Chapter 29: A-Shares, the Sky Is Falling

"Locking a position comes in two forms: locking in profits and locking in losses."

"When the market moves in a direction opposite to your trade, you open a new position opposite to your original holding. This is also known as hedging."

"The purpose of locking a position is primarily to deal with potential market reversals, allowing one to maintain their holdings in an optimal state while incurring the minimum possible cost."

In the kitchen, Lu Liang was preparing breakfast while delving deeper into the trading rules of London Gold.

Going long or short was easy enough to understand, but "locking a position" was a model he had never encountered before. It sounded like a method to help investors reduce risk and avoid losses. However, he felt that locking a position should ideally be used as a means of generating profit, rather than just as a standard remedial measure. It was explained too vaguely, and Lu Liang felt he would need to find an opportunity to practice it in real-time to truly grasp the mechanics.

Suddenly, the electric curtains began to draw back, and the sound of footsteps echoed from the end of the hallway.

"Brother Liang, why are you up so early today? Didn't we agree that I would make breakfast for you from now on?"

Li Manli, still sleepy-eyed, was wearing pink bear pajamas and plush rabbit slippers that wiggled their ears with every step she took. Recently, having nothing better to do, she had been browsing a video site and suddenly decided she wanted to become a food vlogger. Lu Liang, happy to see her pursuing her own ideas, had bought her a set of filming equipment to play with.

Now, Li Manli was not just a housekeeper; she was a part-time chef, taking charge of all three of Lu Liang’s daily meals. Although the results weren't always great, Lu Liang couldn't bring himself to dampen her enthusiasm. If she happened to have a talent for it and became a big influencer, he would feel quite proud.

"Just finished some work, and I had some spare time."

After breakfast, Lu Liang walked to the bar, brewed a cup of extra-strong black coffee, and tried to keep his energy up. Heaven only knew how late he would be working. It could be a blitzkrieg, or it could be a grueling war of attrition. Either way, he had to stock up on as much energy as possible before the storm hit.

Li Manli opened her mouth in surprise: "You didn't sleep all night?"

"No need to call me for lunch; I'll come out if I want to eat," Lu Liang smiled, gently pushed her chin back up, and headed to his study.

On his desk, three screens displayed the Shanghai Composite Index, London Gold, and a news feed.

Nine-thirty arrived. The domestic stock market opened, with the Shanghai Composite Index rising 0.57% to 5150.12 points. It was another sea of red; looking across the market, only a tiny fraction of stocks were in the green. Among them was Chinese Online, which plummeted 3.55% at the open, immediately trapping the retail investors who had chased yesterday's highs.

As time passed, a wave of small, retail-level funds began to enter the market. They were confident in the subsequent performance, convinced this was the next "storm" and the second biggest market phenomenon of the year. They believed the stock would pull back violently during the session; if it hit the daily limit, today's gain would reach 13.55%.

"The final escape window, and instead of cherishing it, they dream that institutions will help carry their bags."

Lu Liang sighed and stopped paying attention to that stock.

London Gold had started to show abnormal movement. During the quietest period of the Asian session, it suddenly dropped five points. If Lu Liang hadn't held 960,000 in margin—enough to withstand sharp market volatility—he might have already faced a forced liquidation.

"Is it starting?" Lu Liang frowned, staring at the calm Shanghai Composite Index.

After a moment of hesitation, he reorganized his account. Because he was committing a larger amount of capital this time, he canceled his original 400x leverage and reduced it to 200x. With 1.13 million dollars in his account, he used 630,000 as margin and leveraged the remaining 500,000 to reach 100 million in buying power.

Lu Liang trusted his judgment: the catalyst for a massive surge in gold would be the collapse of the A-share market. As funds fled for safety, they would pour into the international gold market. The A-share market was heavily influenced by social and political nuance; even if some had received word of the impending crackdown, they could not reveal their insider knowledge until the official documents were released. Sometimes, a "concept stock" would hit its daily limit the very second an official document was issued. But the London Gold market was unrestrained. This sudden anomaly was the sign.

