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HKMA and Trading USD/HKD

  • #1
  • First Post: Edited 9:15pm Oct 21, 2007 8:55pm | Edited 9:15pm
I am not going to make a big to do about this situation. The reason why I wont do so is because I have not knowledge or experience in dealing with circumstances such as are occuring. I do not want to create personal bias, this I feel may help me to lose money. If there are those that are curious as to the present ongoing, you can go here http://www.info.gov.hk/hkma/eng/curr...k_ex/index.htm and find out what I am attempting to refer to.

Has anyone ever personally watched set bounds in action? Will the HKMA even try to fight the good fight here? Will they lay over and let this thing go? The major trend seems to have gotten flat right here on this pair. Quite interesting to say the least.

Any comments are welcome. As of right now I am looking for a long, though as I would with anything else ... it has to meet my criteria to do so. As of right now, this may be nothing more than a break in just another long term trend against the USD.

EDIT:

I decided to highlight what I am speaking about. So read below:

"Operating under the rule-based Currency Board system, the Aggregate Balance will vary in accordance with the flow of fund into and out of the Hong Kong dollar. The HKMA operates Convertibility Undertakings on both the strong side and the weak side of the Linked Rate of 7.80. Under the strong-side Convertibility Undertaking, the HKMA undertakes to buy US dollars from licensed banks at 7.75. Under the weak-side Convertibility Undertaking, the HKMA undertakes to sell US dollars at 7.85. Within the Convertibility Zone between 7.75 and 7.85, the HKMA may choose to conduct market operations consistent with Currency Board principles with the aim of promoting the smooth functioning of the money and foreign exchange markets."

So, does this mean anything ... or am I looking too far into something?
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #2
  • Oct 22, 2007 12:13am Oct 22, 2007 12:13am
Sharp observation, StockKJay!

Also much interested in the potential development from here.
Will they fight this 'good' fight?
Or the HK stock market tops?

Let us wait and see.

Cheers.
凹凸 only
  • #3
  • Oct 22, 2007 12:32am Oct 22, 2007 12:32am
Detailed information is attached. (also downloadable from the official website)
Attached File(s)
File Type: pdf full_e.pdf   339 KB | 1,354 downloads
凹凸 only
  • #4
  • Oct 23, 2007 4:24am Oct 23, 2007 4:24am
I went long at 7.7513. For anyone that trades this pair (few I suppose), the margin needed for any real profit is quite significant. Nevertheless, I do believe that it may be worth jacking up that leverage. The risk / reward is good in this situation as far as I can tell. My stop loss is just 50 or so pips and my TP is at 7.8150 and 8175.

I will see if the HKMA wins this time, if not, I will take the loss and probably start shorting. If they lose now, long term shorting may end up seeing the HKD head toward SGD strength? Of course, its best not to confuse myself .
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #5
  • Oct 23, 2007 6:47am Oct 23, 2007 6:47am
Quoting StockKJay
I went long at 7.7513. For anyone that trades this pair (few I suppose), the margin needed for any real profit is quite significant. Nevertheless, I do believe that it may be worth jacking up that leverage. The risk / reward is good in this situation as far as I can tell. My stop loss is just 50 or so pips and my TP is at 7.8150 and 8175.

I will see if the HKMA wins this time, if not, I will take the loss and probably start shorting. If they lose now, long term shorting may end up seeing the HKD head toward SGD strength? Of course, its best not to confuse myself .
Your TP is 637 pips and 662 pips...Wooow... Is that long term or short term?
  • #6
  • Oct 23, 2007 9:42am Oct 23, 2007 9:42am
Quoting cirebonese
Your TP is 637 pips and 662 pips...Wooow... Is that long term or short term?
That is long term. My reasoning for this is that if ... IF ... the HKMA keeps the range between 7.75 and 7.85, those targets I have will be reached before the SL. Of course, if the HKMA fails, the boundry will be broken and my stops will be hit.

It is surely a long term trade. I would expect this trade to take months to develop. I don't use heavy leverage elsewhere, so this doesn't really get in the way.

ForexLover, how is the weather in Indonesia? Do you work with wildlife for your job (Park ranger etc) or a hobby?
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #7
  • Oct 23, 2007 11:19am Oct 23, 2007 11:19am
Good post. I like it when someone does his/her homework.
last year, Joe Lewis said the HKD was the most susceptible to a dramatic change in value; sure enough.

I like your idea. You have to remember though that as the CNY gains value vs. the USD, so will the HKD.
  • #8
  • Edited 7:23am Oct 24, 2007 2:56am | Edited 7:23am
Quoting StockKJay
That is long term. My reasoning for this is that if ... IF ... the HKMA keeps the range between 7.75 and 7.85, those targets I have will be reached before the SL. Of course, if the HKMA fails, the boundry will be broken and my stops will be hit.

