Performance doubled during the 2008 global financial crisis! How did he achieve long-term trading success amid market turmoil? | Dialogue with Yuan Jun, Episode 2

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Joining Morgan Stanley for Trading

Q: You joined Morgan Stanley in 2004 and then experienced the 2008 global financial crisis only a few years later. At that time, you were working in Hong Kong, at the front line of the market. Could you talk about the real state during that period and what impact the crisis had on you personally and the entire industry?

A: The 2008 financial crisis was a massive shock for everyone working in finance and deeply changed countless careers and life trajectories. Looking back today, the crisis was an inevitable result of prior over-prosperity, high leverage, and continuously accumulating risks, but in 2006 and 2007, when the market was at its hottest, almost no one believed such a violent crisis would erupt in the short term. This is also a common feature of major historical events: beforehand, it seems absolutely impossible, afterward, it seems inevitable.

The backdrop was quite similar to the Great Depression in 1929. The global market flourished for years before the crisis, and nobody wanted to miss out on the dividends of the era, thinking that excess returns from individual effort were limited and seizing the era’s Beta was most important. Even though market participants vaguely sensed risks such as declining loan quality and the liquidity squeeze caused by Federal Reserve rate hikes, under performance and profit pressure, no one wanted to proactively exit the feast. Everyone was acting rationally based on their own interests: investment banks kept issuing products, investors chased higher returns, but when individual rationality aggregated, it became collective irrationality. Coupled with financial liberalization and high leverage from mixed business models, this pushed the market into crisis.

Although Hong Kong was far from the crisis center in New York, we could feel the impact most directly at the market front line. After the crisis broke out, liquidity in multiple global markets dried up instantly, bid-ask spreads widened sharply, and volatility went out of any normal range. I was responsible for RMB interest rate swap trading at the time. Previously, I could easily complete large-scale trades in a day, but during the crisis, even small positions were difficult to close out. Bid-ask spreads expanded from 1-2 basis points to over 10, the market saw extreme sell-offs, and just tiny volumes could push the price down by dozens of basis points—completely unimaginable in normal markets.

For complex products with poor liquidity like CDOs, the market was nearly like "the end of the world." The fair value of assets shrank sharply, almost no counterparties were willing to buy, and institutions holding such assets faced huge losses. The entire crisis started showing signs in the second half of 2007, went through multiple waves of concentrated outbreaks, and entered its darkest phase after Lehman Brothers collapsed in September 2008. The market was filled with despair then; we in Hong Kong were already discussing not whether there would be a recession, but whether there would be a repeat of the Great Depression of 1929.

Institutions fell one after another, the industry’s landscape was completely reshaped, Bear Stearns and Lehman Brothers exited, our company’s stock price also plummeted; bonuses issued as stock the prior year shrank dramatically. The once-booming financial talent recruitment market instantly fell to freezing point; many people’s fates were rewritten overnight due to job-hopping, holding shares, and position adjustments. At that time, because I performed well, I received offers from multiple institutions, including Bear Stearns, but luckily I did not choose to leave and avoided the subsequent industry shake-up.

This crisis made me deeply understand that prosperity and fragility in financial markets are often separated by just a thin line. Once extreme risks happen, the impact on individuals, institutions, and even the whole industry is transformative. It also made me keep reverence for the market, leverage, and risk ever after.

Long-Termism in Career Choices

Q: At the end of 2007, Bear Stearns offered you a higher position and better compensation. Why did you choose to decline and stay at Morgan Stanley?

A: Bear Stearns was the smallest among the five major investment banks at the time, but their business style was very aggressive, expansion-minded, and willing to poach talent from other banks, so they offered me an early promotion to VP, which was very attractive. But I always subscribe to the philosophy of long-termism: trading itself is short-term, but career choice and personal development must be long-term.

At the time, my development, platform, and prospects at Morgan Stanley were hard for other institutions to match. On one hand, I worked in a harmonious environment and received great space and trust for growth from my team and boss; on the other, Morgan Stanley was genuinely laying long-term roots in China and sincerely wanted to deeply cultivate Chinese business. In 2006, we acquired a city commercial bank in Zhuhai, wholly owned by Bank of China Macau, breaking the 20% cap on foreign ownership in domestic financial institutions at the time, achieving full ownership, renaming it Morgan Stanley China Bank afterwards, and making it a major foothold for the company’s full-scale entry into China.

