Has anyone noticed that the Chinese market has come down a long way since November last ? Yet FXP which is supposed gain twice the downward movement is in fact virtually unmoved. Whats happened to those investors who put their funds with FXP only to find that it provided no hedging? Any comments welcome
Since I'm up early and you sound like a novice (no homework) I will explain.... All the double inverse funds track the "Daily" price movement of its selected index and will do exactly the opposite with twice the leverage.... lets make it easy...for FXP the index is not china, not hong kong, but the components of the FXI..... lets make it simple...... day 1 open:---100 price of FXI and 100 price of FXP FXI goes straight up 5% in one day day 1 close:---105 price FXI and 90 price of FXP day 2:---5% gain in FXI day 2 close:---110.25 price of FXI and 81 price of FXP day 3:---10% loss in FXI So what you are thinking is we are back to the 100 price for both again right!!!!!!! (according to your post) day 3 close:---99.225 price of FXI and 97.2 price of FXP this is the most basic of examples and does not include the double dividend payout of FXP and a time decay anomaly that exist as well as fees.... Back to the top----the double inverse funds track only the DAILY price movement..... First if you are serious about trading/investing in this you must read the rules governing it....and know what you are shorting......Start at SEC.GOV...... These are absolutely some of the best products for investors like myself to hedge the swings in the market.....Not to buy and hold....Great rule of thumb (2% stop loss on these things) as when it moves against you big it is much harder to get back to break even....unless you are averaging in on the pivots, don't invest in these things.....CNBC should of never allowed these things to come across the ticker when showing greatest % gainers of the day.....I can only imagine how many people are in them not knowing this simple explanation..... $COSTAverageMAN
"this is the most basic of examples and does not include the double dividend payout of FXP and a time decay anomaly that exist as well as fees...." Correct, I have noticed that too with some of the index funds. I am not looking to scalp on this fund soon. China is poised to break down one more time before the summer olympic rally.
" I will explain...." Thank you for these views, though I can not agree. I accept the arguement that due to price movements the FXI can return to it's start position and FXP will not, when going up then down, however the reverse happens when going down then up and over an extended period of time the 2 stocks are expected to balance out far move than what is happening. I am familiar with the correlations, which are not that high (about 0.9) and their site. The dividends are minor.
<a href="http://en.wikipedia.org/wiki/Correlation">Correlation</a> != <a href="http://en.wikipedia.org/wiki/Covariance">Covariance</a>