A low-risk/high reward Soros Style trade

marbig

Active member
129 11
I see that the Swiss National Bank (SNB) has again intervened to hold the Euro/Swiss Franc to 1.20
Swiss National Bank steps back into currency markets - Telegraph

The Eur/Chf of 1.20 will collapse.

Any budding George Soros traders will know that a Central Bank that attempts to hold a currency at a specific level will ALWAYS get beaten by the market.
The Money Market/ Hedge fund sharks can smell the blood in the water as the SNB bleeds from all the Euros that it bought. (It has been buying Euros with Swiss francs so that the Swiss franc would be weaker).

The SNB is now taking sizable losses from its purchases of the Euro over the last 8 months when it started to try to weaken the Swissie. (The Swiss Govt is desperate to weaken the Swiss franc to keep its industries competitive)

But the STREAM of money from Greece to the safe haven of the Swiss Franc has turned into a RIVER of money as Spain and Portugal now weaken and their citizens also send their money to the Swissie safe haven.
It will soon turn into a FLOOD of money to the Swissie as Italy and France get weakened by the elections in the near future and the increase in bond yields.

(High reward) The fall in the euro/swissie is guaranteed by the inevitable and impending future TORRENTIAL FLOODING into the Swissie.
(Low risk) The chance of the SNB being able to engineer a substantial and ongoing weakening in the Swissie is neglible. NO country can continue indefinitely to buy Euros that keep falling in value.

In summary, SELLING the Eur/Chf is an exceptional low risk/high reward trade. It may take a while, but it will happen! (y)
 

scose-no-doubt

Veteren member
4,630 954
How is it low risk? What if they change the peg to 130 today, tomorrow, next month? They did it from 1.20 to 1.30

The fact that we're in an environment where interest rates aren't rising makes this a completely different kettle of fish to Soros's BOE trade.
 

rsh01

Experienced member
1,184 299
I see that the Swiss National Bank (SNB) has again intervened to hold the Euro/Swiss Franc to 1.20

Any budding George Soros traders will know that a Central Bank that attempts to hold a currency at a specific level will ALWAYS get beaten by the market.
The SNB successfully pegged their ccy in 1978, how did you do on that trade?
 

new_trader

Legendary member
6,197 1,261
The SNB successfully pegged their ccy in 1978, how did you do on that trade?
For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!
 

rsh01

Experienced member
1,184 299
For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!
They succeeded for a 4 years.how long is the OP expecting to hold the trade for?
Quite a few CBs have pegged/floored their ccy successfully, contrary to what the OP is stating.
 

new_trader

Legendary member
6,197 1,261
They succeeded for a 4 years.how long is the OP expecting to hold the trade for?
Quite a few CBs have pegged/floored their ccy successfully, contrary to what the OP is stating.
*LOL*

I knew this would turn into 10p/pip on a 5min chart type conversation...
 

scose-no-doubt

Veteren member
4,630 954
For a start, the SNB has been here before. In 1978, it developed an exchange rate target against the Deutsch mark to combat franc strength. By 1982, however, as the cost of defending the target rose, monetary liquidity increased and inflation took off, the country was forced to abandon the policy.


THE FREE MARKET RULES!
so what happened to the rate after inflation? must have fallen, no?
 

new_trader

Legendary member
6,197 1,261
*LOL*

You £1/pip Y4+ chart type snobs crack me up.
Touché!(y)

In late 2009 I sold my flat in the U.K and put more than 50% of the proceeds into another currency and I have been selling the £ every month since then. The point being that you don’t need to be as wealthy as George Soros in order to take a longer term view. If you really think the Swiss National Bank is going to fail (as I do) then you could open a Swiss bank account and start buying the physical currency, this is not a trade suggestion this is just a way to take a longer term view. However you would need to be selling a currency you think is flawed. I would probably do it if I was earning Euros but I am earning GBP and I am already selling it for other stuff.
 

rsh01

Experienced member
1,184 299
Touché!(y)

In late 2009 I sold my flat in the U.K and put more than 50% of the proceeds into another currency and I have been selling the £ every month since then.
Congrats on your ccy investment.
Long term v short term trading wasn't the main point of the thread though, if I read the OP correctly. It was that the market will prevail over CB intervention, and 'always"in the opposite direction. Which I disagree with.
Fwiw I also believe SNBs eurchf floor will fail, but in the interim I won't let my long term view get in the way of any day trading opportunities. So I will be looking for longs and shorts in markets regardless of long term bias. Horses for courses.
 

new_trader

Legendary member
6,197 1,261
It was that the market will prevail over CB intervention, and 'always"in the opposite direction. Which I disagree with.
I would advise you to read up as much history as you can on Governments/Central Banks attempts at price-fixing, anything. If there is a Government attempt at price fixing it is usually because the fundamentals and as a result free market forces want to do the opposite. Whether it is the price of gold, wages, interest rates or currency they almost all invariably ended in disaster and abandonment. If it is a bet between free market and Government I would bet on the free market any day. Governments are utterly clueless. Read up about the London Gold Pool or Nixon’s price and wage controls.
 

rsh01

Experienced member
1,184 299
I would advise you to read up as much history as you can on Governments/Central Banks attempts at price-fixing, anything. If there is a Government attempt at price fixing it is usually because the fundamentals and as a result free market forces want to do the opposite. Whether it is the price of gold, wages, interest rates or currency they almost all invariably ended in disaster and abandonment. If it is a bet between free market and Government I would bet on the free market any day. Governments are utterly clueless. Read up about the London Gold Pool or Nixon’s price and wage controls.
Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.

But we and the OP were specifically talking about the currency market, and I will repeat- CBs / govts have successfully pegged their currencies (if you had bet against them you wld have lost), please read up on Japan and China pegging to usd (much to the annoyance of the US govt) also.

Its back to that perennially used quote again re the markets can stay irrational much longer than you can stay solvent. And I'm not going to bet against that, but go ahead.
 
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Shakone

Senior member
2,458 665
Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.
How sure are you of this? I can think of some markets being much more rigged in the past. Then again, it's hard to measure isn't it.

On EUR/CHF, I think there was another thread on this, and the conclusion seemed to be that the Swiss could print as many francs as they like and use the euros accrued to invest in other areas for as long as they like, until they're ready to change the level.
 
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new_trader

Legendary member
6,197 1,261
Thanks for the advice, it won't help my trading though. Some advice back - It would be wise to stop using the term 'free market' esp when referring to todays markets. Even removing CBs interventions the markets are far from free. And with this in mind, there is no historical data to compare to cos the markets have never been this rigged at any time previously.

But we and the OP were specifically talking about the currency market, and I will repeat- CBs / govts have successfully pegged their currencies (if you had bet against them you wld have lost), please read up on Japan and China pegging to usd (much to the annoyance of the US govt) also.

Its back to that perennially used quote again re the markets can stay irrational much longer than you can stay solvent. And I'm not going to bet against that, but go ahead.
I am replying not because I want to argue (no point) but because I think you have missed the point entirely.

1) The Renminbi is not a free floating currency so it is difficult for people outside of mainland China to invest in it.

2) When a Government price fixes anything it is ARTIFICIALLY keeping the price either too low or too high. That is an indisputable fact and has zero to do with market irrationality. Do you honestly think that if Governments decided to supress the price of gold at US$5/oz that eventually it would stay there of its own ‘free market’ accord? I know we are talking currencies but the principle is the same. Do you honestly think an economy can survive the complete destruction of its own currency? Do you honestly think the SNB is willing to do that?

Anyway, you just keep looking for pinbars or whatever...good luck