I was deeply involved in building the bank’s trading desk, among the first batch of traders covering both offshore NDF/NDIRS and participating in onshore interest rate swaps, bonds, FX, etc. Every week, I would travel between Hong Kong and Mainland China, doing overseas market trading and local Chinese market trading, witnessing the business take off. The bank transformed from a traditional city commercial bank into a key participant in the interbank market. For me, this was a path to grow together with China’s financial market and had a clear long-term vision.

By contrast, Bear Stearns offered mainly higher titles and bonuses, but did not have such a long-term, committed Chinese strategic platform.

Additionally, as an employee fully educated in Mainland China (coming directly from Peking University to Hong Kong), I was in a very weak position within the Hong Kong investment banking circle at the time. On the entire trading floor, only I and one other colleague had pure Mainland backgrounds; others were mostly foreign or stationed in Hong Kong after overseas studies, and obvious bias and clique differences existed. But I treated this stress as training and, precisely at Morgan Stanley, I forged strong stress resistance, risk management abilities, and contrarian profit-making skills. I never had a loss year in my career, and the confidence to stand firm and continuously create value despite pressure and bias is more important than a higher title or short-term high salary. Taking platform, long-term vision, personal growth, and job security into consideration, I chose to stay at Morgan Stanley and thereby avoided the later Bear Stearns bankruptcy crisis.

Q: You previously mentioned that the core of career choice is to make yourself irreplaceable. Regarding the Morgan Stanley acquisition of the Zhuhai City Commercial Bank, as someone with pure Mainland educational background, do you have an irreplaceable role in these local Chinese businesses?

A: Yes, this is beyond doubt, and was a key reason for choosing to stay at Morgan Stanley. After acquiring Zhuhai City Commercial Bank, Morgan Stanley built a business structure for the local Chinese market. As someone with pure Mainland education, familiar with the Mainland market environment and cultural context, my irreplaceability became particularly prominent.

In doing business in China, whether collaborating with internal colleagues or connecting with domestic clients, Mandarin communication is only the foundation; more important is shared cultural background, cognitive logic, and commercial context—which is not simply about speaking Mandarin, but requires truly rooting in Mainland upbringing for deep understanding. With Morgan Stanley China Bank's local license, our client reach extended greatly. As I moved to more senior roles, I had more direct client interaction opportunities, often accompanying sales, IBD, and private wealth management teams, pitching business and trading ideas to Mainland enterprises, Hong Kong businesses, and high net worth individuals.

My hybrid background showed unique value: facing Mainland clients, I could fully communicate in their language and mindset, accurately capturing their needs; facing foreign clients, I could combine global macro and Asian market logic, speaking fluent international financial language; for Hong Kong clients, I could bridge overseas perspectives and domestic business scenarios, building a communication bridge—Hong Kong clients usually have international vision and Mainland business layouts and appreciate this dual approach. This ability to connect globally and root locally enabled me to occupy an irreplaceable unique position in Morgan Stanley’s China business deployment.

Bear Stearns did not have such business deployment or local presence in the Mainland; even if they offered higher titles and salary, they couldn't give me this growth platform, nor let me play my local strengths or realize irreplaceability. For me, growing with Morgan Stanley China Bank and continually strengthening my unique value in deepening the China market is far more meaningful than short-term high salary and high titles.It’s also this long-termism that helped me avoid Bear Stearns bankruptcy and continuously build irreplaceable career competitiveness.

Trading Logic During the Financial Crisis

Q: You’ve said you never had a losing year in your career. With such an extreme market in 2008—liquidity collapsed, volatility huge—how did you avoid losing money and even produce record-breaking performance?

A: The 2008 financial crisis was an extremely important growth experience for me; the crisis itself was both a risk and a huge opportunity. As Soros said, “When there’s blood in the streets, that’s when to make money.” In a huge crisis, bubble wealth is wiped out, but when assets become severely undervalued, enormous returns emerge. However, in FX and rate derivatives trading, unlike holding stocks or bonds, we don’t make money from holding yields but from price volatility.

