In the early stage of Trump's 2.0 trade war, as the market becomes increasingly volatile, Wall Street traders' investment styles seem to be undergoing a transformation to align with the times...

Antony Foster, the head of G10 currency spot trading at Nomura International Ltd in London, stated, "The market is trying to predict and trade a situation and figure (Trump) that is very difficult to foresee. One minute, you may appear to be an (invincible) hero, but the circumstances can suddenly reverse, and the next minute you are back to zero."

Currently, Foster has begun to shift towards holding relatively smaller Forex positions.

In addition to needing to trade more flexibly or boldly, many investors have also started adopting more complex trading strategies to protect themselves from potentially conflicting headlines in a short period— as the volatility triggered by Trump has become evident globally, people have to remain agile across various Assets, from the Mexican Peso to Chinese Stocks.

A set of data shows that, as investors strengthen hedging protections, the trading volume in the Forex Options market, exceeding 300 billion dollars, has surged to its highest level in years.

At the same time, the indicators measuring the 10-day actual volatility of Asian stock markets have also surged to their highest level since October of last year. In the bond market, as the intense tug of war over tariffs makes the Fed's monetary policy outlook increasingly murky, the outlook for US Treasury bonds is becoming increasingly complex.

The market is rapidly changing.

Calvin Yeoh, the portfolio manager at hedge fund Blue Edge Advisors Pte, stated that "the market trajectory that used to take weeks to complete is now being compressed into days or even within a single day, with intraday volatility increasing, which will force traders to consider retrospective methods of measuring volatility."

He added that he is accelerating the speed of trading entries and exits.

This has become even trickier for speculative funds, as these funds are typically accustomed to adjusting their positions to keep up with nearly every wave of market fluctuations. George Boubouras, a veteran with thirty years in the market, finds it increasingly difficult to identify bets that can endure.

"Position (Hold) durations are becoming shorter—less than 24 hours—whereas in some cases previously, a few days or a week was the norm," said the head of research at K2 Asset Management regarding Bonds and Stocks, "whether it’s currency or Crediting, you have to adapt."

The recent movements of the Canadian dollar are a good example.

Chris Povey, the Executive Director of Forex products at CME Group in London, stated that due to investors wanting to hedge risks before Trump announced changes in trade policy on February 1, CME's Canadian dollar Options Trading volume reached its second-highest level in history on January 31. After Trump announced a 25% tariff on Canada, the Canadian dollar fell to its lowest level since 2003 on Monday, but it quickly rebounded after the tariff policy was postponed.

In Singapore, multi-strategy hedge fund GAO Capital has shifted from shorting volatility to buying volatility as market fluctuations intensified, making directional bets increasingly difficult. The fund's CEO Chauwei Yak stated that the fund is trying to "remain flexible and trade in a market liquidity-driven manner."

Trends in the stock and bond markets.

The stock market is no exception.

Due to Trump's tariffs causing concerns over soaring inflation, US traders are beginning to adopt complex hedging strategies to manage the escalating volatility. For some, the issue lies in the fact that as tariffs, disruptive impacts from China's AI technology developments, and the peak of Earnings Reports approach, Options—the preferred tool for managing market risks—are becoming increasingly expensive.

Ling Zhou, head of stock derivatives strategy at TD Securities, stated, 'Overall, the US market may be in a predicament, and it is now harder to feel confident.'

He also specifically mentioned that a prominent trade right now is investors betting on China—believing that 'bad news' has already been priced in, that Trump may retract some of his comments, and that the Chinese government may roll out further stimulus measures.

Industry compilations show that in the past month, the trading volume of bullish Options related to Chinese Assets, such as the KraneShares CSI China Internet ETF and the iShares Core MSCI China Index ETF, has significantly increased. The KraneShares CSI China Internet ETF saw a single-day inflow reaching 0.105 billion USD on January 30, the largest single-day inflow since October 3, 2024.

On Wednesday, despite the mixed performance of the three major US stock indexes, the Chinese concept index still surged nearly 3%.

Charlie McElligott, Managing Director at Nomura Securities International, noted that since the US elections last year, hedge funds have increased their overall risk exposure by adding positions (either long or short), but since their on-paper risks have become too large, it is now evident that they need to hedge. They are primarily purchasing such protection through Options, such as paying extra to buy out-of-the-money Put Options to prevent a significant market decline.

Bond traders likewise remain vigilant as Trump's policies revive discussions about whether inflation in the USA will return, undermining the rationale for the Federal Reserve to continue its loose policy. Some have even considered the risks of a Federal Reserve rate increase, adding to the uncertainty.

“Inflation is a deadly weakness for bond investors,” said George Catrambone, Head of Fixed Income at DWS Americas. “If you want to trade in this market, you actually have to act very, very quickly, as the duration of the market has significantly shortened.”

Due to Trump's taxation measures scaring the market, traders closed their short-term U.S. Treasury futures positions on Monday, with the volume reaching the highest level since last November. The position for two-year bond futures contracts is currently slightly above 4.1 million, the lowest level since June. Meanwhile, JPMorgan's latest client survey shows that investors holding U.S. Treasury spot have significantly retreated from their largest net long position in nearly 15 years.

Editor/lambor