"That's true." Qu Zecai nodded slightly and continued, "However, after the exchange increased the cost of opening positions, the number of small-capital day traders in the market will definitely decrease significantly. I expect the fluctuations in the GBP exchange rate will not be as extreme as before."
Su Yi smiled and said, "It's hard to say. The cost of opening positions has increased, but at the same time, the risk of holding positions has also decreased."
"At least the number of long and short positions in the market will gradually decrease," Qu Zecai said. "As long as the open interest in the market drops, the market volatility will definitely slow down. And I estimate… many highly speculative capital groups will likely choose the gold spot market to speculate on this trading opportunity."
"You're right," Su Yi responded. "The gold spot trading market has now basically become the second battlefield for the clash between long and short major players in this 'Brexit referendum' event. And because trading rules have not been restricted, speculative and hedging funds have already shown a trend of surpassing the GBP exchange rate trading market."
Qu Zecai thought for a moment and said, "Then do we need to set up some positions in the gold spot trading market? If the fluctuation direction of gold spot always shows an inverse relationship with the fluctuation direction of the GBP exchange rate, it seems that adding long positions in gold spot would save more capital than adding short positions in the GBP exchange rate, and the operational flexibility also seems to be greater."
Su Yi pondered for a moment and said, "No, although the current market trend of gold spot forms a negative feedback with the GBP exchange rate trend, its underlying logic is clearly different. There are many factors affecting the price trend of gold spot. We currently don't have an in-depth analysis of these factors, so rashly moving positions to the gold spot market would be somewhat unwise.
Although major exchanges and market-making institutions have further significantly increased the margin requirement for opening GBP exchange rate orders. This is only for newly opened orders in the market.
As for previously opened and unclosed trading orders, they are actually not affected. And our fund product had already completed its position-building target before the release of these trading rules, already holding a massive short position of 300,000 lots.
In other words, under our firm bearish overall trading strategy. As long as the 300,000 lots of short positions in hand are not easily closed, calculated according to our previously set maximum limit holding capacity, not many new orders can be added subsequently.
In other words, under the current market trend. This new trading rule will not have a significant impact on our institution or our fund."
"I hope so." Qu Zecai saw Su Yi's insistence, paused, and then gave up the idea of building positions in gold spot. He continued, "Then let's continue to focus on the GBP exchange rate market."
Su Yi nodded, and his gaze immediately refocused on the GBP exchange rate market.
As time entered the Asian trading session, and with the change in trading rules, the intraday trading volume and fluctuation frequency of the GBP exchange rate showed no signs of weakening.
Facing the increasingly imminent Brexit referendum.
The vast majority of speculative capital groups worldwide were still gathered in the GBP exchange rate market.
"The leverage multiplier for GBP trading has been adjusted to a maximum of 10 times. How come, looking at the trading conditions on the market, the trading volume and fluctuation frequency haven't changed at all compared to the previous US trading session? In fact, instead of decreasing, it seems to be intensifying."
Noticing the still intense fluctuations of the GBP exchange rate and the continuously increasing trading volume at this time.
Among the large number of speculative retail investors gathered on the online trading platforms, someone couldn't help but ask with confusion.
"It's not strange. Although the leverage multiplier for trading in the GBP exchange rate market has decreased and the margin rate has increased, the desire and sentiment of various global capital groups to trade have not decreased. Instead, as the referendum time approaches, this desire and sentiment to trade continue to rise."
"As long as the outcome of this long-short battle in the GBP exchange rate market is undecided, the market's fluctuation frequency and volume cannot easily decrease."
"I think lowering the trading leverage multiplier is not a bad thing."
"Significantly lowering the trading leverage multiplier before the official referendum time arrives indicates that major financial institutions and market-making institutions worldwide have developed preventive strategies after experiencing last year's 'Swiss franc Black Swan' event, and they are all scared, right?"
"How could they not be scared? In the current GBP exchange rate market, the total number of open long and short positions is still above 4 million lots."
"The open long positions in the market have decreased by almost 1 million lots from last night's peak."
