"I really didn't expect…"
Godfrey paused and continued,
"In just a few days, the long and short positions in the GBP exchange rate market would increase so rapidly, becoming the most severely accumulated trading product in terms of long and short forces among all major currencies in the forex market."
Gerald responded,
"Bears never die, bulls never stop. The rapid increase in long and short positions in the GBP exchange rate recently is mainly due to the person surnamed Su from 'Huayi Capital' calling on a group of Chinese-funded institutions and retail investors to enter the market to short, suppressing the GBP exchange rate, attempting to rescue their trapped positions, isn't it?"
"That's indeed the case,"
Godfrey said.
"I didn't realize this young man surnamed Su actually has some influence in China's financial circles. However…"
Godfrey paused for a moment and smiled again, saying,
"No matter what influence this young man surnamed Su has in China's financial circles, how much capital and team support he can attract, with the upward trend of the GBP exchange rate established and all major news favoring the upside, especially under the overall trend of major institutions globally hunting for Chinese capital by going long, no matter how the short sellers struggle, it's just a trapped beast fighting.
Furthermore, I hope this young man surnamed Su from 'Huayi Capital' can leverage his influence and various connections to attract more Chinese capital to short the GBP exchange rate.
Because only in this way can long funds be continuously attracted to enter the market, can potential long momentum be continuously accumulated, and can this opportunity be seized to truly hunt down Chinese-funded institutions and reap huge profits."
"Then us… Do we still need to continue increasing our long positions?"
Gerald asked.
Godfrey shrugged and smiled in response,
"Why not? Now is the time to press the advantage. According to the current GBP exchange rate, 'Huayi Capital', the hedge fund managed by this young man surnamed Su, is probably nearing its limit in terms terms of position losses, isn't it?
As long as this capital is forced to give up and take the lead in large-scale position covering, or stop-loss and close out. Then, an internal stampede of short funds is bound to occur. This will also lead to extreme upward volatility in the GBP exchange rate, allowing us to quickly cover our positions and exit after the short sellers are margin called."
Currently, the 'Huanyu' hedge fund managed by Godfrey has already earned nearly $60 million in floating profits from the GBP exchange rate market through continuous short squeezes by the long against the short.
But he is far from satisfied and has no intention of reducing or covering positions.
It's not just Godfrey, and not just 'Huifeng Bank Global Asset Management' as an investment institution.
For example, 'Pacific Capital', 'Barclays Bank Foreign Exchange Trading Department', 'Vanguard Capital', 'UBS International Capital', 'Nomura Bank Investment Department', 'Blackstone Global Asset Management Center Foreign Exchange Investment Department', 'Valyria Hedge Fund'; 'Hashimoto Asset', 'Tianhe Capital'… these investment institutions, which have tasted success in squeezing 'Huayi Capital' in the GBP exchange rate market, have no intention of cashing in, covering positions, and taking profit.
After all, at this time…
Without in-depth research, everyone can see that 'Huayi Capital's 'Huayi Chengyuan No. 1' hedge fund product is on the verge of margin call after a huge loss of nearly $200 million, or has reached the point where it must stop-loss and cut positions to cover.
What's more, the long and short forces on the trading screen are increasing.
This means that the subsequent fluctuations on the trading screen will become more intense.
Once the long side forms an overwhelming position and the GBP exchange rate forms a one-sided trend, they, as market longs, will clearly obtain more substantial profits.
Given these factors, the various institutions that have already tasted success basically have no one considering reducing positions, closing positions, or taking profit and exiting.
Instead, they choose to continue increasing long positions here, continuing to invest capital, squeezing the entering short forces, further compressing the survival space of the 'Huayi Chengyuan No. 1' hedge fund, further forcing the other party to cut positions and cover, or directly forcing them to continue supplementing margin until their capital is exhausted, ultimately leading to a margin call.
This is the approach of many long institutions.
Among them, 'Pacific Capital', as a core long force in the GBP exchange rate market, even increased its long positions by $50 million, approximately 50,000 lots, near the 1.5150 level of the GBP exchange rate.
And as various long institutions continued to increase their positions and squeeze the shorts, on Friday, June 3rd, the GBP exchange rate in the early European session once again hit a new one-month high, reaching 1.5190, just one step away from the 1.5200 mark.
At the same time, as the GBP exchange rate continued to rise, the long positions and short positions in the market also continued to soar.
Both position sizes exceeded 1 million lots, and the net long positions consistently stayed above 200,000 lots, reaching a volume of nearly 1.4 million lots.
This massive surge in position volume and the continuous increase in GBP forex market trading activity not only attracted the attention of major global institutions.
Even major global exchanges and forex market makers felt a sense of trepidation at this time.
"In the GBP exchange rate market, both long and short positions have crossed the 1 million mark."
Inside 'FXCM International', a well-known forex market maker, a group of senior executives gathered again for an internal meeting.
Hubert, the risk control manager, pondered for a long time and proposed,
"Should we increase the margin ratio for GBP trading? The growth of these long and short positions is truly terrifying. I feel that if this continues… the GBP exchange rate trend will inevitably experience drastic extreme changes at some point.
If the long or short defense line completely collapses, leading to a massive amount of short orders or long orders in the market being margin called or covered instantly, it will inevitably lead to another 'Swiss Franc Black Swan' event.
If this situation suddenly occurs, our company will still suffer huge losses if we haven't taken preventive measures in advance."
