Trading Blog

How Money Creation Works

The way money creation works in an economy and how the commercial banking system operates is broadly misunderstood. The way that it’s commonly taught in introductory economics textbooks is that a commercial bank takes in other people’s money (i.e., deposits) and then lends out this money in the form of loans. For non-bank financial institutions, […]

Inter-Commodity Spreads (ICS) and Relative Value Trades

Inter-commodity spreads (commonly known as ICS), represent the spreads between different futures contracts. Certain brokerages (e.g., Interactive Brokers) and futures exchanges (e.g., CME Group) allow you to trade them directly. The purpose of inter-commodity spreads (ICS) Many traders employ spread, or relative value, strategies. Broadly speaking, this means selling an expensive asset and buying an […]

The 3 Main Forms of Monetary Policy

We are in unique times in the markets given the current limitations of where we are in the economic cycle. We are both late in the business cycle while at the same time there is limited room with traditional monetary policy tools should the economy turn down. As covered in a different article, there are […]

Asset Class Starting Points for 2020

Many traders peg the success of their year to the starting point of an index that most closely resembles the market they trade. The most commonly tracked index is the S&P 500, often referred to by its ticker SPX. Those who are more tech focused will look more at the NASDAQ. Small cap managers who […]

Why Interest Rates Can’t Rise Much

The IIF recently published that the global debt stock has reached $255.3 trillion at the end of 2019. This also doesn’t take into account non-debt liabilities like pensions and healthcare (which, when capitalized, are many times larger), and are debt-like in nature because they represent future IOUs. Namely, retirees expect that they will receive retirement […]

Corridor System vs. Floor System in Monetary Policy

Traders watch the Federal Reserve because it’s the entity that controls all money and credit created in the economy. It does this directly by creating money, and indirectly by changing how borrowers and lenders are likely to act with each other (by changing interest rates and through macroprudential policies it can execute through its regulatory […]

Portfolio Construction: 4 Ways to Reduce Risk

Portfolio construction and the concept of building a better portfolio beyond the way assets come pre-packaged to you is one of the most under-talked about areas in finance. As we write this to close out 2019, stock market indices in the US and many throughout the world are hitting new all-time highs. Traders are keen […]

Heading Into 2020, Traders Divided on Expectations

At the end of every year, banks and various research shops like to release their forecasts and predictions for the upcoming year. These are really not much more than marketing material, as things continually change throughout the year and information flows in to alter these expectations and the confidence they have in them. We have […]

Commodity Carry: How to Profit Off The Strategy

Commodities are typically traded as futures. Commodity carry is a strategy involving profiting off the shape of the forward curve in addition to the additional component of the risk-free rate. Defining carry Carry can be broadly defined as the yield that can be expected on a trade over the next 12 months assuming no change […]

Teak Wood Investing: The Benefits

Day trading encompasses trading short time horizons in liquid asset classes. But it’s also important to have flexibility. There is a time for day trading, swing trading, position trading (i.e., buy and hold), and also investments into less liquid asset classes, like real estate, venture capital, private equity, and even timber and teak wood investing […]

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