Head of Market Business.
Under Isaac's chairmanship, another internal meeting was convened.
"Continue to restrict client positions?"
Upon hearing Hubert's proposal, Sarina instantly bristled.
"Then should we also ease our department's performance review?"
Hubert said,
"This is to prevent a repeat of the 'Swiss franc Black Swan' event. Ms. Sarina, I'm not targeting your department. Given the current accumulated number of long and short positions in the GBP exchange rate market, I believe what we should be considering at this stage is how to prevent extreme risks, not how to win over clients."
Sarina sneered,
"Heh heh... Easy for you to say, the client department's performance has nothing to do with you, so of course you can say that. In any case, I disagree with the proposal to continue increasing the margin ratio and further restricting clients from opening positions in the GBP exchange rate market."
"Cybele, what do you think?"
Isaac, the Head of Market Business, turned his gaze to Cybele, the Trading Department Manager.
Cybele thought for a moment and said:
"Analyzing all aspects of current market information, the probability of extreme downward volatility for the GBP exchange rate at historical lows is not high.
Moreover, we have already increased the margin ratio for clients opening positions in the GBP exchange rate market, and at the same time strictly monitored the capital movements of client trading accounts, setting extremely stringent forced stop-loss and liquidation rules. Overall... extreme risk has been limited by us.
Due to the previous restrictions on opening positions and the increased margin requirements.
Recently, our institution's new clients were already decreasing year-on-year. At this time, if we continue to further increase the margin ratio and further raise the stop-loss liquidation line, it will cause strong dissatisfaction among clients.
In terms of overall analysis, I believe Manager Hubert's proposal would do more harm than good for the development of our company's Market Business Department, and I also disagree with doing it."
"Alright."
Isaac, the Head of Market Business, nodded slightly, thought for a moment, and rejected Hubert's proposal.
"Then we'll proceed according to the previous trading rules for now. However, the Risk Control Department and Trading Department must remain vigilant during this period, pay attention to abnormal market fluctuations, and also monitor the margin status of many clients."
"Understood,"
several people nodded in response.
Hubert felt somewhat uncomfortable seeing his proposal rejected.
But since the company had made a decision through an internal meeting, he couldn't change it.
He could only follow Isaac's opinion and pray that the direction of the subsequent extreme market volatility in the GBP exchange rate market would lean towards the long side.
And it seemed his prayer was answered.
After the 'FXCM International' internal meeting...
When market trading hours once again shifted into the European trading session.
The GBP exchange rate market, temporarily suppressed by shorts, once again experienced extremely volatile fluctuations.
The GBP exchange rate rapidly surged at the beginning of the European session, climbing from around 1.5300 to the 1.5350 mark, recovering 50 points in less than half an hour and restoring the confidence of long-position investors in the market.
(End of chapter)