附录

市场的真相

(英文原版及名词解释）

The players and how they interact

There has been great deal written about the focus of several large players within the foreign exchange markets and whether their singular activities are, themselves, capable of predicting or for that matter even exacting change on rate structures both now and in the future. In many ways this is a topic that is not particularly straightforward because there has historically been a focus towards the actions and results of a singular group, as opposed to the inter relationships between them. As a general comment, I believe this analysis tends to be lacking，mostly because the market structure of its component participants are invariably interlinked. Further, the basis for action of one group within the market often causes a reaction eunount the other groups. To put this in perspective, it is necessary to first define broad groups of maricet participants into large bands. For this purpose I will categorize certain groups that may, themselves have a degree of crossover, but can also be maintained within a generalized definitional context. These are:

1.Central Banks

2.Large hedge funds

3.Fundamental “real money” position takers, including corporate hedge vehicles.

4.Chart based speculative traders.

In the case of central banks, there has always been a certain enigma surrounding their particular functions and generalized role within the foreign exchange markets. Moreover, de pending on the region or particular monetary policy within a zone of influence, their activity can be more or less proactive with regard to intervention. Specifically, it's worth trying to classify various types of intervention that might be undertaken because there are tremendous differences as to the goals and issues associated with each. First, and probably the most widely followed is what might be called " concerted intervention" • This is an activity that is really quite infrequent and has mostly to do with a group of central banks acting to influence valuation mismatches that are broad, and across multiple geo political lines. One of the more notable examples of concerted inter vention occurred during the mid 1980^s corresponding to the Plaza accord, wherein the accord itself stated an agreed upon broad mandate to bring down the dollar valuations against a wide group of currency. In this instance, the shared mandate was in the interest of most parties to act upon. As a result, the US Federal Reserve, the Bank of England, the Bank of Japan, and The Bundesbank all acted with a singular purpose and coordinated their intervention entry and exit points so as to effectively move the currency market at various times; selling dollars against a wide basket of currency, and obviously changing the reserve mix of each of the bank participants. However,while having clearly achieved the stated objective, later historians have actually questioned whether the policy was actually achieved by virtue of intervention, or, as is now a more widely held view, was the intervention successful only because it was backed up by the market assumption that fundamental policy change was going to occur in the first place. This is an important distinction because it goes to the theory of whether intervention in the currency markets is actually sound policy. And even more to the point, is intervention at all worthwhile if it occurs without the perception that it corresponds to an underlying change in the broader monetary policy of a region.

There have been many studies that have tried to quantify the effectiveness of intervention, particularly by a singular bank within a particular region. And broadly speaking, the consensus has been that there has mostly been very little quantifiable benefit. However, it is still true that many central banks, regardless of this opinion, still operate a reasonably aggressive intervention policy. The question as to why, goes to the point of what might be called the second type of intervention, which has to do with maintaining the currency value or peg, within an acceptable band over time. Notice in this definition, I refer to the “band over time” .

The reason for emphasizing this phrase is that unlike a concerted intervention that tries to achieve immediate results that correspond to a change in policy, singular bank intervention generally tries to reinforce or maintain the existing status

quo. This type of policy has been pursued over the years by a number of regional banks including the Bank of Japan, and Bank of China, who have been fairly successful in achieving their particular goals. But of even greater interest are the circumstances where maintaining the peg through intervention did not work. These situations eventually led to more broadly catastrophic events than might have been anticipated. Included within this category are not only some of the notable currency meltdowns that occurred in Latin America (most recently being Argentina) but also the more widely known episode with the Bank of England in the early 1990* s. In this situation, the Bank of England tried to hold the Sterling peg against the German mark at a level that was eventually breached via the component dollar equivalent trades being sold under the implied value of the cross that was being bid for by the central bank. On the day this level was breached it was widely rumored that currency hedge fund speculators, in particular those led by George Soros, were responsible. Still, the question remains as to whether the market moved because of Speculative hedge funds or, whether the true cause was the unsustainable nature of policy and intervention initiatives undertaken by the central bank in general. In this case, as with others, I would argue that the two are inextricable. Which of course goes to the issue of how and by what means are the trading positions of hedge funds of concern or even interest to the average speculator.

To address this point it is useful to view hedge funds as being, in many ways, the first level of critics to a central bankpolicy mandate in general. The reason for this is that hedge funds as a group are mostly concerned with valuation models that appear unsustainable. When analyzing broad policy, the issues of whether this disagreement can then be turned into a trading expression, is mostly how the larger hedge funds tend to formulate their decisions. The situation involving the Bank of England was a classic case of just this type of dynamic. Prior to the breakdown of price support for the Pound Sterling a gainst the Deutschemark, the Bank of England had intervened unilaterally on multiple occasions, for the purpose of supporting the currency against the perceived outside policy band at the time. The hedge funds, did not take immediate action at this stage however, but rather chose to watch the situation unfold. During the initial phase of the exercise, the policy of the Bank seemed to hold.

Only after watching the market for a number of days however, did the hedge funds come to realize that the intervention would be unsustainable. This led to the hedge fiinds betting in huge numbers against the success of the single bank being able to support the rate on a unilateral basis. In doing this，the hedge funds chose a very particular sense of timing and began to sell increasingly larger amounts of sterling at the end of the European trading day. Additionally, these trades were mostly executed through dollar equivalents as opposed to the outright cross rate. The thinking of course, was that these two trading parameters would be the most difficult for the Bank to defend against. Which, of course proved correct. The point here however, is that even though hedge funds can trade in sizethat is big enough to move the market, often times these trades are done in a reactive mode against a view towards unsustainable policy. This means, once again that the real issue for trying to follow the impact of a hedge funds trading, may actually go back to an analysis of the underlying economic environment in the first place.

Against this backdrop of action versus reaction between the central banks and the large hedge funds that try and second guess their policy initiatives, is the environment for “cor porates” or what might be termed as real money users of the foreign exchange market. In this case, as opposed to the two other types of trading vehicles, corporate users, access the foreign exchange market usually for the purpose of physically transferring funds, or, in certain situations, to hedge against price movements related to production activity in the future. Unlike the central banks and hedge funds，however, the trading related to this specific group of users is not necessarily indicative of price movements in the future. The reason for this tends to relate, interestingly to the issue of leverage. When a corporate user trades foreign exchange it is usually for a specific amount that will eventually be physically delivered at maturity, or for an amount that represents the same.

This is very different from either a central bank or a hedge fund. In the case of a central bank, they will trade in large part as to their position against either existing reserves, or the implied shift that will eventually change the makeup of those existing reserves. The hedge fund, while not dealing withreserves exactly, can also be looked at within the same context. Meaning that the amounts traded relate to nothing more than the leveraged amount of capital that would be used to fund a particular trading strategy. The net result of these issues is that they both result in enormous multiples of positions being put on, that in many ways bear no resemblance at all to the physical needs for delivery that might be expected to take place within the market at some future point in time. While noting that the movement of certain large corporate users may at times provide a short term price spike in the market, this is generally quite limited. Also, because these trades occur somewhat independent of policy moves by central banks or intervention programs in general, they are often much more difficult to discern.

With regard to the last broadly defined trading group, these being the speculative, or chart traders in general, they tend to view the category of corporate or real money trading as being particularly less useful to observe, as opposed to that of either the hedge funds or central banks. Which is interesting given the context of what the speculators tend to do in general, that is, identify and follow technical as opposed to the fundamental issues within the market.

The result of this particular dynamic is that technical price levels which are initially established by the hedge fund and central bank trade activity, will often times be then further exaggerated by the additional add on trading done by the speculator group. All of which goes to the argument as to why markets tend to overshoot price levels or areas that are agreed to be representative of parity or sustainability in the first place. As a practical matter, chart and speculative traders tend to form one of the largest parts of the foreign exchange market. However, they are also one of the least understood. Since, others often dictate market direction, it can be argued that there really is no mandated reason for the existence of this category of traders. Further, this reactive type of trading atmosphere often creates a self fulfilling type of trade cycle because others can often anticipate the movement of markets in and around certain known chart points. Including in this context, the hedge funds and the central bankers that, as I have mentioned, tend to initiate the oianic movements within the market by virtue of their own activity.

If aU of this sounds a bit circular, it has been presented as sur’i for a reason. Although foreign exchange markets are made up of different participants that can be broadly identified, it should never be construed that these elements act independent of one another. In fact, this differentiated trading activity, in many cases will tend to cause unexpected results. By understanding the makeup of these players however, one can often gain perspective to the possible movement in price that may result from the activity of any one particular group.

名词解释

Fundamental “Real Money” Position Takers:以商业需求型风险规避为目的，采取适当的措施，以规避投资或经营的风险的交易者，通常为大型生产企业。

Chart Based Speculative Traders:通过技术图表分析进 行交易的投机人士。

Concerted Intervention:联合干預。各国中央银行联手 干预市场的行为，具有强大的效果。

The Market Making Mirage

There is a common misconception among the buy side, or trading price takers in the currency markets, that the function of market making is the key to consistently winning in foreign exchange. Although the thought process here is somewhat cloudy, there is a compelling argument to be made that the market maker can mostly capture the risk free bid and offer spread of a trade price and thereby always be able to trade at an advantage to the average customer. However, there is a fundamental flaw in this reasoning. Specifically, this logic assumes that the markets themselves are static when, in fact, they are always moving. A bid offer spread for example, is usually transient. So much so, that often times this same spread capture idea can actually turn into a trade position negative when all is said and done. So the question then as to how profit as a market maker can be fully realized, actually has to be viewed as two distinctly different scenarios. First，there is the obvious idea that the wider the quote, the more likely the spread capture becomes. Secondly, and somewhat more arcane, is the concept that by seeing the customer^ buying and selling at differ ent levels，a degree of uncorrelated market intelligence can be gained through this order flow.