Investing and trading are two things: investors seek low volatility, stable returns, hoping assets go up steadily; traders need volatility. Only big price moves create spreads and opportunities. 2008 was one of the most volatile markets since I started, and such high volatility is a rare opportunity for macro traders focused on FX and rates.

The market that year changed extremely fast, with short cycles: crashes often completed in days or hours, rebounds were just as swift. The window for judgment, decision, and exit was very short—maybe only 12 to 48 hours. If you were slow, profits vanished. My ability not to lose money came down to:

First, clearly distinguishing investment from trading, never earning money outside my knowledge. We dealt with off-balance derivatives, funding costs are high, so earning through holding and interest isn’t possible—only by capturing price moves. So I didn’t bet one-way or tough it out, only earning from volatility.

Second, extreme decisiveness, rapid switching, strict stop-loss. The 2008 market could reverse overnight; yesterday’s viewpoint could be obsolete the next day. I could quickly switch from long to short, cut losses decisively, not hold grudges or gamble. Facing losses, I stayed calm and executed stop-loss immediately, never holding on out of unwillingness or stubbornness.

Third, making full use of high volatility instead of being overwhelmed by it. No matter if the market was up or down, as long as there was volatility and bid-ask spread, quick trades could profit. I stayed close to the market, focused on key turning points, shorted in rapid drops, caught rebounds after extreme panic, quick in and out, never greedy for the last bit of profit.

Fourth, learning from veterans who’ve crossed previous crises. My bosses experienced the 1997 Asian crisis and 2001 Dot-com bust, and had sharp intuition for crisis rhythm, human nature evolution, and market patterns from gradual to sudden change. On their foundation and my own judgment, I avoided deadly traps.

Our entire trading department set record performance in 2008; income doubled from 2007, and my performance quadrupled or more. Despite company-wide losses from structured products, our FICC trading unit was one of the few strongly profitable businesses. My no-loss achievement in a year of extreme market comes down to correct trading orientation, strong adaptability, strict risk control discipline, and a calm mindset under pressure—turning crisis into a career leap.

Q: Earlier you said in a high-volatility environment, with accurate judgment comes considerable returns; you also mentioned your superiors’ hands-on crisis experience in 1997 and 2001. But every trade execution and profit/loss responsibility falls on young traders who haven’t fully experienced major crises. How did you realize sustained accuracy and trading success then?

A: Trading ability is essentially forged through continuous real-world practice and setbacks. In the first half of 2007, I had a crucial lesson in USD/IDR trading. Clients bought dollars and sold Indonesian rupiah, making me short USD and long IDR. My overall idea was to be long USD, so I needed to replenish my USD position after the trade. I judged the market would pull back after a surge and wanted to wait for a better entry price; due to time factors, I delayed and only partially replenished the USD position. In the afternoon, the market jumped sharply, and with an incomplete hedge, the account quickly saw large losses, wiping out all daily profits and causing a real loss. Among Asian currencies, IDR has the strongest volatility and trading difficulty; even seasoned traders easily suffer major drawdowns. I joined the industry in 2004 and quickly started proprietary trading after just a month, covering HKD, SGD, RMB, TWD, MYR, KRW, INR, and then moved to the most difficult—IDR. The loss came as subprime risks had begun emerging and international capital was leaving emerging markets. IDR is a high-yield currency; during stability, holding returns are high, but in risk-off, volatility is huge daily. Large institutions’ capital exits are hidden, with no clear signals; participants can predict risk will happen but can’t time it precisely, and decision hesitancy easily turns profit into loss. This taught me that in a high-volatility risk-accumulation environment, **decision speed and execution matter more than price optimization; time is more important than price**.

Precisely because of prior losses and reflection, I had enough risk sensitivity and execution power in 2008. In the first half of 2008, domestic inflation pressures rose, RMB was in an appreciation trend, and the market expected sustained rate hikes; I maintained a long rate position. Mid-year, before the Olympics, Lehman Brothers’ risk caught market attention, and people began pricing in sharp Fed cuts; despite high oil prices and robust inflation logic, micro-structure showed clear abnormalities. RMB rates dropped 20bps in a day, and I promptly reduced my position to take some profits. Normally, a 20bps pullback would be a reasonable buy-in zone, but I noticed market sentiment deteriorating: funds driving rate hikes kept leaving, shorts gained strength, and then bid-ask spreads surged, with panic selling. This rapid shrink in liquidity and concentrated selling matched the crisis signals I’d seen before in IDR, KRW, INR, etc. I decisively closed out, locked in profits, and quickly turned from long to short rates, building the appropriate short position. The market then plunged; I caught the whole trend, and that rapid judgment and timely pivot was based on experience and intuition formed in 2007’s real-world trading.

