Discretionary trading – Q2 2019 commentary

Instruments traded
FX spot and CFDs
Asset classesFX, equity indices, commodities, government bonds
Investment styleDiscretionary (non-systematic), volatility, opportunistic
Quarterly return–15.8% (before fees but after trading costs)
Quarter daily return volatility0.85%
Average trades per week13

Market overview

Equities continued their bull market trend – but with a sizeable correction of -7% in May, as per the S&P 500 index. The most important market developments were the renewed trade wars between the US and China – and, briefly, with Mexico – which triggered the May correction. Another dovish turn by central banks was also responsible, as the US Federal Reserve (Fed) pondered interest cuts and the European Central Bank renewed its Quantitative Easing programme. 

Central bank moves were precipitated by a rally in bonds, with market participants pricing for an economic slowdown and below-target inflation. 

Currencies continue their rangebound movement, with Fed cuts unable to induce a notable move in the US dollar. Dovish central banks and geopolitical tensions with Iran helped propel a gold rally, which is on the cusp of breaking out from its six-year range.

Portfolio performance

Since inception ( 

(Returns include transaction costs but are before service and performance fees.)

In a nutshell - right idea, incorrect implementation. Moreover, trading in equity markets was the main driver of negative returns this quarter. The strategy was positioning for a 5-10% correction in April, which proved a month too early and unable to benefit from the decline when it materialised in May. 

To explain this, we must consider the strategy style bas been conditioned to 2016-2018 market behavior, a period when downside movement was rapid and catching the event required a quick entry. If the initial movement was missed, the long periods of low volatility – punctuated by rapid movement – meant the best return opportunities were lost. Such behavior was not encountered in May; market movement resembled 2010-2014 behavior with significant intraday noise and countermoves, but trending with persistent targets, which offered a greater window of entry for positions. The result of entering the position by the wrong “playbook” meant a whipsaw on entry and an accumulated loss by the time the position was closed.

From a different perspective, the market is headline driven, by unpredictable tweets from Donald Trump or headlines from central banks, for example. More recently, the market reaction to such surprises has become less predictable, for instance contradicting the typically reliable "buy the rumour sell on fact" philosophy.



The strategy manager believes equity, bond and gold markets will present trade opportunities. While the approach to identifying trade ideas remains the same, the trade position process is in a period of transition. Until we see a meaningful rise of volatility in the markets the activity of the strategy will continue to adapt. This represents a transition from the successful methods of the last three years, with a different attitude to trade location and duration. While such a transition may not immediately bear fruit, as in recent months, these scenarios have been experienced before: we remain confident and the strategy’s track record remains impressive.

We look forward to providing further comments, next quarter.  

Any information found in this document, including performance information and statistics are subject to change. You can find the latest updated pricing information on the description page for each available portfolio. In providing this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses, and all capital is at risk. In particular investments in leveraged products, such as but not limited to foreign exchange, derivatives and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisors in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure of risks nor a comprehensive description of such risks. Any expression of opinion may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15


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