Dealing with the first assumption, it is important to understand that as with any market, spreads generally tend to come in over time. Meaning that while there may have been periods, as long ago as ten years，when it was reasonable to make a 5 or even a 10 pip wide price on dollar yen to a customer, for today's market maker, this is no longer the case. In fact the spreads within the wholesale dealer markets for the major currency pairs can at this point be described as virtually non existent or for the most part no greater than one tick wide. This, of course, deflates any reasonable opportunity for most dealers to profit on the basis of width of spread alone. The idea of market intelligence as the other practical reason for being a market maker in the first place，however is another subject altogether.

For example，historically the role of a dealer was to be just that, a dealer. Meaning that they would always be available to be on the buy or sell side of a particular market at any given time. Which, of course, was one of the central roles for markets in general: to promote enough liquidity for the reasonable flow of transactions. This role, as it evolved into one of being called a market maker, had with it the implicit assumption that information derived from this order flow would (or could) be used to form the basis of that market makers own trading decisions. In today*s marketplace, this role is no less central than it has literally been for hundreds of years. TTie difference though is that now the amounts are larger (this due to the a^regation of order flow onto electronic platforms) , the trading is faster and the origin of much of the trade flow is almost impossible to discern. IronicaDy, it is also interesting to note that as the importance of market intelligence has increased among market mak  ers,this has actually had the unintended consequence of further decreasing theeven miniscule spreads that may have existed in the market at all. This is actually an important dynamicfor the average  trader to understand. In much  the  same waythat  an electronics  manufacturer is desperate to get  marketshare,  even at the riskof collapsing margins, so too has the
  dealer community, in its goal to gain market intelligence fromorder flow, actually collapsed  the spread in the foreign  exchange markets.

  With the advent of single bank electronic trading platforms, and then the further derivation of streaming prices ontomulti bank portals, the idea of capluring market share has taken a significant toll on many of the large market makers bottom line. In fact, recently, many of the larger market makingbanks in foreign exchange have started to recognize the destructive influence of this price coimpression on their profitmargins and have taken the extraordinary step of actually .trying to widen spreads (mostly though these unilateral attempts areshort lived due to market competition).So, of course, it is atthis point that one needs to ask the obvious question  Where is the attractiveness of a market makers role, or is it merely anillusion? The answer here is:1. verylittle, and2.maybe in thatorder. Meaning, that the traditional role of a market maker isactually not a particularly attractive one in today '8 market.And, maybe the whole idea of its allure is in fact just a falsehood in the first place.

Once again, it should be understood that the role of making a market in foreign exchange hasn ’ t necessarily changed over the years, meaning that even now, it is usually necessary for a market maker to quote prices regardless of the way they feel about a market at any given point in time. However, aside from having wider spreads to work with, one of the historical advantages of this role was also the idea of creating reciprocal liquidity amongst other dealers. But this is less of an issue now, due to the fact that individuals’ at a centralized dealing desk no longer do much of the market making activity, but rather this function is performed by a mechanical model, housed in a server on a rack in the banks IT area. What this means is that individual relationships that were previously formed between mutually opposing dealers, no longer matter the way they once did because price liquidity is generated without human interactioa Fur ther, the implication of this trend is even more profound in the context of trading intelligence, which is, of course, the supposed reason for now being a market maker in the first placa

What has generally evolved in the latest iteration of electronic market making is that market intelligence is actually gleaned through the use of sophisticated shadow data mining software. These applications have mathematical algorithms that track price, direction, and amount of trading activity executed on a particular price feed, with the goal of course, once again, of extracting directional trading patterns. Although a seemingly obvious next step in the evolution of electronic markets, this particular trend has also had some unintended consequences.

Firstly, it has reduced the amount of true market makers that will supply prices, because they physically can*t compete on the level of IT expenditure necessary to keep pace. And, secondly, it has actually made spreads in the market tighter (not withstanding some of the recent price compression concerns with regard to market making profits in general).

The broad conclusion then with regard to market making as a practice in general is that for the buy side customer, this is an operation that is best left where it is. Not only is it not worthy of envy, but also it is mostly misunderstood. Very few groups, in today*s environment can actually claim to be profitable from this exercise. And, in fact, given some of the issues that have been discussed, it almost seems like most of the advantages in today* s foreign exchange market actually belong to the buy side customer as opposed to the institutional market maker.

名词解释

Market Maker:做市商制度，是不同于竞价交易方式的 一种证券交易制度,一般为柜台交易市场所采用。做市商是 指在证券市场上，由具备一定实力和信誉的证券经营法人作 为特许交易商、不断地向公众投资者报出某些特定证券的买 卖价格，双向报价并在该价位上接受公众投资者的买卖要 求，以其自有资金和证券与投资者进行证券交易的券商。

Pip:最小的价格跳动单位，也叫做tick或point。

Bid Offer Spread:买卖价差。

Institutional Market Maker:机构做市商。

Economic data Does it really matter to a trader

Throughout the years the idea of a standard relationship between current indicators, in economic terms, and the price movements for foreign exchange has been an interesting and sometimes fragile association. In particular, the idea that any singular chronic issue with the United States, for example, can become the setting mode for currency prices is at best a dubious proposition. Take for instance the current environment of what has been referred to as the twin deficits. These of course being trade and current account (to say nothing of long term cumulative budget deficits) . The question here is, do they matter in the short term, or for that matter even at all? And, if they do matter, is there any empirical evidence to support the cause and effect characteristics of these events? To put this in perspective, its interesting to note that as far as trade deficits are concerned, the US has run these, in increasingly large numbers, for at least the past twenty to thirty years. During this period there have been periods of both weak and strong dollar valuations, and of course, significant upwards movement for asset values in general (in particular, but not uniquely in equities) .Recall, that in the early 1980's interest rates in the US stood at high double digit levels, and trade deficits existed at that time in record amounts. But this did not foretell the movement of dollar values, particularly within the next 10 years.

In (fact the history of trade deficits in particular, is worth understanding from a somewhat longer term perspective. For example, as early as in the 1950's there were concerns, particularly with the exports from Japan to the US of certain textiles and raw materials that warranted the imposition of tariffs. This was an explicit acknowledgement of the problems associated with a growing trade deficit between the US and Japan. Within the early 1960’s certain raw material export restrictions were removed, by the Kennedy administration, and once again the trade deficits were viewed as being a problematic and expanding issue. However, the most interesting period to view this phenomenon and the currency related dynamic is in fact the period from the late 1970’ s to the early to mid 1980，s.

During the latter part of the 1970’s, the dollar started a significant depreciation against both the Japanese yen and the German Deutsche mark. The thinking, at this time, was that these currency movements were directly proportional to the expanding levels of current account surpluses that had been created in both countries with the US. However, it is also instruc tive to keep in mind that this was the heightening period of US interest rates as well. In fact, up and through this interest rate tightening cycle short term fed funds traded through levels higher than 20 % before reversing the trend in the early 1980’s. As this interest rate cycle started to peak however, the dollar started to appreciate against most currencies, particularly the yen, even though there was a continuing accumulation of current account surpluses on the part of Japan against the US.

In fact, it is often argued that it was only through the concerted intervention of the Plaza accord in 1985, that this dollar appreciation cycle seemed to end. By 1994, dollar yen traded as low as 80 yen to the dollar. However, even as the dollar once again started to appreciate after 1995, this was still a gainst a backdrop of significant accumulated current account surpluses on the part of Japan.

So, given these seemingly contradictory facts, the question as to what the actual driver of currency levels is, from an economic perspective is at best difficult to discern. In fact, one can almost suggest that all of this has little practical relevance to the world of a foreign exchange trader in general. But, clearly, this can^t be the case, otherwise how could all of the e conomists in the financial world claim any type of validity whatsoever? Looking a little bit deeper, may offer a clue.

Notice that as we have examined currency cycles, they seem to have some basis associated with interest rates, as opposed to other types of economic measurements. This of course relates back to the fundamental pricing components on a currency's absolute value in the first place. Or, more to the point how much does a currency implicitly earn or cost in relation to the countervailing alternatives. Once, again examining the period of the late 1970*s through the mid 1980*8, the interest rate environment was rising initially as the dollar weakened and falling as the dollar was strengthening. Although somewhat counter intuitive, upon further reflection this is not necessarily the case. Remember, the market is a discounter not only of current prices but also of future events. In many ways it can be inferred that as the structural issues that gave rise to the need for increased interest rates in the US started to be repaired, (with the consequent plateau and subsequent fall in interest rates) the market perceived that US assets, with implied high yields from the underlying currency were cheap and needed to be bought. This led to the buying of dollars, and the decrease of counter currency valuations. All of which seems to imply that interest rates, which seem to be the best indicator of future currency movements, are themselves subject to a farther, and sometimes disconnected time horizon in terms of currency valuations. While even further down this chain of events of course, are the economic conditions that precipitated the changes in interest rates in the first place. These, of course, being issues like the trade and current account funding deficits.

Contrary to what may be considered relevant however, these issues actually do matter, although probably not in the ways that might be expected for the average day trader of spot currency. The point here is that it is important to have an understanding of the time horizon that certain economic measurements might have in terms of interest rates, which themselves have to be understood as being either representative of a continuing trend or not.

To put this in context, it is worth looking at the more recent market environment of the past few years. From 2002 until 2004 the deficit in the US current account has increased by almost 35% from a level in the 470 Billion dollar range to estimates of over 630 billion in 2004. At the same time US interest rates have been continually ratcheted down, and the dollar has slid on a fairly consistent basis until heating up its downward momentum through the end of 2004. Interestingly it was precisely during this same time period that the accommodative interest rate policy in the US seems to have peaked. Yet, seem ingly unaffected, the dollar, in late 2004, has continued its slide and set new lows against the yen, the euro and the British pound.