"The rate of new open long positions in the market is significantly slower than the rate of new open short positions. Does this indicate that the market's long-short sentiment has reversed at this stage?"
"Major institutional holdings have indeed changed compared to a few days ago."
"Not necessarily. From the overall long-short position scale, the current long and short main forces should be in a state of equilibrium. Moreover, the market is still in a net long position, although the net long position size has decreased from nearly a million lots at its peak last night to within 100,000 lots now, it is still ultimately a net long position!"
"Hasn't the GBP exchange rate in the black market already collapsed? I feel that at this stage, the win rate for short positions is clearly still higher than for long positions, right?"
"That's hard to say. The Bank of England still has several hundred billion US dollars in foreign exchange reserves that have not been used on a large scale."
"Has the GBP exchange rate in the black market almost stabilized?"
"I still feel that at this position, the GBP exchange rate won't fall much further. And from the analysis of the currently public preliminary voting results for this referendum, remaining in the EU is still a high probability."
"Anyway, before the official referendum results are out, it feels like the long and short main forces in the market will still be unable to determine a winner."
"So, before 4 PM, will the GBP exchange rate market still show a sideways fluctuation?"
"It is expected to continue oscillating between 1.4700 and 1.5000. As for returning above 1.5000, I think it will be very difficult unless the referendum result indicates remaining in the EU!"
"If the GBP exchange rate cannot return above 1.5000 before the referendum, then the major long institutional groups in the market… should be in a completely passive situation, right? After all, most long institutions' position-building costs recently have been above 1.5000."
"From the current market trend, the major long institutional groups in the market are definitely in a passive situation."
And just as the speculative retail investors were discussing…
At this time, in the trading rooms of Hong Kong City's 'Huifeng Yuanyu No. 1 Main Hedging Fund,' 'Mitsui Sumitomo Hong Kong City Investment Company Main Hedging Fund,' and 'Tianhe Capital Main Hedging Fund,' Godfrey, Sato, and Gu Chijiang, as the principals of the core long institutional players in the market, were indeed mired in highly entangled emotions, and the main hedging fund products they managed were indeed in an extremely passive situation.
"Mr. Godfrey, do you have any latest market news regarding the Bank of England or the preliminary referendum vote count?"
Facing the main fund account's loss exceeding several hundred million US dollars, Sato, in the internal main fund trading room of Mitsui Sumitomo Hong Kong City Investment Company, had also not slept all night.
Seeing the GBP exchange rate gradually stop falling and rebound near 1.4700 at this time, he couldn't help but ask Godfrey of 'Huifeng Yuanyu No. 1 Hedging Fund' via their instant communication tool, "Do you think the underlying logic for going long on the GBP exchange rate has changed now?"
Godfrey stared at the GBP exchange rate, which had already rebounded to around 1.4760, and replied, "I believe the underlying logic for going long on the GBP exchange rate has not changed at present. Through various data analyses, the referendum results a few hours later are highly likely to favor remaining in the EU. Moreover, the Bank of England's determination to maintain market exchange rate stability, according to the information I have, has not wavered in the slightest."
"Have the preliminary vote counts for Glasgow, Manchester, and Sheffield been released?" Gu Chijiang also asked anxiously at this time, "Has Mr. Godfrey heard any news?"
Among the three interconnected institutions, it was clear that Gu Chijiang and Sato both believed that Godfrey had more up-to-date information.
In fact, 'Huifeng Bank,' as the most powerful large financial institution in the UK, was indeed much stronger than Tianhe Capital and Mitsui Sumitomo Investment Company in terms of market information collection, analysis, and relevant intelligence capabilities.
"London is in the middle of the night right now," Godfrey said. "Related market news is very limited. The current market fluctuations cannot be boosted by news; they can only rely on emotional assistance and everyone's predictions of the referendum results a few hours later."
"Alas, even so…" Sato said, "At this position, with significant floating losses, we are truly passive. Even if we wanted to continue adding long positions, we would face enormous holding pressure and risk."
