In this morning's Bloomberg.com article titled "China Just Killed the World's Biggest Stock-Index Futures Market," Kyoungwha Kim reported that
"Volumes in the country’s CSI 300 Index and CSI 500 Index futures sank to record lows on Tuesday after falling 99 percent from their June highs. Ranked by the World Federation of Exchanges as the most active market for index futures as recently as July, liquidity in China has dried up as authorities raised margin requirements, tightened position limits and started a police probe into bearish wagers."
Earlier, China restricted selling individual stocks, but that was not enough to stop the bloodbath. It was far too easy to just sell equity futures instead. Raising margin requirements was expected, especially given the increase in volatility, but "police probes into bearish wagers?" Really? That would certainly reduce selling.
In addition, Kim also reports that The China Financial Futures Exchange now labels a position of more than 10 contracts on a single index future as “abnormal trading.” It is no surprise that volume dropped by 99% in a little over a month. Are these the actions of a country with annual GDP growth of 7%?
Price is one of the most efficient information discovery mechanisms ever created - provided that exchanges are free from outside influence. In the current manipulated environment, market prices in China are meaningless. It is far more instructive to focus on China's desperate actions instead. Every extreme step that China takes to intervene in its equity markets further undermines both its credibility and the world's confidence in China's economy.
Print and Kindle Versions of Brian Johnson's 2nd Book are Available on Amazon (75% 5-Star Reviews)
Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements.
Print and Kindle Versions of Brian Johnson's 1st Book are Available on Amazon (79% 5-Star Reviews)
Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy
Trader Edge Strategy E-Subscription Now Available: 20% ROR
The Trader Edge Asset Allocation Rotational (AAR) Strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes. The AAR strategy has generated annual returns of approximately 20% over the combined back and forward test period. Please use the above link to learn more about the AAR strategy.
Brian Johnson
Copyright 2015 - Trading Insights, LLC - All Rights Reserved.
About Brian Johnson
I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers.
I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies.
In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.
China’s Equity Futures Volume Drops 99 Percent
In this morning's Bloomberg.com article titled "China Just Killed the World's Biggest Stock-Index Futures Market," Kyoungwha Kim reported that
Earlier, China restricted selling individual stocks, but that was not enough to stop the bloodbath. It was far too easy to just sell equity futures instead. Raising margin requirements was expected, especially given the increase in volatility, but "police probes into bearish wagers?" Really? That would certainly reduce selling.
In addition, Kim also reports that The China Financial Futures Exchange now labels a position of more than 10 contracts on a single index future as “abnormal trading.” It is no surprise that volume dropped by 99% in a little over a month. Are these the actions of a country with annual GDP growth of 7%?
Price is one of the most efficient information discovery mechanisms ever created - provided that exchanges are free from outside influence. In the current manipulated environment, market prices in China are meaningless. It is far more instructive to focus on China's desperate actions instead. Every extreme step that China takes to intervene in its equity markets further undermines both its credibility and the world's confidence in China's economy.
Print and Kindle Versions of Brian Johnson's 2nd Book are Available on Amazon (75% 5-Star Reviews)
Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements.
Print and Kindle Versions of Brian Johnson's 1st Book are Available on Amazon (79% 5-Star Reviews)
Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy
Trader Edge Strategy E-Subscription Now Available: 20% ROR
The Trader Edge Asset Allocation Rotational (AAR) Strategy is a conservative, long-only, asset allocation strategy that rotates monthly among five large asset classes. The AAR strategy has generated annual returns of approximately 20% over the combined back and forward test period. Please use the above link to learn more about the AAR strategy.
Brian Johnson
Copyright 2015 - Trading Insights, LLC - All Rights Reserved.
About Brian Johnson
I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.