It is surely a long term trade. I would expect this trade to take months to develop. I don't use heavy leverage elsewhere, so this doesn't really get in the way.

ForexLover, how is the weather in Indonesia? Do you work with wildlife for your job (Park ranger etc) or a hobby?
I also trust that it will move up from 7.75 evetually at some other time in the future. But the interest would really be a problem if it can't go up soon.
  • #9
  • Oct 24, 2007 8:39pm Oct 24, 2007 8:39pm
Quoting pipal
I also trust that it will move up from 7.75 evetually at some other time in the future. But the interest would really be a problem if it can't go up soon.
Yes, the interest is considered. With Oanda, if I held for 1 full year and the TPs were hit, it would be just about 35-40%% loss of my total profit. This is a rough figure, I didn't work it out to an exact. That is also considering the interest rates don't get lowered in the US or raised in Hong Kong.

If I determine that this is a lost cause to fight on the same side with the HKMA, I will stand aside. The pip profit is expected to exceed the interest lost within several weeks. If not, again, I will re-evaluate the scenario.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #10
  • Oct 24, 2007 9:41pm Oct 24, 2007 9:41pm
Quoting StockKJay
ForexLover, how is the weather in Indonesia? Do you work with wildlife for your job (Park ranger etc) or a hobby?
Recent days, the weather in my city is hot and sunny, but sometimes windy.
Do you mean the picture? That's my lady.... She likes to travel all across Indonesian archipelago to see wildlife nature and cultures.

But, I don't like that much.....I prefer trading...
  • #11
  • Oct 29, 2007 10:27am Oct 29, 2007 10:27am
Quoting cirebonese

But, I don't like that much.....I prefer trading...
Love animals, though trading is best

If I weren't losing money on interest, I would be semi-amused how flat this currency is. If this continues for the rest of the week, I may exit for a slight loss and wait until there is momentum upward.

My reason? Back in late 2005, the last time the currency was at this point, it stayed in a very tight range for well over 2 months. This is something that doesn't appeal to me. We will see.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #12
  • Oct 31, 2007 8:58pm Oct 31, 2007 8:58pm
Quoting StockKJay
how flat this currency is. If this continues for the rest of the week, I may exit for a slight loss and wait until there is momentum upward.
.
With this recent break upwards away from 7.7500 +/- a few, I am a little more interested again in holding. I will give it longer than this week. I don't know why I would even suggest that I would get out after such a short time ... it isn't like me to rush the gun like that. Anyway, lets hope it doesn't retrace back to the magnet 7.75. I will make exit judgements if it retraces and then dies again for a while.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #13
  • Oct 31, 2007 11:02pm Oct 31, 2007 11:02pm
Quoting StockKJay
Yes, the interest is considered. With Oanda, if I held for 1 full year and the TPs were hit, it would be just about 35-40%% loss of my total profit. This is a rough figure, I didn't work it out to an exact. That is also considering the interest rates don't get lowered in the US or raised in Hong Kong.

If I determine that this is a lost cause to fight on the same side with the HKMA, I will stand aside. The pip profit is expected to exceed the interest lost within several weeks. If not, again, I will re-evaluate the scenario.
Just for fun. If I did buy 20 lots USD/HKD at about 7.7500 when I replied last time, I could have made about $200 by now, without counting the interest charged by the broker.
  • #14
  • Nov 5, 2007 10:06am Nov 5, 2007 10:06am
I know it is somewhat like backing down on my trade, though I exited half of my position. I exited and will not re-enter it. Not because I was overleveraged, in fair profit or satisfied ... but because with the .25% decrease in USD rate as well as Oanda's increased spread between the rate of HKD and USD. I was poised to lose 80% of all my earnings on interest payment alone if I hold the position for a full year ... something I am unwilling to waste my time with. Have to give credit to the warning Pipal gave, the interest situation changed greatly after just 3 weeks.

Half the position I initially took at 7.7513 I still have TP set for 7.8.

This has been a fun second trade for me on USD/HKD. The bounds worked just as anticipated. Low if I am not mistaken was just 6 pips below the lower bound. Will they hold for the long run? Maybe. If the cost to my account weren't so high and I was in an interest positive position ... this would be an incredible gem of a trade.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #15
  • Nov 5, 2007 10:43am Nov 5, 2007 10:43am
Quoting StockKJay
I know it is somewhat like backing down on my trade, though I exited half of my position. I exited and will not re-enter it. Not because I was overleveraged, in fair profit or satisfied ... but because with the .25% decrease in USD rate as well as Oanda's increased spread between the rate of HKD and USD. I was poised to lose 80% of all my earnings on interest payment alone if I hold the position for a full year ... something I am unwilling to waste my time with. Have to give credit to the warning Pipal gave, the interest situation changed greatly after just 3 weeks.

