Back in 1986 a documentary was released by the BBC showing off three currency traders in different time zones. One of them is a sterling dealer called Richard Hill based in London working for Barclays Bank. There is Rony Schlapfer based in New York who is a speculator. Then finally there is William Wong based in Hong Kong working for the American Chemical Bank.
Watch the videos below with my insights included below.
Richard Hill is talking to his dealers working at the bank and is telling him that the “whole world is long sterling.”
Hill knows that the market is stuck long and that the market can be ripe for a correction. So he is telling his dealer co worker to get rid of sterling long positions as soon as the far east markets get going.
William Wong is shown in the Chemical Bank dealing room. The video states that back in 1986 he was paid a salary of £25,000 with potential for a nice commission of 3% of the profits. William Wong enters the dealing room and sees that the pound is rising (breaking out) and needs to determine whether to jump on the bandwagon. He needs to make a decision whether to chase the market. He buys 3 million pounds. He can take a position up to 20 million pounds without asking his superiors.
If you notice he also gave a quote for “40-50.” Back then the spread for pounds was 10 pips. He has accumulated a position of 21 million pounds by the end of Part A.
One of Williams co workers says that “when London opens they may sell the pound.”
Presumably it seems that the pound has been rising during the Sydney/Asian session and that when London comes in, those traders may want to take some quick profits on some positions.
Rony Schalpfer has 13 clients each with a minimum investment of $500,000 dollars. So presumably he has at least 6.5 million dollars in capital. Add in a little bit a leverage occasionally and he can take positions worth tens of millions of dollars in the currency markets. Rony made his clients a 50% profit last year so they are sticking with him.
Rony proceeds to close out his long Deutsche Marks position and sell 26 million of them. It seems Rony was using a little bit of leverage.
The action moves back to William Wong who can check the exchange rate on his portable receiver. If you caught the quotes you could see the following quotes:
Hong Kong Dollar (HKD): 7.7705/25 20 pip spread
USD/CHF (SFR): 2.5630/60 30 pip spread. Yes, back in 1985 USD/CHF was at 2.50!
Sterling(STG): 1.2847/57 10 pip spread.
William Wong wants to dump 21 million dollars and he is scared that if he gets it done slowly that the market will pick up on it. So he gets his co workers to execute the orders all within a close time limit to each other so the market will not realize.
Wong quotes a price for cable at “50-55.” It seems the spread came down to 5 pips.
He says “Once a dealer always a dealer.”
The action moves back to Richard Hill in London. If you catch the Reuters portable receiver again the price quotes are approximately:
SFR: 2.5670/85 15 pip spread
Richard then calls his banks Hong Kong operation and tells him “not to be too long sterling, because I will probably try to bash it down when we go in, look for a quick 50 or 60 points.”
It seems Richard wants to gun some stops to the downside and look to make 50-60 pips. Not bad. Stop hunting back 26 years ago and it still exists today.
Richard Hill sits down in the dealing operation of Barclays Bank. Barclays Bank made £100 million pounds profit last year in foreign currency dealing.
Richard says that “at the start of every day all the banks in the world are party to the same information. It is a question of whether you make the best use of the information or not.”
Richard then says that “it doesn’t look like there is that much of a trend at the moment, so we will just play the market on peoples positions, take a bit of profit out of it.”
What does playing the market on peoples positions mean? Well it means gunning some stops, or squeezing players out of their positions, either quickly or gradually. If they can figure out where the intraday players pain tolerance points are, they can take a bit of profit out of them.
Richard wants to short 10 million pounds. He is looking for a buyer for the trade.
William Wong calls Barclays direct to get a quote for the pound. Richard is the sterling dealer so he quotes the market at “49-54“, a 5 pip spread. William decides to buy 5 million pounds. Richard sells more pounds and the price could of hit some stops and the market drops half a cent or 50 pips.
William’s position has a paper loss of £5,000 pounds. He books the loss.
Chris Pavlou, Richard Hill’s boss comes in and says that no one at the foreign currency dealing desk is over the age of 35, because the stress can get too much. He says that the dealers cannot afford to lose the concentration, just in case there is an explosion of volatility, the dealers cannot be caught on the wrong side of the market.
After Richard’s initial stop hunt, the Russians come in to buy 20 million pounds. The dealers nickname them “Boris.” Richard tries to get a feel for the order flow and information flow as the calls up various other banks and dealers. Richard comes to the conclusion that the Russians are buying sterling/marks from other banks as well in a big operation. This is his feel for the market. Richard decides to jump on their bandwagon. He preps the other dealers to start buying tens of millions of dollars in pounds. One dealer comes back with a quote for “50-55.” Again a 5 pip spread.
Richard then concludes that the market may be short sterling. So coupled with the fact that the market may be short sterling and with the Russian buying, the price may go up.