Once again, lets put this into the right time sequence. Al though interest rate increases that have recently been enacted may have started the process of fixing the current account deficit slide by hopefully putting a floor will under the dollar value, the timing here can be a bit tricky. Studies have shown that the cause and effect of these types of policy changes actually can take upwards of 2 years to take hold. Also, of consequence is the fact that the hoped for economic benefit of this policy change will only be seen as a result of exchange rates themselves having changed direction in the first place. So, once again, what does this mean for the foreign exchange trader?

Well, the answer here is anything but obvious. However, certain things about all of these seemingly contradictory indicators do need to have some clarity for anyone looking at trading in the foreign exchange markets. For instance, what we have found, mostly from circumstantial as opposed to empirical evidence, is that what actually needs to be monitored for most traders is not so much the improvement of the particular indicator (in this case the current account deficit problem) , but rather the change of the trend of the indictor. In the case of the present day example that we have noted, a conclusion can be drawn that once the rise in interest rates has worked its way through the system, to show a decrease in the downward momentum in the dollar, the current account deficit problem should show some signs of improvement. Even if this change is minimal or particularly subtle, it is actually the most critical element of the whole discussion. It is when the trend changes, or more precisely, when the turn in momentum finally shows up in the economic data, that the data itself becomes relevant to the short term trader. Here, a reversal in trading bias, even for the short term speculator needs to be examined.

To sum it up, although analysts have often spoken about the importance of economic data as the backdrop to any trading decision, keep in mind that these figures, in and of themselves, are not necessarily indicative of price movement. Instead, by paying attention to the trend of the economic data, or more specifically the change in that trend, most traders can usually derive substantial benefit.

名词解释

Twin Deficit:双赤字。即对外贸易赤字与财政预算赤 字。

Plaza Accord:广场协议。20世纪80年代初期，美国 财政赤字剧增，对外贸易逆差大幅增长。美国希望通过美 元贬值来增加产品的出口竞争力，以改善美国国际收支不 平衡状况。

1985年9月22日，美国、日本、联邦德国、法国以 及英国的财政部长和中央银行行长在纽约广场饭店举行会 议，达成五国政府联合干预外汇市场，诱导美元对主要货 币的汇率有秩序地贬值，以解决美国巨额贸易赤字问题的 协议。因协议在广场饭店签署，故该协议又被称为“广场 协议”。

“广场协议”签订后，上述五国开始联合干预外汇市 场，在国际外汇市场大量抛售美元，继而形成市场投资者 的抛售狂潮，导致美元持续大幅度贬值。1985年9月，美 元兑日元在1美元兑250日元上下波动，协议签订后不到 3个月的时间里，美元迅速下跌到1美元兑200日元左右， 跌幅20%。

在这之后，以美国财政部长贝克为代表的美国当局以 及以弗日德•伯格斯藤（当时的美国国际经济研究所所长） 为代表的金融专家们不断地对美元进行口头干预，表示当 时的美元汇率水平仍然偏高，还有下跌空间。在美国政府 强硬态度的暗示下，美元对日元继续大幅度下跌，最低曾 跌到1美元兑120日元。在不到三年的时间里，美元对日 元贬值了 50%,也就是说，日元对美元升值了一倍。

有专家认为，日本经济进人十多年低迷期的罪魁祸首 就是“广场协议”。但也有专家认为，日元大幅升值为日本企业走向世界、在海外进行大规模扩张提供了良机，也促 进了日本产业结构调整，最终有利于日本经济的健康发展。 因此，日本泡沫经济的形成不应该全部归罪于日元升值。 Appreciation:增值，涨价。

Depreciation:贬值，跌价。

Short term Speculator:短线投机客，采取短线交易的交 易者。

Interest Rate Tightening Cycle ；利率紧缩期。

Dollar parity

There is a basic concept of price in the foreign exchange markets that goes to the core of any valuation model. This is the concept of dollar parity. Or, to put it plainly, just why a price is a price...is a price. To many, this is a bit of an add concept, but in general terms, the idea is that any currency pair has a derived price based on the underlying interest rate equivalent of its component parts. Notice here that I talk about a derived price. The use of this term is not by chance. In fact, for many, foreign exchange is actually viewed as a derivative market. Or, more specifically, a market where a price is dictated by the valuation of another underlying source. This of course, is very different than other asset classes such as equities, or even debt instruments, where price is basically a measurement of a singular asset, at any particular time. But the idea that interest rates are the primary price motivator of foreign exchange, makes the market even more unique than other derivatives, because although the link is direct, often times the market doesn't quite work as might be expected. In fact, as market views of interest rates change，sometimes the correlation is anything but direct, leading to divergence in swap rates, forwards and even outright spot rates. The point here is that although interest rates are known quantities, they are also known to be changeable. The market anticipation of these changes, and their frequency, often account for a significant amount ofvolatility created in spot price movements within the market.

So, the obvious question then is that by knowing that the measurement of interest rates as a component part in a currency pair is an imperfect pricing tool, does the concept even matter? The answer, of course, is an unequivocal yes. The reason has to do with the question of comparative value. Or, should a currency be measured as either being of higher or lower value in relation to any other at any given point in time. As a basic tenet of foreign exchange pricing, using the concept of dollar parity will enable a person to view interest rates and their forward values in multi currency, so that they equate back to US dollar terms. Or, more specifically, by using a dollar parity measurement, one can generally translate everything back to equal terms so that they can be measured. To illustrate the point, it will be necessary to have certain assumptions:

The current Euro/US dollar rate is 1.3050 for spot.Forward swap rates for Euro/US dollar are:

1 month               3 month               6 month

458473 points        1765〜1795 points     47234783 pts

Forward deposit rates for Euro are:

1 month               3 month               6 month

2.06%〜2.10%        2.08% 〜2.13%        2.19% 〜2‘23%

Forward deposit rates in US dollars are:

1 month               3 month               6 month

2.47%〜2.52%        2.67% 〜2.73%        2.90%2.94%

Further, the assumption is for a position to be for 1,000,000 Euro long versus short 1,305,000 US dollars for spot settlement.

If one were to carry this position for a one month period, the effective mechanics would equate to a Euro deposit at 2.06% (using the offer side of the interest rate market) , e qualing interest income of 1716 Euro for 30 days and a simultaneous US dollar loan of US 1,305,000 at 2.52% (using the bid side of the interest rate market) equaling an interest expense of US 2740 for 30 days.

By converting the US dollars to euro at the forward equivalent rate (2740/ 1.305473= 2098 euro) , one can see that the net loss in carrying this long euro position for one month forward would be 382 euro (i.e. 2098 euro cost on the loan plus 1716 euro gain on the deposit) or US dollars 498 (again converting the euro to US dollars at 1.305478).

Therefore, in order for the spot rate to reflect the one month cost of carry in terms of points, one would have to add the equivalent amount of points that would reflect the loss incurred by carrying the position forward for that one month period. This should equal the one month swap rate of somewhere between 4.58 and 4.73 points (as reflected in our initial assumptions) .

So lets see if this works euro spot of 1 million at 1.3050= US dollars 1,305,OOO.Euro forward of 1 million 1.305458= USdollars 1,305,458.

Notice that by using interest rates the cost seems to be 498 dollars, while using swap point equivalents, the loss seems ,to be 458 dollars. So why, if we're speaking about parity, is this not equal? The answer is that in the arcane world of money market rates, there is never a perfect world. In fact it is these opportunities for arbitrage that make for dealing desks staffed by literally hundreds of traders all day just looking for opportunities like the one just demonstrated.

Even though as a practical matter, the average trader will never have the opportunity to capture the type of arbitrage that * s just been demonstrated, the issue is not so much looking to trade in this manner, but rather to understand the dynamics of what it implies.

Interest rates drive swap points. Swap points indicate the forward value of a currency pair. The movement of these underlying components impacts the relative valuations of all currency relationships. Understanding all of the parts in the over all currency equation allows a trader to examine movements not only in outright price, but also in relationships. Interest rate changes, anticipated or otherwise can sometimes be reflected in swap points as opposed to deposit and loan rates. Carefully watching these factors on an ongoing basis will always indicate when potential price movements in the outright currency are imminent.

名词解释

Arbitrage:套利。在金融市场从事交易时，利用市场的 失衡状况来进行交易，以获取利润的操作方式。其主要操 作方法有两种：一为利用同一产品，在不同市场的价格差 异；一为利用在同一市场中各种产品的价格差异来操作。 不论是采用何种方法来进行套利交易，其产品或市场的风 险程度必须是相等的。

Swap:换汇交易。在外汇市场中，买卖双方约定以A 货币换B货币，并于未来某一特定日期，再以B货币换回 A货币。

Swap Rate:换汇汇率。在外汇交易中，由于两种货币 的利率并不相同，把这种汇率差异转换成以汇率形态表示， 这种汇率形态便是swap point或swap rate。

Swap Rate=Spot Ratex(报价币的利率被报价币的利率） x (天数/360)

Basis story

Throughout this book certain themes keep arising. Some of them are technical, but more seem to do with the idea of examining ones behavior, as it relates to trading. This makes sense, assuming that the idea is to face off towards a rational market using as rational an outlook as possible. Over the years however, I have found that sometimes things are not at all this straightforward. In fact the idea of rationality is tossed aside for particular moments of chaos, usually during extreme circumstances that often result in unlikely market moves. We've all seen these periods: 1981 silver trading over fifty dollars an ounce. 1987 the first of the huge stock market crashes in the late 20th century. 1992 Sterling being held at an artificial cross rate against the German mark only to crash under selling pressure by large hedge funds. The question is were these rational events? And if so, how does one recognize them as they happen, from being outside the norm that will eventually come back and prevail in the market.

One of the main points that usually get overlooked is the basic idea that there are virtually no new ideas or events when it comes to trading markets in general. Sound odd? Well, consider, that even during the 1929 stock market crash, trading was remarkably similar to the crash of 1987. Shorts made money, longs got hurt, margin calls went out, new age interpretations as to valuations started appearing clearly, what changed? The answer of course is that nothing has.

