May 20, 2019
Improving your hedging skills
Looking over your role as a professional trader at an Investment Bank, you find yourself performing two kinds of trading. You either make markets on behalf of the clients or assume your own position, chasing capital appreciation.
As you know, at 90% of the time, you are performing as a market maker – manually or as an algorithm’s gatekeeper – and only in the rest 10% you are a proprietary trader. So, in the vast majority of your time, you are doing business for the clients, seeking for your full 5 bps commission. But this pursuit is put on risk depending on the kind of business. Processing a long position through computer algorithms, according to the client’s instructions, is risk-free for the bank. The problem is when he asks you to commit.
For instance, a Hedge Fund wants you to buy $ 5 million of OIL at $ 40 per contract. So you end up short 5M$ OIL and have to go into the market to cover it. If the price goes down, you make money, but if the price goes up the bank doesn’t get its full commission. Summing up, you find yourself struggling to get out of a risk you didn’t want to have because of a Negative Selection Portfolio that you got given by the client. And sometimes the Hedge Funds have been doing pretty good market research that leads them to pick a position they want to execute, but you get the opposite direction – not such a nice thing.
How can we avoid losses?
The moment you receive a client’s negative selection, you need the ability to hold or hedge the position in order to offset potential losses. Even before, when the client calls the sales that then calls you asking about the likelihood to trade a position or not, you also need the ability to agree or refuse according to market knowledge. When these moments come, we want to be there to help you!
With BetterTrader, you get the predictive analytics you need to stay ahead of the market and ahead of your clients’ requests. It delivers quick and relevant financial information based on real-time market data analysis. Our goal is to give you a holistic solution that improves your response time to new economic events. You get insights about releases and market movements that will help you take good decisions – trading, finding new opportunities to trade, protecting or adjusting existing ones, receiving alerts to times when you should stay out of the market or “be aggressive”.
You cannot afford to waste time searching for what would be the impact of the Non-farm Payroll, for example. So let us do it for you, let us improve your hedger skills. With BetterTrader signals you get the confidence to hold or throw positions quickly in the market.
Market making is all about the expertise of a good execution that preserves low volatility and maximizes return. For that, you need the ability to analyze and understand quickly the situation. With trading sense, you don’t need us, but with analysis of raw and historical data, and using Machine Learning skills, we absolutely can support your decision.
Written by: BetterTrader