During the last 'Swiss Franc Black Swan' crisis, due to the instantaneous flash crash of the Swiss Franc exchange rate, which plunged over 7,000 points, it directly led to a large number of customer trading accounts within their company being instantly wiped out in a second.
After that, these massively losing trading accounts that were wiped out were almost entirely abandoned by customers.
This resulted in the huge losses in customers' accounts being forcibly transferred to their company's accounts.
In other words…
In the one second when the 'Swiss Franc Black Swan' occurred, their company incurred losses exceeding $300 million.
This outcome almost led to their company going bankrupt overnight, and it took a year afterward to slowly recover.
Therefore, now, every time Hubert sees a rapid surge in long and short positions in a currency market, he becomes extremely nervous, fearing a recurrence of the 'Black Swan' event.
"We cannot increase the margin ratio."
Facing Hubert's proposed prevention strategy, Salina, the client department manager, strongly objected, saying,
"Currently, in the forex market, numerous global market makers and connected exchanges have not taken measures to increase the standard contract margin ratio for the GBP exchange rate.
If our company, at this time, for the sake of so-called risk prevention, unilaterally raises the margin ratio for GBP exchange rate trading, wouldn't that be actively abandoning customers and driving them to competitors?
Our company's market share has already declined significantly after last year's 'Swiss Franc Black Swan' incident. Now, with market risks not yet evident, and the exchange not having proposed to increase the margin ratio for GBP exchange rate standard contracts, if we do this unilaterally, we would be courting disaster."
"I think Salina makes sense,"
said Sibylle, the trading department manager.
"Before the exchange has clear regulations, if we unilaterally raise the margin ratio for client trading accounts, this will unnecessarily increase clients' trading costs and bring no benefit to our company. It's clearly not something we can do.
Of course, regarding the extreme risk issues that are highly likely to occur in the GBP exchange rate market, we cannot just sit idly by.
I think we can slightly improve the client trading rules, raise the alert line, and at the same time raise the forced liquidation line for trading accounts. Also… from now on, the company's trading department and risk control department must monitor the market 24 hours a day.
My intuition tells me that with millions of long and short orders piled up in the GBP exchange rate market, once the long and short situation is completely imbalanced, extreme volatility is bound to happen.
Furthermore, for our company, I think we need to pay close attention to client trading accounts with particularly large position sizes in both long and short directions."
"Alright,"
Isaac, the company's head of market operations, nodded and said,
"Let's proceed with Sibylle's strategy for now. As for the subsequent situation… we'll see how the market unfolds. It's best for us not to participate in this grand drama of long-short confrontation."
After speaking, Isaac rose from his seat and left the office.
And after the internal meeting at 'FXCM International'…
The GBP market exchange rate, after a brief oscillation, continued to break free from the short sellers' suppression, and with the long sellers pressing their advantage, it broke above the 1.5200 level in one fell swoop.
"Haha, it's at the 1.5200 level! The Chinese-funded short sellers, led by 'Huayi Capital', probably can't hold on anymore, can they?"
Facing the continuous breakthroughs and further gains in the GBP exchange rate, Yamamoto Kyuichi, the core trader at the hedge fund trading department of 'Mitsui Sumitomo Investment Company' in Hong Kong City, laughed heartily.
"After the GBP exchange rate breaks through the 1.5200 level, it will likely continue to accelerate,"
Sato, the hedge fund manager, said with a smile.
"In this long-short battle, this wave of Chinese-funded short sellers, led by 'Huayi Capital', is destined for a crushing defeat, massive losses, and even a margin call exit."
With that, Sato immediately had Yamamoto Kyuichi direct a group of traders to continue chasing GBP long positions at high levels.
By continuously increasing positions, they expanded their holding profits.
Yamamoto Kyuichi nodded and swiftly executed Sato's trading instructions.
As the relevant trading instructions were executed, the GBP exchange rate almost broke upward in a straight line, leaping to refresh the 1.5220 price level.
Seeing the profits from the newly increased long positions explode, for a moment, both Yamamoto Kyuichi and Sato showed excited and thrilled expressions.
"This Chinese capital is truly too foolish,"
Yamamoto Kyuichi sneered.
"I feel that in less than three trading days, the short forces, led by 'Huayi Capital', will completely collapse and fully stop-loss and liquidate, haha… Harvesting Chinese capital and blowing up their positions truly makes my heart incredibly excited!"
Sato nodded with a smile, a confident expression of victory showing on his face, and said,
"Whether in the financial battlefield or past military battlefields, the Chinese… have never been our opponents. This time, they should learn a profound lesson and become more obedient in the future."
However, just as he was complacent and arrogant, almost instantaneously, the GBP exchange rate, which had just surged past the 1.5220 mark, suddenly plunged by over 20 points in an even sharper dive, losing the 5200 price level and wiping out all the efforts of the longs.
"What… what happened?"
Seeing the increased long positions instantly turn from huge profits to losses, Yamamoto Kyuichi was instantly stunned.
Sato also paused slightly, his gaze fixed on the computer information interface.
On the information interface concerning the GBP exchange rate, a crucial piece of news suddenly refreshed.
This information showed that after deliberation and voting by the British Cabinet, the proposal for a 'national referendum on Brexit' was passed, and the process for the 'national referendum on Brexit' was initiated, provisionally set for the 23rd of this month, to decide Britain's future destiny through public opinion.
(End of Chapter)