Therefore, one of the greatest trading lessons that can be learned is the idea of how to distinguish the heightened discord in events, from something that is truly a changeable event.

Probably the best way to keep the perspective necessary for this type of viewpoint is to be constantly aware of a particular markets component parts, and understand that price is often made up of things that you really donU see.

One of the great stories, along these lines, has to do with when I was a silver trader (too many years ago to make me feel particularly good about things I might add) , working for one of the larger commodity houses on Wall Street in the early 1980* s. As with many markets, both then and now, the idea of trading “basis” or cash versus futures contracts was a big business. Basically, in onler to understand this dynamic, pic ture that you have a spot contract long position in anything currency, commodity, stock index, it doesn't matter. Against this position there is a simultaneous short position in the futures market, so that realistically it can be considered that the position is hedged. But the fact is this hedge has a certain degree of implied slippage associated with it This differential goes by many different names (swap, E.F.P., forward spread) but generically, it can be referred to as basis. Or the price difference between the spot position and the fbtures position， represeating the same commodity but for a forward or futures settlement date.

Although it sounds esoteric，there is a reason for understanding this relationship, and it does not uniquely have to do with my particular story.

Basis, as trading component, also moves. It actually trades on its own, meaning that the value of the difference between cash and futures prices, is itself considered its own trading commodity. One can, for example ask a dealer for a market on the spot to 1 month basis, and get a market price for the value of the swap. But not to digress，too much, the point is that the value of basis is actually constructed from multiple components. Most of the price is usually associated with the interest rates associated with the forward valuation of the currency, or commodity in question. However, there is also a subtler price component that has to do with expectations and can be generally referred to as a volatility type of measurement.

During the great silver run up in the early eighties, one month interest rates in the US were trading in the mid to low double digits (hard to believe but in fact there was a period where fed funds actually traded as high as 19 percent) . Conse quently，the basis between spot silver and the Comex futures price could be assumed to imply a positive cany cost of a similar rate. Or， more to the pointy if spot were trading at 10 dollars an ounce, than the nearest futures price, approximately 3months forward might be trading at 10.38 or 38 cents higher, which equates to an annualized carry of 15 %.

The goal of basis trading in this particular instance was to try and maximize the spread or carry differential by buying spot selling futures at lets say greater than the implied 15%，or conversely selling spot, buying futures at a rate less than the implied 15% carry. This is fairly simple to understand, when looking at the big picture of an overall trading strategy, but for someone watching only one side of the trading activity, all sorts of erroneous conclusions can be drawn. And this was the classic case.

While on my pedestal shouting orders into the pit, generally, I was a seller of futures. This, of course was due to the fact that the trader on the silver cash desk (the other side of my phone line) was long the spot, and I was covering this by selling futures, at hopefully a wide basis. But，for all the world to see, at least as far as the commodity exchange floor was concerned, I was getting shorter and shorter in what was to be the greatest rising; bull market ifl histoiy. At first，people looked at me with confusion, then concern, and finally as silver started rising upwards of 30 dollars an ounce, pity. In fact，the idea that everyone assumed I was so incredibly short silver, and eventually would have to cover, actually lead people to reason that the price of silver would have to continually go up. Here of course is the ultimate irony. By actually selling futures, I was putting on basis swaps against the cash market at rates implied in the mid to high 20% carry range，making a huge amount of money while looking for all the world to see, like quite possibly the stupidest trader on the planet.

The question of course, as to why the basis was trading over the implied interest rate carry has a lot to do with the general chaos that prevailed during this period of time. For example a 15% carry with spot being at 10 dollars an ounce e quates to approximately 38 cents for each three month period. But what if the base price were to be measured from let's say 30 dollars an ounce. Here, this same 15% three month carry would equate to approximately 1.125 dollars. This significant difference is effectively the market's way of saying that even though the present cany, in interest rate terms, may be one price; the market believes strongly that the base price will increase significantly. Therefore, that bias is reflected in the increased valuation of the basis.

Understanding this subtle pricing dynamic in the case of silver prices in the early 1980*s lead to the possibility of making substantial money trading the swaps. But for the more discerning observer, the basis measurement could quite possibly have also given an indication as to where the market perceived that the base commodity would eventually trade. This is the same today for virtually any trading commodity or currency. The basis, or swap differential can often times be used as a gauge to measure the market sentiment. By understanding that the interest rate spread is only one part of this price, anything above or below this measurement can be construed as a measurement of market bias.

As a point of reference, the commodity house where I traded actually did quite well during the great metals run up in the early 1980’s. Mostly however, this was done through trading hedged as opposed to outright long positions and watching the carry component of the swap.

This story is relevant on two levels however. First, as with other points that have been mentioned, the price of any trading vehicle usually has many different determinant factors. Second however, and actually more important, is the idea that unless you are aware of many points that relate to the pricing of any particular asset, conclusions about that price can often times prove erroneous.

名词解释

Basis:基差，避险者所以能够利用期货交易规避现货 价格风险，在于现货与期货的价格间存在一定的间距关系， 称之为基差（basis)。基差为现货价格减去期货价格之值， 因为储存成本、保险利息等费用，期货价格通常较现货价 格为高，故基差多为负数。

Artificial cross rate:人工汇率，随着欧洲汇率体系的 生效，西欧各国便被结为一体，他们的货币不再盯住黄金 或是美元——而是相互盯住，每一种货币只在波动界限的 范围内交易。如果任何一种货币达到了波动界限的上限或 下限，那么，各国中央银行就有责任通过买卖使该货币回到波动范围之内。在此范围内，成员国的货币对其他成员 国货币的汇率可以相对浮动，并且要以德国马克为中心货 币。

Hedge Fund:对冲基金，意为风险对冲过的基金，起 源于20世纪50年代初的美国。其操作的宗旨，在于利用 期货、期权等金融衍生产品以及对相关联的不同股票进行 实f空卖、风险对冲的操作技巧，在一定程度上可规避和 化解投资风险。

Market Crash:崩盘。市场在悲观心理的作用下大幅下 挫的情形，对大部分市场投资者伤害很深。

Long:在一般金融产品的交易过程中，Long代表买入 该金融产品的动作。在外汇市场中，Long代表买入被报价 货币的动作。在货币拆放市场中，Long表示借入货币的动 作。

Short:在一般金融产品的交易过程中，Short代表卖出 该金融产品的动作。在外汇市场中，Short代表卖出被报价 货币的动作。在货币拆放市场中，Short表示贷出货币的动 作。

Maigin Call:追加保证金。投资人在从事保证金交易或 期货交易时，若其投资标的物的账面损失超过其保证金的 某一比率，其经纪商会通知投资人，要求其在规定时间内 补足其保证金。否则，经纪商会出清投资人的投资，以避 免损失扩大。

Spot:即期交易。在外汇交易市场中，Spot就是所谓即 期交易，其交割日通常为交易日后的第二个营业日。只有 少数货币（如加币）的即期交易日的后的第一个营业曰。

Swap:换汇交易，在外汇市场中，买卖双方约定以A 货币换B货币，并于未来某一特定日期，再以B货币换回A货币。

E.F.P.:期货转现货交易（Exchange For Physical E.F. P)。两个交易者同时以等量的现货与期货契约相互交易， 其成交纪录必须呈报交易所。

Hedge:风险规避。采取适当的措施，以规避投资或经 营的风险。一个真正完美的风险规避措施，是把所有可能 发生利得或损失的几率排除在外。

一般而言，风险规避可分为两类：一为资本需求型的 风险规避措施（Capital Hedge); —为商业需求型的风险规 避(Commercial Hedge)。

Margin and leverage

As a conceptual issue, the idea of margin and leverage for the purpose of trading foreign exchange trading should not be an unusual concept. In fact, this basic idea is employed in all markets to a certain extent, and most notably as the underlying component of futures markets. The major difference with foreign exchange however, is that because a central clearinghouse does not settle trades, the levels at which margin or credit is extended, varies on almost a user by user basis. For example, a trader at a well known financial institution generally trades without margiii because the credit quality of the institution is such that it is trusted to settle the trade, regardless of the size, or the possible loss on the position, with whomever the trade was entered with. For most other traders however, and certainly most individual traders, this type of credit quality recognition can never be achieved. Therefore, it is most often the case that a certain amount of margin money is requested to be deposited as a type of good faith deposit. Again, this is a similar notion to the basis of margin in commodity futures markets.

However, the idea behind margin trading in foreign exchange is not just a credit tool, used for evaluation purposes, it is also an enabling tool because it allows large positions to be carried in varying currency pairs without the necessity of having to physically deliver the proceeds of that trade. This is accomplished by “rolling over” the trade, on a continual basis, to the next available settlement date or to such date at which a closeout of the trade has occurred. The use of the rollover is an essential component of margin trading and effectively is based on the concept of interest rate and dollar parity. In simple terms a rollover is a short dated swap that sells or buys a position on one date and does the opposite for the next date. In the first instance, the front leg of the swap is set to reflect the full, netted amount of a particular currency that would need to be delivered for a particular value date, and effectively sets the trade in the opposite direction, thereby netting the settlement to zero. The other side of the swap does the exact opposite, and thereby re instates the initial position for the next value date immediately following. The rate for this swap is reflective of the implied cost to carry a position for the period of the swap. For instance a one day swap on a positive carry currency will reflect the one day value of positive carry for that currency. This will incur a gain or loss for the particular period, relating to whether one is long or short. The most common form of short dated swap used to accomplish the basic rollover is usually referred to either as a “tom/next” , or “spot/next” trade. The key difference in the two being the date that it is entered into. For example, a tom/next swap is entered into with the front leg of the swap to settle on “tomorrow’s” value date (usually one business day) and the back leg to settle on the second value date. Whereas，the spot/next swap is entered into with the front leg of the swap to settle on the next spot date (usually two business days) and the back leg to settle on the second spot date (usually the next date after spot, or three days forward).

