Widow Maker
Candlefocus EditorNatural gas futures have been dubbed widow makers, as prices have been known to move abruptly in either direction. The unpredictable behavior of the market can lead investors to enter into trades where they experience losses greater than they had planned or anticipated. The market continues to surprise and confound investors, as prices rise and fall more than what historical trends offer a guide for.
The most famous widow maker trade is the shorting of Japanese government bond (JGBs). The Japanese government has been pushing interest rates lower for years, resulting in reliable losses for anyone who shorted them. Financial traders worldwide had already been wary of the JGB market before the Bank of Japan implemented a negative interest rate policy in 2016, but the development made the market even more of a widow maker.
The name widow maker has also been used in other areas such as forestry and medicine to denote a dangerous situation which can pose a risk of sudden death. In forestry, widow makers refer to trees or parts of trees that are prone to fall, often due to age or extreme weather conditions. In medicine, a widow maker refers to blockages in the main artery of the heart, as an individual’s death is usually imminent without a bypass surgery.
To summarize, a widow maker trade is one that results in an acute, catastrophic or out-of-the-ordinary loss, usually thanks to a market that defies conventions and expectations. Natural gas and Japanese government bonds have proven to be particularly notorious widow maker trades, and the term has also been used to describe potentially deadly situations in forestry and medicine. Investors should approach widow maker trades with the utmost caution and a robust knowledge of the markets in order to survive them.