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The Pros And Cons Of Tradings

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The two trades that I choose to discuss about are the mid-term and long-term bond. First of all, in terms of CB2020, the trade starts by short selling the bond at t40 at a price of $101 after the news of CPI Index increase and Bank of Canada raises overnight rate. As a higher inflation rate or overnight rate would raise the nominal interest rate as well as the yield of bonds and thus lower the price of bonds. The bond is bought back at t160 at $98.5, which is around the one-year low of the bond.
The second bond to be discussed is the long-term bond(CB2025), which is bought at t30 at a price of about $92. The reason of buying is that at the beginning of the second period, bond price drops significantly to the one-year low of below $92. …show more content…

As the orders fall more than expected, all zero-coupon bonds’ yields fall, and longer term bonds have larger decline in price.
Looking into the overall portfolio, starting at $10 million CAD, the overall profit earned after the trading period is around $680,000 CAD. Over the first period, the profit steadily grows to $200,000 and there is a significant drop to $80,000 at the end of the period. Since the second period starts, the overall profile experiences a steady increase to just above $100,000, followed by a significant increase from t400 to t430. In the periods from t500 to t540, the profit pops to $500,000 and at the very end of trading periods, there is another significant increase to about $680,000. It is quite an improvement compared to the first around of investment since both rounds share some similar news and it is a much better result in Heat 3 than that in Heat 1. However, considering what I have learnt from this activity, I believe there are a lot of chances to improve the overall performance in Heat 3.
In a more specific term, by breaking down the P&L of the portfolio, the realized profits of the short term, mid-term and long-term bonds are $327,000, $149,000 and $496,000, respectively. All the three bonds have similar trends in price line except that at the end of second period, the short-term bond fluctuates in the range of $100.6 to $101.8 while the other two bonds experience huge price rocket. For the short-term

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