In this process, I gradually formed a mature trading system. I believe in Soros’s reflexivity theory: price movements influence market expectations, expectations dictate trading actions, which further reinforce price trends—the market does not have a static, unchanging fair value. At any stage, multiple long/short logics coexist, and the core logic that drives prices switches quickly; most investors follow price trends, only a few anticipate cognitive shifts. My core principle is to build a macro judgment framework but constantly verify logic against market price—never stick to views, nor fight the trend. Once price proves prior logic wrong, I immediately revise judgment and adjust positions. To me, price is the only criterion for testing investment logic, and the core variable driving decision-making.

Financial Crisis Shaping Trading Systems

Q: Based on your experience at Morgan Stanley, you covered trading of all Asian currencies. Could you elaborate your core responsibilities then and how this shaped your trading system?

A: During my tenure at Morgan Stanley, I took on multiple core roles; one key responsibility was acting as market maker for offshore Asian currencies—including TWD, IDR, and others. Each Asian currency has unique trading characteristics and logic; achieving efficient trading and risk management requires deep understanding of pricing principles, key participants, market rhythm, and fund flow patterns. Real-economy enterprises have clear capex cycles; financial institutions show cyclical behaviors every quarter and year-end for fund aggregation, profit-taking, and position adjustment. This cyclicality is common across currencies, stocks, and all asset trading.

I always believe good traders must combine macro vision and micro detail: working top down to grasp market trends at a macro level and bottom up to analyze microstructure and fund flows precisely, integrating trend judgment and timing for full trading capability. During this time, I comprehensively covered Asia's major currencies (TWD, KRW, INR, IDR), and, with my Mainland background and professional expertise, deeply participated in RMB trading.

Through trading different currencies, I experienced repeated rounds of profitability and losses, gaining rich hands-on experience—even relatively stable RMB saw extreme market moves and key turning points. After the 2008 Beijing Olympics, RMB met a crucial turning point. From global market patterns, “Olympic curse” is a common economic and financial phenomenon: to prepare for events, host countries experience investment booms, market confidence peaks, and optimistic outlooks; but after, over-investment leads to overcapacity, investment falls, sentiment drops from highs, and the economy and markets enter cyclical adjustments. After the Beijing Olympics, China also saw this: previous high inflation and growth optimism reversed, market sentiment and macro momentum declined.

Worse, in September 2008, Lehman Brothers declared bankruptcy, global markets entered systemic crisis, intensifying volatility. My memory of that event is vivid: the weekend it happened, I was heading to Singapore for a friend's wedding and received an emergency call from my superior—the first weekend call ever—asking me to return to Hong Kong immediately to handle all clearing of Lehman-related trading positions. I changed my schedule, took the latest flight from Singapore to Hong Kong, and arrived at the company at dawn; the trading team was already fully staffed and responding to the crisis.

The core risk from Lehman’s collapse was its inability to honor its trades, turning previously hedged bilateral positions instantly into outright exposures. All institutions with Lehman trades had to urgently review outstanding exposure, assess the size, calculate margin buffers, and develop Monday opening hedging and exit plans to avoid one-sided risk. The following week, global markets saw large unwinding waves, and liquidity underwent dramatic reconstruction. In that week, I closed tens of billions worth of SGD positions with counterparties within an hour; later, it turned out the counterparty was also facing urgent Lehman unwinding. In a near-liquidity-free market, closing large positions smoothly with no significant loss was rare.

Unlike the general market, RMB NDF’s extreme volatility exploded only in Lehman’s second post-bankruptcy week. The first week mainly digested cross-institution unwinding pressure, and the central bank was still maintaining an RMB appreciation stance, so no extreme one-way moves happened. But as global financial risks kept spreading, institutions widely launched stop-loss mechanisms, cut risk exposure, and with the USD index surging, the market’s RMB appreciation expectation fully reversed; RMB long positions were sold en masse.

