Friday, December 31, 2010

Stock Investor's Mentality

Any similarity with what you are doing?

What is a Financial Bailout?

"When it's a question of money, everybody is of the same religion." - Voltaire

Another one from the mail.

It's a slow day in a damp Irish Town. The rain is beating down harshly, and all the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

...On this particular day, a rich German tourist is driving through the town, stops at the local hotel and lays a $100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some room-keys and, as soon as the visitor has walked upstairs, the hotelier grabs the $100 note and runs next door to pay his debt to the butcher.

The butcher takes the $100 note and rushes down the street to repay his debt to the pig farmer. The pig farmer takes the $100 note and heads off to pay his bill at the supplier of animal feed and fuel.

The guy at the Farmer's Co-op takes the $100 note and runs to pay his drink at the friendly neighbourhood pub. The pub owner slips the money along to the local prostitute drinking at the bar - who, is spite of facing hard times, has always gladly offered him her 'services' on credit.

The hooker then rushes over to the hotel and pays off her room bill to the hotel owner with the $100 note.

The hotel proprietor quietly replaces the $100 note back on the counter, so that the rich traveller will not supspect anything.

At that moment the traveller comes down the stairs, states that none of the rooms are satisfactory, picks up the $100 note, pockets it and leaves town.

...No one has produced anything. No one hs earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that, dear ladies and gentlemen, is how a basic financial bailout package works!

Thursday, December 30, 2010

Singapore Peasant

"It has been said that Democracy is the worst form of government except all the others that have been tried." - Winston Churchill

Just received this email joke, would like to dedicated to my dear friend Coconut in this quiet market.

A peasant was overseeing his herd of animals in the last family farm in Singapore when suddenly a brand new BMW advanced out of the dust cloud towards him.

The driver, a young man in a Armani Suit, Gucci Shoes, Ray Ban sunglasses and YSL tie, leans ou the window and asks the peasant, "If I tell you exactly how many sows and piglets you have in your herd, will you give me a piglet?".

The peasant looks at the man, obviously a Yuppie, then looks at his peacefully grazing herd and calmly answers, "Sure, why not?".

The Yuppie parks his car, whips out his Dell notebook computer, connects it to his RAZR V3 cell phone, and surfs to a NASA page on the Internet, where he calls up a GPS satellite to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high-resolution photo.

The young man then opens the digital photo in Adobe Photoshop and exports it to an image processing facility in Hamburg, Germany. Within seconds, he receives an email on his Palm Pilot that the image has been processed and the data stored. He than accesses a MS-SQL database through an ODBC connected Excel spreadsheet with email on his Blackberry and, after a few minutes, receives a response.

Finally, he prints out a full colour, 150 page report on his hi-tech, miniaturized HP LaserJet printer and turns to the peasant, "You have exactly 986 pigs and piglets."

"That's right. Well, I guess you can take on of my piglets." replied the peasant.

He watches the young man select one of the animal and looks on amused as the young man stuffs it into the trunk of his car.

Then the peasant says to the young man, "Hey, if I can tell you exactly what your business is, will you give me back my piglet?"

The young man thinks about it for a second and then says, "Okay, why not?"

"You're a MP for the PAP", says the peasant

"Wow! That's correct," says the Yuppie, "but how did you guess that?"

"No guessing required." answered the peasant. "You showed up here even though nobody called you; you want to get paid inspite of the your million dollar salary for an answer I already knew, to a question I never asked. You tried o show me how much smarter than me you are; and you don't know a thing about pigs... this is a herd of goats... Now, give me back my dog."

Tuesday, December 28, 2010

Position Trading

I have set up another account for one of my trader to do position trading beginning next year. It's another challenge again, not by me but an experience trader who is keen to test his trading skill on a part time basis, while continue doing his day trading.

He can trade any contract when the opportunity arises, no pressure to perform, I'm just curious to see how he will grow and how we can learn from him (if he makes money). He is a stake holder with 50% share in funding the account.

Position traders don't trade daily and might hold on to a position for days or weeks. Can these traders make money? Can he survive and make enough to feed his family? Are most position traders doing it part-time just for the extra money?

I think you have to be rich to do position trading. Stock traders are mostly position traders, can only buy and hold. And for those doing contra trading, most will be digging their own grave, because the comm will kill them over time. But, luckily the comm has now come down tremendously, so they can survive a little longer.

Most of the professional traders are all doing day trading, scalping or spreading to make a living. They are all hardworking, discipline and focus in what they are doing, every second, every minute. It's not a easy life, when you are in, you will realise how tough it is. The competitiion is stiff, it's a negative, negative sum game.

Saturday, December 25, 2010

Merry Christmas!

Merry Christmas to all.

I have decided to return here to post my blog.

It's been a long break from writing, what else can I share about trading?

"Top performers spend more hours rigorously praticing their craft" - David Brooks

I have visited Shanghai recently with my brother and brother-in-law to find out more about the potential of the Chinese Futures market. Though the market is closed to foreigners, many are using relatives or friends there to open account for trading the futures market. There are many loopholes for doing business in China, just find it.

There are some local traders who are already there after the launch of the Shanghai Index, CSI300 contract, it's a new frontier, new opportunities for those who are willing to take the risk.

For experienced traders like us, it's much easier for us to find the edge especially with no Algos present there as yet.

The margin for trading is extremely high compared to other Exchanges, I was told that minimum opening account is RMB 500,000/- and that allow only 2 open contracts of the CSI300. The comm is high too and these measures are to discourage excessive speculation.

There is a limit of putting 500 contract orders (need to verify) for any given day, so that fake orders will be eliminated, getting rid of those big bullies unless it's geniune order. I think this is very good so that traders cannot manipulate the market by creating a false impression of huge orders coming in but disappear immediately.

It's a much level playing field for all traders if everybody will to pay the same clearing fees unlike Exchanges that offer huge volume rebates to high frequency traders.

One of the challenges trading in China is obviously the language, the platforms are mostly in Mandarin and offer only 1 price level. The maximum is up to depth of 5 levels and need to pay extra for that feature. There is no ladder which we can click with the mouse to enter orders. The traders there use the keyboard to enter into a position which they demonstrate how fast they can execute an order. Still slow compared to our platform.

We met up with an investor who offered us capital to station in china to trade the various Chinese products. They expect high returns and are willing to take high risk as well. There are plenty of rich Chinese now who have made a lot of money in all sorts of speculation, especially property. They are talking about doubling their money every 2/3 years.

I told him I'm sorry, I can't promise him those type of returns, I'm in the business of risk management, not excessive speculation. He can find someone who can promise such high returns by just throwing a stone in Shanghai, plenty of them, but promise and actual performance is two different matter and how long can that trader last.

My brother is willing to take up the challenge if the fund is at least S$10 million to fully concentrate on trading or else it's not worth his effort. He is comfortable now, in fact one of the most consistently profitable trader, just a few losing days this year, a very good track record. What a change from a year ago when I was so worried for him not making it as a trader. He is a mature trader now but trading for someone else is a different ball game again.