As mentioned before, and regardless of which method of rollover is used, the cost of the swap will generally reflect the cost of one day’s carry. And, in fact, the only reason for using one or the other variety in any particular circumstance is usually reflective of the particular institution’s view as to what might be the most convenient settlement apparatus, as opposed to any particular pricing notion.

The use of rollovers also can be viewed as a credit oriented function, because it effectively causes a position to become realized, and thereby effectuates a cash flow requirement related to the offset differential. For example, assume at the end of trading for a given spot date, there were multiple trades done in PoundSterlingleavingapositionoflongonemillionPoundsa gainst the dollar at an average rate of 1.9305. Further, assume that the spot/next rate is 1.3 points, and that the market has effectively closed at a rate of 1.9290, leaving an unrealized loss on the average position of 15 points. When putting on a spot/ next rollover at 1.3 points, the front leg of the swap will be booked at the then current market price of 1.9290, while the back end of the swap will be booked at a rate of 1.92887 (reflecting the swap differential for spot next of 1.3 points or 1.9290,00013=1.92887) . On settlement date for the front leg of the swap a cash amount of $1500 dollars negative, will fall into the account, as a result of the net down of the average position against the rollover rate, and a new open position will then be outstanding of long one million pounds at a rate of 1.92887 for the next available spot date. By creating the rollover, the position has now, not only been pushed forward to the next settlement date, but has also effectively been marked to the then current market rate, by creating a physical payment due. Clearly, indicative of a type of accounting function, the rollover is also a favorite tool used for credit purposes within many institutions because it accomplishes the goal of also keeping customer positions current and valued at market levels. There are incidentally, many operations that have taken the concept of rollovers in general, and put it into an even more automated environment. In this regard, the value of overnight cany rates are looked at as being either a net positive or negative number and added or subtracted to the customer account. The position, is not revalued at the then current market rate (as with a standard rollover either tom/next or spot/next) but rather is kept at the original price and marked to the then current market price, and margin is then called for to reflect a negative number. In either case, the outcome will be the same, meaning that overnight positions can be extended, valued as to the carry implications, and then finally marked to the then current market price, essentially keeping the valuation current.

Not withstanding the necessity for rollovers, the extension of credit, in terms of position sizes that can be kept outstanding, and of course the amount of margin necessary to be on deposit with a particular financial institution at any given time,the idea of trading on margin also carries with it the specific inference of creating financial leverage. For example, if one were to use the same example of a long p>osition of one million pounds Sterling at 1.9305, the relative margin that might be called to hold this position open would generally be in the order of (5% of the implied dollar value or .05x 1,9305,000) approximately $96,000. Once again, using the hypothetical end of day mark to market loss of 15 points, the loss on this position of $1500 can be extrapolated as being 1.5% overnight, or an annualized 540% loss on implied capital usage. Clearly, this leverage goes both ways, and the amount of theoretical gain on invested capital can also be enormous. The point here is that margin can be an enormously powerful tool for trading in larger sizes than might be implied by specific amounts of capital. Effectively, through the use of margin as a funding technique for trading foreign exchange, the difference between what might have previously been referred to, as retail versus institutional trade size is now indistinguishable.

As the profile of margin and leveraged customers within the foreign exchange market has increased, there has also been a significant amount of irreversible characteristics that have taken hold within the market as a whole. Most notably, in this regard, is the amount of absolute liquidity available at any one time. For example, as the size of trading has increased, and speculative interest has grown, the banks that have historically quoted prices have been forced to trade in larger sizes to accommodate this demand. The extension of this dynamic haslead to the introduction of multiple new outlets and price distribution channels, particularly through electronic connections. In fact, during the most part of the past ten years, the only significant electronic trading platforms were EBS and Reuters, both of whom dealt exclusively with the wholesale bank trading community at laige. Within the past few years however, this has dramatically changed. Not only in the context of single bank proprietary electronic systems, given out to direct bank customers, but larger platforms such as Currenex, Fxall, and Hotspot, to name a few, are now all available to direct customers. Through these types of multi bank portals, traders can now access what is effectively inter bank pricing, on a direct basis. All of which would have been impossible without the implicit assumption that margin trading were available to these multiple classes of customers as a means of settlement. The point here is that mai^in, as a basis for trading foreign exchange， has actually precipitated a fundamental re configura tion of trading in general. As this trend continues, with a wider audience growing accustomed to the issues related to both margin and its implied effects on leverage, foreign exchange will become continuously more transparent in terms of price, and more diverse in terms of its overall customer base.

名词解释

Clearing House:金融机构交换支付指令或者其他金融 债务（即证券）的一个中心地点或者一种中央处理机制。

Swap: —笔掉期外汇买卖可以看成由两笔交易金额相 同，起息日不同，交易方向相反的外汇买卖组成的，因此一笔掉期外汇买卖具有一前一后两个起息日和两项约定的 汇率水平。在掉期外汇买卖中，客户和银行按约定的汇率 水平将一种货币转换为另一种货币，在第一个起息日进行 资金的交割，并按另一项约定的汇率将上述两种货币进行 方向相反的转换，在第二个起息日进行资金的交割。

最常见的掉期交易是把一笔即期交易与一笔远期交易 合在一起，等同于在即期卖出甲货币买进乙货币的同时， 反方向地买进远期甲货币、卖出远期乙货币的外汇买卖交 易。

Rolling Over:展期交割，在外汇市场或货币市场上， 将原有交易的交割日向后延展，称之为展期。

The front leg of the swap： —笔换汇交易是由两笔交易 金额相同，起息日不同，交易方向相反的外汇买卖组成的， 因此，它具有一前一后两个起息日和两项约定的汇率水平。 其中，前面的起息日及交易活动，我们称为The front leg of the swap 。

Tomorrow Next (Tom/Next):明日起息隔夜拆放。为 下一日交割同时买入和卖出一种货币Spot next次二营业 日交割之隔夜拆放。

It’s the Cany

As with much of foreign exchange trading, the inference that a constant indicator is the key or critical component of anything is often just nonsense. Common sense tells us that if this were the case, well, then we*d all be rich. But, just the notion of consistency is itself misnomer, because markets, by definition tend to adjust to the base knowledge of its participants. Which means that eventually, even the most complex of trading systems will fall prey to being understood and discounted into a markets price at any particular moment. In contrast, however, to this stark reality, there is a comer of trading that does have some characteristics that actually do imply some type of consistency. And, strangely enough, most market participants often tend to overlook this general idea. To put this in context, I would like to relate a particular incident that occurred during a recent speech given in Beijing, this past January. I was asked whether I thought the Euro was going to go higher. To which I said yes. Followed quickly however, with the comment that I would not want to be outright long the Euro against the US Dollar. Although seemingly contradictory, and Tm sure a bit confusing for the person posing the question, in fact these two responses are actually quite compatible. The reason for this, of course, has to do with interest rates.

In previous chapters I discussed the idea of dollar parity as a pricing component of any foreign exchange contract. Only in passing however，did I go through the idea of cross currency interest rate comparisons as being equally significant. As a general concept the idea of interest rates being a core determinant of a currency price is not particularly arcane. However, it is the relativity of the interest rates that underlie each component of the particular currency pair that actually is one of the key pricing issues. These cross currency interest rate differentials are known figures, however, they are anything but static. Usually, they reflect the market expectation as to whether and by how much the interest rates may move during a specific period of time. By way of example, it*s worth putting this into a specific time component and drawing some conclusions. For this purpose I will refer to the interest rate structure of various currency pairs that existed as of January 2005. In this instance the Euro overnight interest rate was 2.25%, the US Dollar overnight interest rate was 2.50% and the Japanese Yen overnight interest rate was 0.0%. By using these static components, one can see that the differential on interest rates from high to low is clearly in favor of both the Dollar and the Euro, as opposed to the Yen. However by looking at this situation more critically, one can also see that the widest differential is between the Euro against the Yen and also, the Dollar against the Yen, as opposed to the Euro against the Dollar. This is an important observation because it actually goes to the core of what a currency pair represents in the first place, which is both a loan and a deposit taken out simultaneously; a deposit in the context of the long side of the pair and a loan, representative of the short side. For example, a long Dollar Yen position is in reality nothing more than a Dollar deposit and a Yen loan. In fact, most bank funding operations are intricately tied to foreign exchange because the idea of making the most spread on loans or deposits can most often be expressed through the use of multiple layers of currency.

Take for example, a simple funding operation at a money center bank. At any given moment the bank may be bidding for funds, lets assume in a base currency of US Dollars at a rate of 2.48%, and simultaneously offering funds at 2.52%. In this example, lets assume that the bank gets taken on its offer at 2.52% meaning it has booked a dollar deposit at 2.52% (or in effect, the trading counterpart has taken out a loan from the bank at 2.52%) . The bank in this case will deposit funds at the location of the other trading counterpart and earn overnight 2.52% for those dollars. To make this transaction profitable for the bank, ideally, the trading operation will now have to source out a loan or an internal source of funds that will cost less than 2.52% for the same period. It is clear in this context, that by using base US dollar rates, the amounts to be earned in this example are maybe a few basis points at best. But, what if the funding desk can borrow in yen, for example, and actually pay 0.0%, against the dollar income of 2.52% ? Obviously, the transaction would now become infinitely more interesting. How ever, by borrowing in Yen, the trading desk would also be effectively putting on a Dollar Yen position, in this case being long dollars and short yen. All things considered, this position

would earn approximately 2.52% per day except that the position would also need to be rolled over, so as to match the physical funding requirements for each day it might be outstanding. The rollover, or the physical delivery of currency in this situation would require that the yen loan proceeds be sold each night so as to get dollars in to pay for the dollar deposit. Here, of course is where the cost side of the equation would come in. As mentioned in the chapter on dollar parity, the cost of this one day rollover should come close to reflecting the rate that would otherwise be earned by being long dollars and short yen or effectively close to 2.52%. Once again however, as might be the case in numerous circumstances, the cost for this operation may not always be exactly as expected. This of course is the baseline idea for funding operations at banks in general. By examining in detail the cross funding differentials of interest rates in multiple currencies, money market operations at banks can be maximized. All of which is consequential to the foreign exchange trader only because it proves the intrinsic valuation theory of currency pairs in general; specifically, that currency relationships are to a very large extent, controlled by interest rate differentials of the currency components in a particular pair.