Before the move, I already caught market abnormal signals and preemptively closed RMB long positions for preparation. On the day of the move, the morning saw one-way RMB selling and USD buying, bid-ask spreads grew, and funds exhibited “gradual to sudden change”—matching crisis signals I’d seen in IDR, subprime products, and RMB rates. Then, I abandoned dogmatic notions of theoretical fair pricing, term structure, and implied rate curves, and returned to supply-demand basics, not concerned about exact price or tenor, fully taking the market USD sell side and locking in one-way exposure.

In the afternoon, the London trading session started. As the hub for global EM trading, London aggregates massive US and European funds, whose scale and direction impact EM markets globally. When London funds joined RMB selling and USD buying, RMB NDF crashed, flipping its forward curve from appreciation to depreciation structure. I completed my trading setups that day and closed out at an extremely high-price zone, with peak daily profit—the highest in 2008 and a career highlight.

This successful trade was the culmination of all prior hands-on experience, loss lessons, market intuition, and execution ability. I often tell young traders: key career leap moments are not accidental—they’re built on long-term market sensitivity, decisive judgment, steady trading mentality, and courage to break consensus and take reasonable risk at critical times. After Lehman’s bankruptcy, the global financial market entered extreme defensive mode—“no position is the best position” became consensus—yet I could break out from that, abandon assumptions about RMB appreciation and theoretical prices, and execute decisively because of years of hard-won training. All the accumulation and preparation is for waiting for the key opportunities; all the past effort and tempering is for realizing value when the opportunity comes.

Q: You just mentioned having to be at the office at 5am, which immediately reminds me of the movie "Margin Call."

A: Indeed, that film portrays the financial market reality very accurately. During the crisis, being at your desk at 5am was not an exception, but occurred many times. Macro trading in Asia has clear stage features: major US market events tend to happen on weekends or early mornings in Asia; NZ and Australia markets open at 4-5am, Japan and Korea start at 7am, and by 8am, East Asian markets are fully trading. So our actual trade preparation started at 7-8am, but risk review, position checks, and overseas info needed to start at 5-6am. Years of work made my hours stable from 7am to 1am, covering Asia, Europe, and North America. After long professional training, traders develop strong market sensitivity—even during rest, if something unusual happens in overseas markets at night, you naturally wake up at 4-5am to check. That’s the "market sixth sense" professionals refer to.

This intuition has proven effective many times through my Asia and subsequent London career. The so-called “market feels wrong” is a hard-to-quantify but highly reliable professional perception, stemming from long-term high-intensity price memorization and cross-asset linkage training. My first core training at Morgan Stanley was to memorize intra-day price moves—not relying on charts, but actively memorizing minute-level moves for key currencies, forming a full contour mentally. Then, I tracked the linkage of RMB, TWD, KRW, IDR, INR, and further extended to commodities and stock indices' intraday moves.

With long-term accumulation, traders form high-frequency price trajectories and dynamic correlations for dozens of core assets—the professional cross-asset correlation. Unlike quantitative models using closing prices for correlation, we perceive and exploit real-time intra-day correlations, better reflecting fund behaviors and risk shifts. Normally, major assets have low correlation; diversification works. But in crisis, correlations rapidly converge to one, prices move sharply together, and diversification fails. Structural change doesn’t rely on statements or model calculations, but is embedded in market intuition.

Continuous intraday price memorization and cross-asset linkage training allow traders to sensitively spot deviations, correlation breaks, and pricing biases. Market participant structures are highly diverse—global institutions, local capital, long-term allocation funds, short-term trading funds—each with different decision rhythms, info channels, and constraints, causing price reactions with temporal differences and sequential lags, creating trading opportunities.

By combining asset fundamentals, participant behavior, cross-asset correlation, and macro event drivers, traders can build forward-looking market judgments—this composite ability is the “sixth sense” and the core skill for seizing major opportunities in extreme markets.

Join Yuan Jun Macroeconomic Trading [email protected] Shenzhen>>

Risk Warning and DisclaimerThe market has risks; investment requires caution. This article does not constitute individual investment advice, nor does it take into account the particular investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinion, viewpoint, or conclusion in this article suits their specific situation. Invest accordingly at your own risk. ```