Although he mentally predicted that the GBP exchange rate would likely continue to rebound.
In terms of specific strategy changes.
He dared not continue to significantly increase long orders, nor to continue betting on the GBP exchange rate's rebound.
Because at this position, if he continued to significantly increase long orders, once the judgment was wrong and the GBP exchange rate experienced another sharp sell-off, the main fund he managed might not be able to hold on until the referendum results were released in the afternoon, facing massive stop-losses or even margin calls.
"Indeed," Gu Chijiang interjected, "I have already reduced a lot of positions and stopped losses on many high-entry long positions, but the losses are still extremely severe. Alas… the long positions added above 1.5000, especially above 1.5200, were simply too many, leading to excessive floating losses, which eroded a large amount of reserve cash, resulting in the current extremely passive situation."
"We must have firm confidence." Godfrey heard their words, knowing that both were somewhat restless at the moment, and couldn't help but advise, "The more passive we are, the more we must have firm confidence in holding our positions. I believe that as the time approaches the referendum, the GBP exchange rate will definitely continue to rebound and recover the losses from last night's short counterattack and sell-off."
The 'Huifeng Yuanyu No. 1' main hedging fund he managed.
Its current floating losses were also very severe.
However, due to the enormous capital size of this hedging fund, the available funds in the account were still relatively ample.
Therefore, Godfrey's emotional fluctuations were still basically stable.
"After the black market exchange rate stabilized, the online and offline exchange rate scissors difference is narrowing," Godfrey paused and continued, "This indicates that the selling momentum dominated by the major short institutions in the market has basically exhausted. Subsequently, whether analyzing from potential news, sentiment, or capital, the GBP exchange rate should rebound significantly, even recovering last night's losses and returning above 1.5000."
Following his firm words…
At 8:42 AM Beijing time, the GBP exchange rate, with the exhaustion of selling momentum, the closing and covering of numerous short speculative orders, and the combined support of many long structures increasing long positions at low levels, indeed rebounded strongly, returning above 1.4800.
And as the Asian trading session progressed, Wall Street short capital gradually quieted down after fighting all night.
This gave the major long capital gathered in core East Asian regions like Hong Kong City, Tokyo, and Seoul, a strong opportunity to counterattack and reclaim lost ground.
At 9:30 AM, as all financial markets in the Asia-Pacific region opened for trading.
The trading activity in the GBP exchange rate market further increased, and at the same time, the market's long sentiment continued to warm up, with net long positions in the market once again climbing to over 300,000 lots.
At 10:07 AM, the GBP exchange rate returned to 1.4870, rebounding over 150 pips from its low.
At 11:17 AM, the GBP exchange rate touched the 1.4900 mark for the first time that day.
However, just as many major long funds in the market and countless intraday long speculative capital groups began to once again anticipate that the GBP exchange rate could continue to rebound, break free, and return to the 1.5000 mark, near 12 PM, after the GBP exchange rate reached a daily high of 1.4923, it began to plummet again.
At 1:20 PM, the plummeting GBP exchange rate once again fell below 1.4850.
At 2:08 PM, the GBP exchange rate again broke below 1.4800, returning to its intraday low.
At this time, there were less than 2 hours until the trading session entered the European market, and one and a half hours until the official start of the referendum.
And as the market trading time approached the official start of the referendum.
In the GBP exchange rate market.
The number of open long positions and the immediate trading volume were also continuously climbing.
In fact, the total number of open long and short positions in the market had already surpassed 5 million lots at this time, with long positions reaching nearly 5.6 million lots, setting a new historical high for GBP exchange rate trading.
In addition to the long and short positions climbing to historical highs.
Major financial markets worldwide.
Across Asia-Pacific, Europe, and America, Chinese capital, Japanese and Korean capital, Southeast Asian capital, European capital, Wall Street capital… all turned their attention to the volatile and rapidly changing GBP exchange rate market, awaiting the arrival of the referendum and the most intense clash of this massive long-short battle.
(End of Chapter)