How to lose £30m in seconds
Over the last year I’ve been speaking to a lot of organisations, in sports and non sports markets, that hedge or don’t hedge their positions.
I think I can do a job for people who don’t hedge, but curiously, the general message that’s been coming back is that there is no need to hedge. Margin is lost by hedging and gained by decent management of positions. I think that the prevailing view, despite losing margin in the process, is that balancing things out works best.
Wind for to today and announcement by the Swiss central bank that they have abandoned support for their currency: –
https://www.bbc.co.uk/news/business-30829917
This was so familiar to me, having lived through Black Wednesday: –
https://en.wikipedia.org/wiki/Black_Wednesday
I’ve been a fool though. I’ve been advocating a position on the Franc but didn’t actually take one myself, I’ve been busy on other stuff. Slapped wrists all around as it would have been a fantastic trade. I know of a few that have made a large amount very quickly on this position. I also know of somebody that lost £30m in a flash, IG Index.
I’m a shareholder of IG and seeing the news this morning made me wonder if they had any exposure. They released a statement this afternoon confirming that.
A summary: –
The market exposure occurred where client positions were closed at a more beneficial level than the Company was able to close its entire corresponding hedge due to the market dislocation. The precise level of the impact will be partially dependent on the Company’s ability to recover client debts, but in total it will not exceed £30 million, from market and credit exposure.
Basically a lot of people were betting on this happening and when it did, IG couldn’t hedge their exposure. It happened so fast and violently there wasn’t anything they could do about it. It’s important to note that £30m is the net exposure they have. Some people will have made a significant amount of money on this trade. IG can soak this up, but I’m not so sure about other people in the market?
Just goes to show, that history does have this habit of repeating itself as do the mistakes that go with it!
Category: Trading strategies
