Evening All!
So these past 2 weeks in almost every aspect of analysis the Japanese Yen has shown weakness against alot of different currencies as I'm sure most of you have noticed.
I currently have 2 open short positions on JPY but from what the LogikFX analysis and my own analysis is telling me is that there is alot more JPY pairs that have a very strong short bias.
But, how many positions do you allow yourself to take on one specific currency?
Now I know Matty touched upon this on a thread created by Micheal but it'd be interesting to see if people have different views on what they will allow themselves to be exposed to.
So for example, you could say 2 pairs maximum with JPY shorts in and that's that.
Or do you calculate exposure on a % basis?
Maybe you don't have any strict rules in place and trade what the analysis is telling you, regardless of open positions?
What's everyone's thoughts?
All in bois
Generally @Kieran Channer think of a 'trade idea' on a currency strength to never exceed your single asset position limit.
For example, you wanna be short the Yen, and you have a few possible trades to do it, for arguments sake:
USDJPY Long
AUDJPY Long
JPYMXN Short
Using the below example variables:
- Acc size $10k USD
- Leverage 5
- Max Assets 5
You should not open more than 0.10 lots in total, across all 3 of the above trades, if it's all based on the same trade idea of "shorting" the yen.
On the other hand, lets say AUDJPY you classify as a separate trade idea, due to overwhelming aussie strength --> then you can justify this trade having its own limit, and therefore your discretion would kick in.
If you're not sure? Always take the lower risk option. It's always better to risk less when faced with uncertainty, then risk more for the sake of it. We're not gamblers after all...
Conclusion
Your exposure, should be limited per "idea" not per physical trade you enter.
My 2 cents 😁
Hi Kieran, for me, it is a case of max % split - so if I want to limit total exposure of all trades to say 4% and I expect a max of 10 positions open simultaneously (limiting to that if more opportunities arise), then 0.4% per position. More conservative would be a max exposure of 2% or 0.2% per position. However I know Marcus has a more scientific approach to risk exposure and is not keen on a fixed % per currency pair as exposure actually varies between pairs for the same % of account balance per entry. Interest charges are different, spreads are different etc. And then there is the level of exposure associated with a single currency pair or correlated currency pairs as you say with JPY opportunities at the moment for shorts. And something else to be mindful of at the moment is that market sentiment has shifted at the end of last week - risk on turned to risk off - at least for a couple of days. This will not be reflected in the economic data or Macro score as yet as it is based on perception or feel for what could happen in the near future - some rumblings about inflation starting to rise/potentially going to be an issue and everyone has fled risk on assets. AUDJPY tanked as did CADJPY on Thursday and Friday. This could see a push into JPY buys over the coming weeks if the perception stays in place. AUDJPY dropped heavily last week against the fundamentals because AUD is a risk on asset and JPY is a risk off save haven asset so AUDJPY could continue falling against the fundamentals. Lots of money piling into USD as a safe haven over these two days. AUDUSD dropped heavily, NZDUSD dropped heavily and USDCAD rose sharply. I am looking at means of bridging this gap at the moment on sentiment. VIX and other assets as a means or determining volatility and risk on/risk off sentiment. VIX has risen above the 12 month average in the last week indicating rising volatility due to a massive exit from bond markets at the end of last week in fear of potential inflationary increase risk setting in.
At least that is my amateur take on it... :) And it could all be a quick glitch and spin around again this week coming but it seems that the bond market sell off could lead to more sell off in bonds and potentially spreading to securities markets as fear sets in.