Saturday, July 11, 2009


"Freedom is not worth having if it does not include the freedom to make mistakes" - Mahatma Gandhi

In trading, we have the freedom to make mistakes everyday, but not many of us are willing to admit our mistakes resulting in burning holes in our pockets at the end of the day.

"One mistake and you will regret it forever" - a Chinese proverb

Many years ago, I had a lunch partner trading together with me in the Taiwan Pit. This friend was a medium sized trader who was well respected by most traders on the floor as a very successful trader. I was impressed by him too, especially his courage in executing the size that I deem too big for my own comfort.

He traded in other contracts like Nikkei as well as forex, I find it amazing that he could cope with a few contracts base on his gut feel. He would always tell me his exploits, those that he made a killing but I never hear about his losses. The impression that gave everyone, including myself, was that he was a damn good trader.

Once, we happened to collect our monthly statement from our own clearing member and decided to exchange notes on our profit for the month. He showed me proudly that he had made more than 40K but I noticed that his commission was close to 30K resulting in his nett profit of less than 20K. I was shocked and questioned him how he ended up with such huge commission.

He told me that was his style of trading especially calling the backroom to execute trades on his behalf. The execution fee was US$1.00 per contract and it was OK for him since he was able to make more profit to cover the expenses. I told him the profit ratio to commission was way out, he was giving away too much money to the clearing firm. Instead he should execute the trades himself and have more quality trades.

I showed him my statement of about the same profit, but my commission was less than 5K, my nett profit was more than double his. I advised him to seriously look into the cost, it didn't make sense to me. I told him to execute the trades himself, stop trading forex because of the slippage, instead trade on the futures platform. Unfortunately, all these advice fell on deaf ears.

We drifted apart as he stayed away from the pit and executed his trades from cafes away from the exchange floor. Whenever we met, I always asked him "how's trading?". Without fail, he will answer "good, surviving", very confident without a trace of trouble in his trading system.

I was shocked when he came to me for financial help again, I helped him once and he recovered. This time I knew that it was more serious and be prepared to write off the loan. He later confided in me that he was in deep shit, both he and his wife were sued by the banks. Many traders helped without knowing his problem, but it was not enough to pull him out of the quicksand.

I scolded him for not telling me the truth about his trading losses, in fact lying that he was doing OK. It was the pride that killed him, he was too shy to admit his mistakes, he wanted to upkeep his image as a successful trader. If he had been honest with me, I could have help pull him up from falling into the gutter.

He confessed losing a bomb in currency trading even though he put in very tight stop loss. With his size, I could imagine the amount of slippage, commission and worst, always hitting his stop since it was placed so close to his entry level. The market always test a trader's patience by taking their tight stop until they get frustrated. Once the trader take away the stop order they will be in deep shit one fine day.

He is now helping up in a ex-trader's antique shop at a pay that's only a fraction of the commission that he once paid monthly. He regretted his mistakes but at least he is happy to be at peace with himself and accepting the cruel fate that he can't blame anyone. It's a honest living and I am glad he has come down to earth though at a extremely high price, there's no turning back the clock.

Square off all position, profit to date is S$13,609.00 for the special account.

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