08 26 2019 | by Victor Xing | Economics
All articles 199
07 12 2019 | by Victor Xing | Capital Markets
Kekselias portfolio one-year return: 51.5%
02 27 2019 | by Victor Xing | Economics
Common catalyst for progressive and conservative populism
12 09 2018 | by Victor Xing | Capital Markets
Kekselias performance review: 1.31% YTD total return
10 14 2018 | by Victor Xing | Capital Markets
Roundabout path in the snap-back of long-term bond yields
09 23 2018 | by Victor Xing | Central Banks
Calm before the storm as quantitative tightening looms
05 20 2018 | by Victor Xing | Central Banks
Alternative narrative on the natural rate of interest
01 07 2018 | by Victor Xing | Capital Markets
Flatter yield curve a symptom of ineffective tightening
12 04 2017 | by Victor Xing | Central Banks
Bond market term premium and wolves of Yellowstone
10 17 2017 | by Victor Xing | Capital Markets
How we learned to stop worrying and love the “fake markets”
11 18 2015 | by Victor Xing | Capital Markets
What role does trading serve in the financial system?
In addition to being a necessary process to establish investment positions, active trading also reduces an asset’s liquidity risk premium, which factors into asset prices.
Currency market is a flow-driven market – exchange rates are shaped by countless market participants’ transactions based on expectations of economic condition (and the resulting central bank policy intervention / guidance), plus actual central bank operations. Without trading, we will no longer have a currency market where price levels give valuable signals to investors.
Without trading flows, many of the market-based economic indicators such as the GS Financial Conditions Index (which factors in dollar valuation, bond yields, stock valuation, corporate credit spreads) will cease to function, denying investors (and policymakers) aglimpse into state of the financial market.
Additionally, indicators monitored by central bank policymakers, such as 5y5y forward inflation expectations (gold line below) are determined by market conditions. This indicator is derived from actively traded Treasury Inflation-Protected Securities (TIPS).
Finally, trading also enables inter-institutional lending (take reverse repo for example). This helps ease credit conditions and give institutions another way to acquire funding for operations.
Next article11 18 2015 | by Victor Xing | Central Banks