Half the position I initially took at 7.7513 I still have TP set for 7.8.

This has been a fun second trade for me on USD/HKD. The bounds worked just as anticipated. Low if I am not mistaken was just 6 pips below the lower bound. Will they hold for the long run? Maybe. If the cost to my account weren't so high and I was in an interest positive position ... this would be an incredible gem of a trade.
Perhaps we can wait and short USD/HKD when it reaches the other side i.e. 7.85. Then we can hold as long as we can because we can earn interest in that case.
  • #16
  • Nov 9, 2007 12:03pm Nov 9, 2007 12:03pm
Quoting StockKJay

Half the position I initially took at 7.7513 I still have TP set for 7.8.

.
Glad I held onto this. Given that I trade mostly carries, LONG, this trade is actually the best I have going for me currently. I really did not expect this sort of momentum ... given that the major trend was in the opposite direction. 7.83 to the lower bound occured nearly with no true retracing or serious cause for belief that the HKD was not showing hints of its true value.

As it is, if this is still intervention ... then I am happy either way. If this is authentic momentum now that is being caused by carries unwinding (which I can't draw a connection to), then I will be hoping to see this get around the 7.82 - 83 range where I can short it again.

Quoting pipal
Perhaps we can wait and short USD/HKD when it reaches the other side i.e. 7.85. Then we can hold as long as we can because we can earn interest in that case.
This would be ideal. Although, I think there was a little bit of funny business that occured around 7.83. If you look at a 4hr chart, you can see the way the currency got very flat at around 7.83. Very similar to 7.75. I will be watching that mark if it gets up there. Though, that may be months away ... if ever?

Have a good weekend.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #17
  • Nov 12, 2007 8:11am Nov 12, 2007 8:11am
Well, now I am cheating my original assumptions. I do admit it. I have made 3% return on my account off of this position. Actually, this hyper leveraged, interest bleeding, CB intervening trade was one of my better ever.

Given the market volatility currently, I have chosen to exit the majority of my positions ... this included. Since I always seem to lose money when the market is uncertain, I have chosen to exit instead of losing my profits.

Thanks to Duke and Pipal for their input, this isn't the last of this thread. HKD is extremely undervalued (at least in my reasoning) and I will be trading this short sometime in the next several months.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #18
  • Dec 27, 2007 1:19pm Dec 27, 2007 1:19pm
Is anyone looking at this pair now? Price is at 7.8023 right now which is basically the midpoint of the 7.75-7.85 range. This seems like it may be a good opportunity to go short and collect some interest here with s/l at the 7.85 and t/p around 7.75 (obviously lots would have to be very small). There may still be some upward movement to go, but I'm thinking we're much more likely to see 7.75ish numbers than 7.85 in the next few months. 7.83 could also be a good s/l as the pair seemed to top there in early August. Any opinions?
  • #19
  • Dec 27, 2007 1:54pm Dec 27, 2007 1:54pm
Quoting Betard
Is anyone looking at this pair now? Price is at 7.8023 right now which is basically the midpoint of the 7.75-7.85 range. This seems like it may be a good opportunity to go short and collect some interest here with s/l at the 7.85 and t/p around 7.75 (obviously lots would have to be very small). There may still be some upward movement to go, but I'm thinking we're much more likely to see 7.75ish numbers than 7.85 in the next few months. 7.83 could also be a good s/l as the pair seemed to top there in early August. Any opinions?
Hello Betard,

With some recent rate changes with Oanda, the interest is actually being earned on the LONG side of the trade ... not the short. It actually went this way shortly after my last post in this thread weeks ago. Obviously if you use a different broker, this may not be the case. Having said that, the rates are so close together, .4% difference (again with Oanda), profits will be extremely slim even with a very heavily leveraged position. In my case, it is best to just leave the money sitting in my account earning USD interest.

I still check this pair about once per day. I am waiting for 7.82, 7.83, 7.84, 7.85 to go short. Not on limit orders, just in that range on my technical analysis. I would have a 7.8575 SL and 7.7550 TP for those positions.

Will post when something happens ... whenever that may be.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #20
  • Dec 27, 2007 3:00pm Dec 27, 2007 3:00pm
Ah, I just looked up the interest rates online (USD 4.25 and HKD 5.75), didn't realize oanda had it's own interest rate calculations. I didn't take this trade but I'm going to look into it some more. Thanks for the info.
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