This concept is also important because it deals directly with the selection of currency pairs that one might view as applicable for any particular strategy when trading foreign ex change in the short to intermediate term. For example, if one is looking for the Yen to increase in value, over time against the Euro, or the Dollar for that matter, it needs to be borne in mind that this increase must be accomplished against a backdrop of constantly deteriorating value. Meaning that each day the position is held, it will lose money even if the price stays the same (which of course reflects the cost of rollovers as mentioned in the example above) .This is also true with virtually any counter currency against the Yen, because its* interest rates are effectively 0.0%.

Whether these known facts are predictive in nature, however, is another idea altogether. Clearly, a trader would need to realize that any long Yen position would need to imply an event change in the future to make the position worthwhile. An event change in this regard could be anything from a regional currency revaluation, to a change (or the likelihood of a change) in internal interest rates. All of which represents a bit of a “ dis connect” for the average trader. Essentially, the risk/reward ratio for being long Yen seems to be weighted negatively, as opposed to the risk/reward ratio of being long another or alternative currency. Which, of course is the key to posi tive carries in general. Trading foreign exchange requires a thought process that looks at the maximization of positive variables over time, as being the only effective gauge for success. Trying to maximize the return characteristics of any particular currency pair should be viewed as a direct corollary to this way of thinking. Also, and admittedly sometimes even counter intuitive, the discipline of comparing relative interest rates of a currency pair over time can actually lead to trading in positions that may not have appeared obvious in the first placeOnce again I ’ 11 draw reference to a speech given in Beijing this past January. The reason I did not find it instructive to be long Euro against the dollar (when asked my opinion by a member of the audience) ,even though I thought the Euro would actually trade higher, was because the trade would have resulted in a negative carry. Or, more specifically, every day the position was held open would have resulted in the long Euro side of the pair earning the equivalent of 2.25% and the short Dollar costing approximately 2.50% . To make matters worse, the environment for interest rates in the US at that time seemed to indicate the that rates would continue to rise in the US, thus further exaggerating this negative structure over time. Tlierefore^ my response to the query, and in fact a specific trade recommendation was to actually put on a trade to go long the Euro versus the Yen (which, at the time was trading at about 133.50) . Within a month of that comment, Dollar/Yen was trading at 105.50, or 3.50 Yen higher, while the Euro was unchanged against the dollar at 1.3100. Euro/Yen, on the other hand was trading at 138.20, a gain of 470 points.

In this example, of course, and with the benefit of hindsight, the trade recommendation was absolutely correct. But, more importantly, in this particular circumstance was the method that I had used to express my trade views. Here, by putting on a trade that possessed the maximum inherent benefits from the start, I was able to capture a significant move in a not so obvious currency pair. Which of course is the main point for looking at the carry implications in the first place. As with any trading position, a review of not just the directional bias needs to be taken into account, but also the interest rate components that might serve to maximize the potential benefit for holding on to the position in the first place.

名词解释

Carry:利率差额交易；套利外汇交易；息差交易。例 如，当利率偏低，投资者便借人短息（1%)买长债（4%)， 稳赚可观息差；及/或当美元汇价看低，便借入美元买进看 升的亚洲股、汇市。

Rollover:展期交割，在外汇市场或货币市场上，将原 有交易的交割日向后延展，称之为展期。

Dollar Parity:美元平价，用美元作为基准货币评定其 他货币价值的标准和依据。

Money Center Bank: —些在金融业中占据中心地位的 大型银行，在商业银行利率确定过程中发挥倡导性作用， 避免过度的金融业价格竞争。

Over Night：当日交割的隔夜拆放资金，简称为O/N。 在外汇市场的换汇交易及货币拆放中，以交昜日当日为第 一个交割日，而次一营业日为第二个交割曰。

The Risk/Reward Ratio:风险收益比。

Futures markets Are they predictive in nature

There has been a great deal written about whether futures markets can be viewed as predictive of movements or the future distillation of events in the aggregate. Particularly in the United States, there has beeri a great deal of attention paid to this concept even on a theoretical level. Recall, the now discredited idea of actually setting up a futures market that would gauge the possibility of certain terrorist related activity. But whether on a more practical level this type of thought process is viable for established markets that have associated futures contracts is an interesting question that may at least have some anecdotal validity. Take for example the current state of indexed futures for equity markets. The idea, in this regard, of which market actually leads the other (using in this context S&P futures) seems often to be in dispute, with indicators of open interest, volume levels and other types of even more esoteric criteria being viewed as significant. The same can be said with regard to futures contracts in the currency markets. In this case however, the very idea of futures having much influence is somewhat counter intuitive given the absolute size of the cash market as opposed to futures. But this very issue is, in many ways the core of the argument in favor of futures actually being predictive. For example, the cash markets represent enormous volume figures, because there is a covering process that takes place for each amount traded, until it actually reaches the eventual end user. Specifically, if a dealer were to quote a trade for 10 million US dollars size equivalent, whether for position purposes, offset, or internal funding, the actual usable size of that position is often not $10 million but rather a small percentage. This perpetuates a hedge or cover needed for the position, against another dealer. The same group of events repeats itself through multiple dealers, until such time as the total size of the initial position is effectively digested into the market for use against a theoretical end user. Often this could mean as many as 10 times the initial trade size being actually dispelled into the market as a result of one initial trade. This of course, leads to a distorted view relating to the significance of volume related statistics. In the futures market, on the other hand, it can be argued that the other side of each trade is in fact an eventual end user, whether for hedge or speculative purposes, which, unlike the cash market, obviates the need for a successive daisy chain of extended volume. The point here is that futures, even though smaller in terms of size than the cash market, cannot be dis missed in terms of their relevance towards being part of a predictive model.

Still, and assuming an implied significance beyond its physical size, the key question remains as to what elements of futures markets can be viewed as being significant. Given, that the futures markets are regulated, there is a great deal of verifiable data available with regard to volumes, ranges, and open interest, that would be difficult to duplicate within the cash maricets. In terms of volume, this is a fairly simplistic concept which generally goes to the point that volume tends to follow price, thus often times being useful only as a coincident indicator of trend. Open interest on the other hand may in fact be a more useful indicator. The concept of open interest is that it gauges the outstanding amount of contracts that are open and pending between two parties to a futures contract at any given time. The usefulness of this measurement, therefore, is that it can essentially indicate the direction that new participants in the market are viewing the price, or trend of the market price to be heading. For example, if one is to assume that open interest only increases when new market participants enter the market in greater amounts than existing market participants exit the market, then the logical inference is to look for increasing open interest to correspond to a significant movement in price. The combination of these two occurrences will lead to the conclusion that the trend for further price movements in the same direction would look strong. The corresponding inverse assumption would be the case for a decrease of open interest that might correspond to a significant price movement. In this case, one might conclude that there is a decrease of interest at the particular price level and that a continued directional movement is probably limited. Still, as one might probably infer, this is less than an exact science.

The reason for this is because of the very idea of futures in general, meaning that unlike the securities markets, the futures market dictates that for every long buyer there must be a short seller. On a conceptual level, therefore, it can be argued that open interest represents an equal number of people thinking that a market will go higher, or lower at any given time. Which, for many has lead to the conclusion, that technical indicators not withstanding, the only value for volume and open interest figures, is to gauge the depth liquidity of a particular market, as opposed to its future direction. While on an empirical level this of course is true, it is also worth noting that many traders still pay attention to the movement of open interest as a future directional indicator. Whether movements in open interest are themselves indicative, therefore, is somewhat less the point because as people tend to watch it for this purpose, the idea itself becomes self fulfilling.

Still, another element of the futures market that is worth exploring is the idea of the basis price differential between the underlying currency and its futures equivalent. Although discussed previously, in terms of the actual derivation of price and its relationship, there is in fact a correlation component that can be looked at as predictive in nature. Again, not an exact science but more of an anecdotal reference, the gap in price between cash and futures prices should, all things being equal, trade on an interest rate accrual level and remain equivalent with a slope towards convergence over a period of time. When thisrelationshipdeviates，oftenitisasignofbiastowardsei ther the cash or the futures market. Looking at the directional skew, in this regard, can be particularly instructive. For exampie, if one were to view the cash price of British pound Sterling at an assumed rate of 1.9140, a one month rate at 1.9100, and the near delivery futures contract at 1.9120 (assuming 15 days to delivery value date on the futures exchange) the relationship can be assumed as equitably distributed, allowing for a systematic cost of carry throughout the known time horizon. If however, the differential in the gaps skew wider, at any point, this would represent a variable risk now suggested within the pricing framework. In this regard, assume that the next day, spot sterling trades at 1.9160, while the 30 forward price trades only to 1.9115. And the near dated futures contract trades at 1.9135.Notice in the two forward dates (the cash 30 day and the nearby futures contract) the gap, or basis difference has widened. The futures price now has effectively risen against the implied underlying, which is suggestive of a possible movement higher in interest rates at some point in the near term. This in turn, is then suggestive of higher prices for Sterling overall. The same of course, can be true for narrowing of the basis in either Sterling or other currencies; movement in the basis differential, as opposed to outright price, can often be viewed as predictive in nature.