Lu Liang decided to take the gamble. His capital was limited, so he had to move one step ahead to secure the lowest prices. If he waited for the trend to fully ignite, he wouldn't be able to get in at a low cost.

Lu Liang opened a position at 1365.24/ounce. At 136,524 per contract, he bought 732 contracts, totaling 99.918 million dollars—almost an "all-in" move. At a price of 1365.24/ounce, every single point of growth before the decimal meant a profit of 9,076 dollars. The lower leverage meant lower returns, but higher fault tolerance; he could withstand an instantaneous drop of 17 points.

Time ticked by. London Gold climbed slowly to 1365.74/ounce. By 10:00 AM, Lu Liang had made a profit of 4,538 dollars, but his account still showed a floating loss of 12,962 dollars due to the 3.5% minimum transaction fee associated with leverage.

Fifteen minutes later, the Shanghai Composite Index took a nosedive. The slow, steady bull market seemed to have its head chopped off. It had opened up 0.57% and climbed to 0.95% during the session, but suddenly plummeted 1.89%, turning from red to green.

In the A-share market, with a total market capitalization of 71.25 trillion, 1.34 trillion in capital fled within seconds. And this was just the beginning.

News broke on investment forums and swept the internet. At 10:15 AM, official authorities issued a red-headed document: departments were launching a massive crackdown, shutting down 12 private institutions illegally providing off-market margin financing, urging brokerages to standardize operations, and announcing the "New Ten" securities laws.

The Shanghai Composite Index plummeted in response. Because the private institutions providing margin financing were forced to liquidate their positions, a massive flood of shares hit the market.

"Damn it, my account is locked!"
"Run! The stock market crash is here!"

The forums were in an uproar, and financial professionals were in shock.

In four months, the Shanghai Composite had risen from 3,000 to a high of 5,178 points. The total market value of A-shares had increased by nearly 20 trillion, with off-market margin financing institutions playing a major role. Previously, this had been a gray area—technically illegal, but largely overlooked. Now, with the hammer falling on a dozen top firms and the introduction of the new regulations, there was no doubt: for A-shares, the sky had fallen.

Institutions liquidated, speculators fled, and retail investors panicked. The entire market looked like the end of the world.

Lu Liang was ecstatic. He had no interest in the further decline of the Shanghai Index; his attention was entirely captured by the London Gold market. Just as the official document was released, London Gold surged 21 points, with a massive influx of capital. As time went on, the price climbed rapidly, ticking up nearly every second.

The anomaly in the Asian session had drawn speculators from across the ocean, who further pushed up the price. By 12:00 PM Beijing time, the growth of London Gold gradually slowed. In 80 minutes, it had jumped 47.39 points, stabilizing at 1412.63/ounce.

International gold prices broke through 45 per gram, equivalent to 288 RMB—a rise of 10 RMB per gram. Clearly, investors long on gold didn't want the rally to end. News of the surge spread across the globe.

In the domestic media, financial experts jumped to make their voices heard. First, they expressed support for the state's regulation of the financial market and lamented the tragedy of the A-share market. Then, they analyzed where the trillions in fleeing capital would go.

"First, definitely the real estate market," they claimed. "Housing prices will continue to rise; if you don't get on board now, it will be too late."

"Second, gold. Besides real estate, only the gold market has the depth to absorb so much capital."

The public opinion influencers were clever. They knew why the state was regulating the market—it was to steer funds where they were needed. Thus, they focused on promoting real estate, encouraging people to invest in homes, while mentioning the rise in international gold only as an afterthought.

However, houses costing millions were a significant hurdle. Gold, on the other hand, could be bought in small, affordable quantities. Those who had tasted the sweetness of the stock market and received the news felt they had a new goal and began flooding the gold market. If trading London Gold was too complicated, they would just buy physical gold.

Gold had unique properties: it was tangible, you could touch it, you couldn't really be "scammed" by it, and it wouldn't drop to zero. At the very least, you could make jewelry for yourself, your children, or your parents.

For a time, in the Shuibei district of Shenzhen, gold became impossible to find.