Richard starts to buy in 5 million lot sizes. He gets filled at one quote of “58-63”, then another 5 million at “58-68”, at which point he grimaces because the price has started rising. Another 5 million gets filled at “57-67.” Another 5 million gets filled at “57-64.” Another 5 million at “58-63.” Another 5 million at “58-65.” Then he says that will do it, and decides not to buy anymore. Richard Hill has accumulated a position of 35 million pounds in preparation for the short squeeze and Russian buying to push the price up.
Chris Pavlou comes in and says that “the market is short.”
In other words that the market is stuck being short sterling and may need to start buying to get out of their shorts. Between Richard’s buying and the Russian’s buying the pound is up half a cent or 50 pips.
Richard starts selling to take profit. Chris Pavlou comes in and says that the market is at 80-85 and says “come on that is 20 points profit.” He is urging Richard to sell to lock in the 20 pips profit.
Richard starts selling. He gets filled at around prices of “90-95″ and 87-97.” Richard made around 30 pips profit. He calculates his profit at £75,000 pounds for about three minutes worth of work. Not bad for the currency dealers. They know how to make quick money in the forex markets. You think the dealers used any charts, trendlines, stochastics, etc?
The action moves over to Rony Schlapfer who is preparing for the trading day in New York.
Rony Schlapfer works with this partner Brad Westerfield. He has two assistants to help him. If you caught it, one of their assistants is recording charts. If you caught the quote by Rony’s phone it says “Don’t Get Mad, Get Even.”
Rony Schlapfer describes his trading strategy: “We just wait, and wait, and when we see a situation, we just in very fast, very quickly, then it has to be right. If it is not right we cut it and we stay away again.”
Looks like he is a momentum trader trying to catch an explosion of volatility for some quick profit.
The commentator says that by currency dealing standard, Rony Schlapfer operates long term, by actually keeping his marks overnight. This implies that the currency dealers like to hold their positions for seconds, minutes, or a little bit longer. It implies they never want to hold them overnight.
The action goes back to London. The money supply figures are due to be released and it seems the market is sensitive towards them and could have an affect on the pound.
Richard Hill is attempting to position himself for the money supply figures and has bought 20 million pounds. But the price is zig zagging as other currency dealers are placing their bets. Hill talks to his other dealers and they ask him if he wants to “cut out of it.” Meaning that if Hill wants to reduce his sterling long position before the money supply figures. Hill responds by saying he may decide to cut the position size down before the money supply figures. Richard Hill then says “he doesn’t want to be gambling on something you don’t know about.”
He is referring to the money supply figures.
The action goes back to Hong Kong, with William Wong celebrating his £20,000 pounds profit day. He had a currency turnover of around £120 million pounds and came out £20,000 pounds ahead. Again the Reuters portable quote machine is shown. Richard Hill has triggers for the money supply figures. He knows that if it is above half a percent, the pound should rise. If it is below the pound may fall.
The money supply figures come out at expectations at half a percent. Richard Hill wants to sell but he is not fast enough.
You can see Richard Hill’s frustration as the market keeps moving lower. The quotes get shouted to him. The price was at “75-80”, then moves down to “70-75”, then down to “60-70.”
The action turns to Rony Schlapfer in New York. It seems his bet on the Deutsche Mark went wrong and they are forced to liquidate for a loss. Brad Westerfield says that the reason the position lost was because of some Eastern Block countries were buying dollars and selling pounds aggressively, so they were forced out of the position. Unexpected order flow generators gave them a $80,000 loss. Brad Westerfield says that if he hadn’t taken he loss quickly it would of doubled to a $150,000 loss.
Rony Schlapfer is wooing a prospective client and the client asked what the fee structure for his hedge fund is. Rony has a fixed management fee and a performance fee which is taken once per year. The performance fees are around 20-25% of the profits.
The action goes back to Richard Hill in London. He has worked 10 hours from 7am – 5pm and the pound has moved up and down two cents or 200 pips. But he made a £100,000 profit for Barclays Bank, after buying and selling over 750 million pounds.
The commentator asks that “surely Hill’s antics must affect the pound.” Richard Hill responds that “long term they don’t have that much influence in the market, but that short term they can move the rate in their favor, but nothing dramatic in the long term.”
This is an important quote as many people think the big banks can control the currency markets for weeks and months. They can’t. That requires order flow from many different market participants. The bank can gun the rate up and down on an intraday basis, but that is about it.
The action goes back to New York with Rony Schlapfer. If you notice his secretary has a few charts on the desk. Brad Westerfield chimes in and says that “this late afternoon trading is getting to be a casino. It is all about who buys and sells the next 100 million and moves the market one big figure, and it means nothing as far as the next 24 hours.”
One big figure means 100 pips.
This is an important quote. Because there are people trying to trade order flow during the late New York Session at 12pm-5pm, when in reality it can be a casino as you don’t know who is going to come in with the next big order.
The last two paragraphs above has the big nuggets of value.
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