As a central premise, the idea of futures being price pre dictive is still a much debated concept. Scores of research and analysis has been done to prove (or disprove, as the case may be) the validity of this idea in even the most abstract of ways. However, as a user of both cash and futures markets over the years, the two issues that I have touched upon seem to be the most reasonable. Clearly however, taking the optimum advantage of some of the infonnation and data points that are available within the futures markets can often be a complex task. It involves cataloguing large amounts of data for comparison purposes, and having available the modeling functions to take ad vantage of this data. Not surprisingly, most traders, outside of hedge funds or larger institutions, often do not have the wherewithal, or resources to undertake this type of analysis. However, some of the points that have been mentioned, are fairly basic, and require little more than a fundamental review on a daily basis. Essentially, to gain value from the futures markets predictive nature (which again is more anecdotal than empirical) merely requires the observation of two critical areas 1) open interest changes, particularly when they occur simultaneous with large price and volume movements and, 2) the monitoring of changes in the relative relationship of basis between cash and futures prices.

名词解释

Cover:平仓。将开立的头寸清算出局。

Volume:交易量。

Open Interest:未平仓合约，也译作持仓兴趣。在买卖 期指合约及期权合约时，买卖双方之合约均会被计人未平 仓合约数量内。而买卖完成后，投资者可等待原先的合约 到期时，或者利用一张与之前相反策略的合约来结束责任， 我们称之为平仓活动。

无论投资者选择以第一种方法或第二种方法，未平仓 合约之数量仍不会改变，除非投资者并不想利用第二张合约作平仓之用，而新开另一张合约。在这种情况之下，未 平仓合约便会增加至四张。由于在期货交易所中交易之合 约会受到交易所之保障，买卖双方在新开合约时便要存入 一笔保证金，以确保责任得以履行，所以当投资者持有未 平仓之数量愈大时，他所需要支付的保证金会愈高，而成 本亦会高。所以，若他相信后市与之前所预测的不同时， 便会进行平仓。

一般来说，若未平仓合约之数量愈多，投资者相信后 市会以单一方向发展，而后市出现大幅波动的机会会愈大， 但单从观察未平仓合约之多寡并不能提供有用的数据，帮 助投资者预测大市方向，我们需要另外观察其他之数据。 当大市大幅上升时，未平仓合约亦大幅增加，而期货之溢 价亦同时上升，此时表示大市预期会出现继续上升的局面； 但假如大市大幅上升，但未平仓合约开始下跌，而期货之 溢价亦同时下跌，即表示大市预期快要见顶，所以开始平 掉部分合约，以致未平仓合约之数量下降。

在另一情况下，若大市出现大幅回落，而未平仓合约 不断增加，同时出现大幅低水的现象，表示大市之跌势极 可能会加剧，同时跌势亦会持续；但若当大市下跌时，未 平仓合约之数量开始降低，而低水情况开始好转，即表示 大市快到底，短期内可能会出现反弹局面。

Range:价格区间，指的是价格在某一范围内上下波动 的情形。

Options Are they really the better way to trade

In many ways the concept of an option is one that is almost uniformly couched with intrigue and unfamiliarity. Maybe this is due to the fact that options can be classified within a larger group commonly referred to as derivatives. Using its most basic definition, a derivative is something that has its price determined by the price of something else. Whatever the reason, this generalized construction tends to create a great deal of difficulty for people to come to terms with. However, in actual fact, this same fundamental component (i.e. being a derivative) is precisely what makes the vehicle so attractive to trade. For example, an option price will always reflect the value of its underlying source, but it will also have pricing variables that are unique to the actual option itself. These component parts can generally be derived using mathematical formulas and are often referred to using Greek letter abbreviations as follows:

Gamma The rate of gain or speed of the increase in the option price at different levels in the underlying price.

Delta The equivalent amount of traded principal that seems to be represented by the option at different price levels of the underlying.

Theta The time value left for an option to be exercised,until it effectively expires.

And, of course the most widely used, and concurrently misunderstood Vega or volatility.

With the exception of Volatility, all other measurements are capable of being derived mathematically to a fair degree of certainty, and are generally plugged into computer pricing models for options, which themselves have become reasonably common. Volatility, however, unlike these other pricing components usually reflects what can be referred to as the unknown variable. In fact, most options pricing models will leave this input field as a blank, always to be supplied by the user. However, since it is critical to understand that in order to price an option, some assumption for volatility must be used, it is also interesting to note that Volatility is in fact traded almost as an independent vehicle and usually is priced for standard term increments by banks, option market makers, and even organized exchanges themselves. Since volatility moves with the differing expectations of traders during any period of time, it is usually the singular differentiating component for any option pricing model.

Suffice it to say, the discussion of each option pricing component, much less Volatility on its own, can be the subject of many pages of mathematical description. For the purposes of this discussion however, and in fact for most traders, it is important to understand only two basic themes. Firstly, that option prices are derived from component parts which, with the exception of Volatility, are knowable. And, secondly, that anyone using an option pricing model can always derive a theoretical option price through the use of a volatility number that is available from numerous sources.

Still, the question remains as to whether by trading options as opposed to the outright underlying vehicle; there is an advantage to be gained in one*s trading approach in general. The answer, of course, is that in most cases, it is somewhat dependent upon circumstances. For example, as noted above, options have a wide range of pricing characteristics that are in addition to those of tHe underlying trade vehicle. Tliis usually represents an opportunity for evaluating many different elements of price simultaneously and making a more inclusive judgment about absolute price levels in general. In certain instances, one might argue that an option price is cheap or expensive depending on one or more of its component parts, and thereby represents either a selling or buying opportunity, independent of the actual price direction of the underlying vehicle. More importantly however, there is also an argument to be made that these same component parts of an option price, are actually related to market sentiment about the future direction for the price of the underlying in absolute terms.

The most common version of this type of thinking is through the use of a contrary indicator (or something which indicates one thing but actually represents the opposite) , and relates to the Volatility component of the option. Here, Volatility is examined within the context of its normalized range for a period of time, and points are indicated as being significant when they fall at extreme levels within this range. In basic terms, the theory assumes Volatility to have a finite outer wall of extremes, wherein volatility will eventually retrace back to its normal mid range. This inflection point is thought then, to represent the turn of the trend for a particular price move, at a given point in time. To illustrate this point, assume that Volatility for the past three months in Dollar/Yen was trading somewhere between 8.5% and 10.5% (these, again being values

that could be plugged into any option pricing model to derive price) . At the moment, the currency has come off recent Dollar lows, Yen highs at close to 100, and is now at 105 with volatility being quoted at 9.75%. Here, certain conclusions may be drawn. Firstly, the dollar bounce has led to a slightly higher price for Volatility within its normalized range, but it is not yet at an extreme and that this movement higher, or its bounce off of recent lows, can probably continue for a period of time. If, however, by virtue of any event, prices kept going up, and started to move more quickly in that direction one could look at the quoted Volatility at that time and assess whether this higher trend may have changed, or even pushed the Volatility measurement to an extreme number. Lets assume, in this regard, that DollarA^en suddenly spiked up to 108.00, with concurrent volatility quoted at 10.75%. In this situation, the ideal trade would be to get out of dollar longs and look for an imminent reversal from the current price level, because the run up in price has caused Volatility to trade at an extreme. Clearly this is only a hypothetical example, but the general thought process is the same for most applications. While not something to be used to the exclusion of other indicators, the change in Volatility as a pricing indicator can be an effective tool for predicting a trend change or reversal.

One of the other more obvious advantages, usually associated with options is the idea that an option carries with it a limited and knowable risk (this, of course, being limited to the idea of being a long, or a buyer of options as opposed to shorting, which itself is somewhat outside the scope of this discussion) .While an essential component of options in general, it is also important to understand that this limited risk component comes at a price. Specifically, options require a payment, or premium to be paid upfront at the inception of the position. Also, unlike an outright position in the underlying, options exist for only a certain defined period of time. All of which needs to be evaluated against the idea of simply taking a position in the outright underlying in the first place. In many circumstances, this tradeoff is not particularly reasonable. More to the point, an outright position in the underlying can actually give one the same degree of price certainty if stop loss orders are used, and there is no time decay (the limited period until the expiration of an option) or upfront premium to be paid at the inception of the position. Which leads to the conclusion that option trading on its own is not necessarily a replacement for having an outright position but rather, may be an alternative dependent upon circumstances.

There is however a compromise in the debate as to whether options or outright positions are the more effective trading tool, and that is to combine them both. As opposed to the singular usage of either, the combination of options and outright positions creates an added trading benefit that can be referred to as a portfolio effect. What this means is that each position has an implication on its own, in terms of price, and also an implication on the associated position that it is held a gainst, within the same portfolio. For example, take an option for one month in Dollar/Yen that allows the buyer to buy dollars at the current spot rate (assumed) of 105.50 upon expiration, or what is commonly referred to as a Dollar call. Using these assumptions the strategy of being either long or short the outright underlying position during this one month period now reflects different and expanded opportunities. In the context of being long, the option will serve to significantly increase the impact of the position as the market goes higher. Thus creating the effect of positive leverage, which can be demonstrated at various levels. For instance at 106.00 the long outright will have gained .50 points, and the option being “in the money” at this point or, positive from an intrinsic value standpoint, also would have gained by .50 points, thereby creating the effect of having doubled the exposure to the upside positive. Should the market trade lower, this leveraging effect disappears but does not exaggerate or add to the negative position in the same manner. Meaning that the loss on the portfolio at levels under 105.50, would only reflect the negative value of the outright long position, not the additional option. In the case of a short position in the outright ( again assuming the price to be 105.50) , the upside risk of the market going higher is effectively eliminated by virtue of having the call be exercisable at 105.50, while the full downside gain possibility exists unencumbered. This generalized type of strategy can also be employed using a put option, or, an option that allows the holder to go short at a certain level, for a certain period of time. These two generalized trading ideas are both versions of a strategy usually associated with equity options as trading either “long or short against the box” , and clearly have almost limitless possible combinations of outcome. However, it is important to keep in mind that as with all varieties of options that overlay outstanding positions, it is the combination of cost (option premium) ,strike price (the level where the option will be active or not) and time value (the length of time for the option to remain active or outstanding) , that will dictate the true measure of success within any theoretical portfolio.

