I’m back in to the swing of things once more after my trip to Los Angeles (Pasadena, actually) for the Traders Expo. It was an interesting experience. As usual, the cross-country travel wasn’t much fun, and June Gloom kept the weather from being as nice as one might expect, but the expo itself proved and interesting experience. I got to meet several folks I had previously only spoken and/or corresponded with previously, and met a few new folks as well.
Presentations
I actually took part in three seperate presentations. The first was my Inter-Market Analysis and Trading With ETFs talk. That was first thing Friday morning. I had been worried it would be given to an empty room, and it was looking thin to start, but there were a couple dozen attendees in the end, and I was told 80-100 watching on the live webcast (it was recorded and I will provide the link as soon as I get it).
The second presentation was a panel discussion in which I shared the stage with four others and discussed the topic of short-term trading with ETFs on Saturday morning. It was an interesting exchange covering a number of different things, and there was some good-natured disagreement. The standing-room-only crowd definitely seemed to enjoy it.
My final presentation took place Saturday afternoon. In that case I put on my employee hat and discussed the forex analytic product I work on to customers and prospective customers of FXDD (they provide customers the product via their platform). Got lots of questions, and a few suggestions as well.
NFA and Forex Hedging
Representatives of the much reviled NFA were on-hand at the expo. I took the opportunity to speak with them about the recent anti-hedging rule. They admitted that while the negative response was anticipated, the vehemence of it was a bit of a surprise. That doesn’t imply any chance of there being a reversal, however. The CFTC has been given regulatory oversight of spot forex trading and the NFA has been instructed to deal with it. They are going to do that and have a necessarily thick skin, so all of the screaming and yelling and emailing will have no effect. After all, regulators rarely get anything but grief. It comes with the territory when you tell folks what they can and cannot do.
Leveraged Really ETFs Meant Only for Day Trading
One of my fellow panel members on Saturday was from one of the companies which offer 3x ETFs. The really big thing he made a major point of making was that the leveraged ETFs are meant to multiply the daily performance of their underlying market, not necessarily the longer-term one. By that he meant while you can expect a 3x ETF on a market to basically move three times what that market does on a given day, it does not necessarily hold that the ETF will move three times what the market does over a week or some other timeframe.
All of this may sound counter-intuitive, but it’s not once you understand what is going on. You see, in order to match the daily performance of the underlying market, the ETF must be rebalanced each day. Depending on whether the market is trending or chopping, that rebalancing can actually produce over- or under-performance over a period of time exceeding one day. With that in mind, while it could be possible to boost performance in the right market conditions by playing the ETFs over a multi-day (week, etc.) timeframe, using them in expectation of seeing 2x or 3x matching of the market movement is not something you’d want to do.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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