10 17 2017 | by Victor Xing | Capital Markets
09 20 2017 | by Victor Xing | Central Banks
QE’s distributional effects a political liability
04 18 2017 | by Victor Xing | Capital Markets
Persistent low volatility threatens active fund managers
02 17 2017 | by Victor Xing | Economics
Looming risks through the prism of bifurcated housing market
01 11 2017 | by Victor Xing | Economics
Financial risk contagion: China’s capital outflow
12 22 2016 | by Victor Xing | Economics
November PCE: dollar strength weighed on goods inflation
12 14 2016 | by Victor Xing | Central Banks
A less-hawkish interpretation of the December FOMC
12 02 2016 | by Victor Xing | Economics
November Payrolls and Governor Powell on risk management
11 15 2016 | by Victor Xing | Central Banks
November FOMC minutes and debates behind guidance change
11 04 2016 | by Victor Xing | Economics
October Payrolls: decent data with stronger wage growth
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, 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.
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