名词解释

Option:期权。契约的持有人（购买者）在有效期间内 或到期时，有权要求契约的出售者，以履约价格（Strike Price)履行契约。契约的购买者必须支付契约出售者权利 金（Premium)才能取得权利。契约持有者有权要求履约， 但也可以放弃此权利。期权基本上有两种：一为看涨期权， 一为看跌期权。

Portfolio:资产组合，泛指个人或机构投资用于各类资 产之投资组合。

Call Option:买入期权，买权。期权的买方在支付权利 金(Premium)予期权的卖方后，有权利要求期权的卖方在一 特定期间或到期时，以特定价格（Strike Price)出售一定数 量的交易标的物给予期权的买方。也就是期权的买方有权 利要求买入交易标的物。

Put Option:看跌期权，卖权。期权的买方在支付权利 金(Premium)给期权卖方之后，取得权利，并可要求以一特 定价格（Strike Price),卖出一定数量的交易标的物给予期 权的卖方。亦即期权的买方有权利要求以特定价格卖出交 易标的物。

Digital options A subset of the basic option trading idea

When speaking in terms of options, it is often assumed that options are a generic grouping of puts and calls, with certain fairly common features that are differentiated, more, on the basis of strike, underlying and time than the actual component features of the security. This however, is not the case with a sub grouping within the option world known as digital options. Simply put, digital options make use of a wider array of underlying characteristics that might cause an option to be either in or out of the money, whether prior to or, at expiration. These features often include range structures or hurdle prices, and can also look at other related dependencies that have to do with prices of the underlying during any particular time period. The term 揹igital?is in fact a generic term. Wherein, the nature of the digits is the basis for defining the option in the first place. Since these are not usually just a singular strike price but more often contain conditional events based upon certain numbers, these conditions are often referred to generi cally as ranges, barriers or hurdles. To give substance to this concept, it is worth going through some of the characteristics of the more common varieties of digital options.

1. a Range option. This option is one that contains a feature associated with a range as opposed to a single price that defines the worth of the option. For example take a range option quoted for Dollar/Yen to trade within a band of 105.00 to 105.50 for a lmonth period to commence at the current spot date. Even on its surface this idea requires multiple levels of explanation. For example, the buyer or this option can take the side of being either inclusive or exclusive of the range. Which has nothing to do with being long or short (for in this sense we are always referring to a long option) but rather the reference is drawn to whether during the known period for the option, the underlying price of Dollar/Yen will be in or outside of the range. Assume for this example that the buyer takes the side being inside the range, and further assume that at the point of inception with the option that spot Dollar/Yen is trading at 105.25. Theoretically, for the one month period, the option holder will only make money if the spot rate moves less than 25 points up or down. Whereas someone taking the other side of this trade will only make money if the price of Dollar/ Yen trades outside of the range, or more than 25 points in either direction from the current spot rate. Taking a look at the implications for either side of this trade, it becomes obvious that this trade is in fact a surrogate for looking at volatility for Dollar/Yen over a defined period of time, and in fact will be priced to reflect this dynamic. Or more specifically, if Dollar/ Yen has been particularly range bound for a period of time, then the inside range of this option will be fairly expensive, with the idea that a continuation of low volatility would be the driving price component for the option, while the outside range for the option would be relatively inexpensive.

One other interesting feature about an option like this is that it is also effectively a single event option for that particular period of time. Which means that once the outside band is breached (in either direction) then the option time period also effectively ceases. While volatility clearly has the majority of pricing impact in this scenario, it is important to keep in mind that this measurement should be viewed as volatility related to the implied time element as well. For example, in a low volatility environment, the assumption would be that the option would run close to, if not fully to the outside term of the option expiration period. Whereas in a high volatility environment, the assumption as to the option time period would probably fall to a point prior to the expiration of the option. All of which has to do with the pricing for the option in the first place. Most market makers for these types of options will use a fairly sophisticated software modeling system to imply just these particular points and express the value on a relational basis to assumptions of both time and volatility.

2. a Single barrier option as with the range options this particular type of vehicle deals with a single pricing event that may occur during a particular period of time. However, in this situation, the event is based upon only one specific price point, as opposed to a range.

For example, take Dollar/Yen trading currently at 105.25 for spot, with a one month single barrier option quoted to refleet a strike at 105.50. In this situation, the holder of the option can once again take either side of the equation, as being in the money if the option trades over or under the specific strike.Similar to the range option, the price of the single barrier option will reflect volatility, time, and also in this case, the distance of the current rate to the appropriate strike price. Specifically, while the current spot rate is in fact close to the strike, on an adjusted forward rate for one month (losing the implied spot carry for one month) the implied rate is quite a bit farther away maybe as much as 25 points or more. Further, as part of the measurement of the volatility component for the option, the idea of whether the market has traded higher or lower than the strike, and for what period of time, will also have to be considered.

3. a Single 搆nock in?option within the context of derivatives in general, this type of option may in fact be one of the more unique varieties. As its name implies, the option itself is contingent upon a certain event. Once that event transpires, then an option will exist that will have certain characteristics on its own.

Specifically, this type of option translates into multiple sets of criteria in structuring, and also carries with it a second layer of complexity that the other two varieties do not. For example, assume once again that Dollar/Yen is trading at 105.25, and that we are examining an option for a 105.50 call with a knock in at 106.00. What this translates into is a generic105.50 call that will be granted to the buyer of this option only if the market trades to 106.00 within the time period for the option. Or, to put it in another context, the call option that would be granted, would only exist conditionally for the period, unless the higher rate of 106.00 were to be traded first. Clearly, if this were to occur, it would then make the new 105.50 call option in the money by 50 points. Trying to put this in context, one can also look at this as a volatility pricing exercise, but one that values volatility in segments that are contingent upon one another. For example, if the market were to trade at 106.00 and thus cause the call option to be “knocked in”，then what would be the value of that 105.50 call, and how soon might it occur, considering that a hurdle of 106.00 would have to be breached first? This is effectively the thought process for anyone that might want to price the option, but more than likely, these options tend to be run through proprietary pricing models that will skew the likely outcomes in terms of time, volatility, and often times the overall position and outlook of the market maker in general. Often times, this translates into prices for complex options that are not particularly transparent. However, this also represents an opportunity. In fact, many traders prefer these type of multiple contingency options because they can often times be seen as miss priced or at least open to interpretation as to whether they are priced correctly.

4. a single “knock out” option similar to a “knock in” option, this type of option has a level of contingency attached to it that makes it react and be priced in a more complex fashion. Essentially, when dealing with a “knock out” option, one is almost dealing with a live option position that will effectively be stopped out or closed, should a certain pricing contingency be breached with regard to the underlying. For example, assume once again the same Dollar/Yen level of 105.25, while looking at a 105.50 Dollar call with a 106.00 “knock out” . Here, once again the issue is volatility and direction, but segmented to a very specific window. Meaning that if either through volatility or outright directional movement, the spot level for Dollar/Yen trades higher than 106.00 during the open option period, then the option will actually be taken away, or “stopped out” . Which, of course, translating into a very small window that the option can actually be profitable within. This would usually be indicative of a small amount of premium that the option would cost in the first place. Certainly, the cost of this option would be significantly less than an outright call for Dollar/Yen with a strike at 105.50, and no “knock out” provision. Here, as with the “knock in” type of option, the idea of pricing takes on a number of different variables that can be very difficult to follow, because they represent different valuations for the multiple levels of contingency.

As to whether any of these option varieties represents value, is a very difficult idea to assess However, one of the main points in presenting these ideas in the first place is to get the point across that there are multiple variations for approaching the foreign exchange option market，that often times can create multiple levels of possible outcomes.

In these four examples, the static assumptions that have been used and also their relative simplicity, can itself be misleading. For example, even when evaluating the possible performance characteristics of a change in the underlying spot price throughout any of the above examples，it is easy to understand that the numbers of possible outcomes are almost unlim ited. Further, by changing any of the single assumptions such as price, strike, or even time value, the complexion of that option can take on an almost entirely different set of characteristics. The question, therefore, as to whether anything to do with “digital” options is worth the further complexity as opposed to generic foreign exchange options, is a critical issue.

As with the topic of trading generic options, the idea of “digital” options is really a view towards the portfolio effect of an overall trading strategy. Since the market often moves in unpredictable way and times, the idea of creating value at different levels of price and time is a sensible one. And, over time，this sort of approach should only enhance the return of any trading system. The idea therefore, in terms of these more esoteric vehicles is to further refine the topic. Digital options represent one of the most flexible ways to put together a u niquely structured portfolio of currency positions. Until very recently, this market was somewhat restricted by certain factors. Including the fact that there were just very few groups that were willing to make prices for these types of options. This however, has changed. Even in smaller size units, these types of options and their multiple variations are now reasonably attainable by most traders. Further, the ability to customize much of their underlying criteria, is an idea that seems to be expanding all the time.

名词解释

A Range Option:在期权履约期间，交易者根据市场价 格能否限定在某一特定价格区间为依据，决定是否履约的 期权类型。

Single Barrier Option:单一障碍期权，在期权履约期 间，交易者根据市场价格是否触发某一特定价位为依据， 决定是否履约的期权类型。

Single “Knock In” Option:单一生效型期权，一种较 为复杂的数字型期权类型，与某一价格事件紧密相关，若 此事件实现，则期权生效。

Single “Knock In” Option:单一失效型期权，一种较 为复杂的数字期权类型，当期权价格突破某一价位时，期 权头寸会自动平仓或终止。