Tuesday, April 19, 2011

SMB Capital on Wall St. Warriors Part 4 of 4


averagejoe said...

Great videos! The owner of SMB capital actually wrote a book titled 'one good trade'. All traders should check it out! Great book!

Fat88Trader said...

So, what have you learnt from it?

averagejoe said...

The lady in the video seems pretty much lack of conviction about trading i wonder if she made it past the test!

The video also showed us the stark reality about trading. I guess most aspiring traders have to endure the first few months, accepting little or no pay, and overcome the steep learning curve. A fresh grad like her with little liabilities and worries in life is already finding it so difficult to cope, and what about an aspiring trader who has a family to feed? that is why so few succeed in trading.

Fat88Trader said...

You are absolutely right, the steep learning curve is a real hurdle for most aspiring traders especially one with a family.

I have told some aspiring traders to have a sincere discusion with their spouse before embarking on this career as a trader. Need a very understanding spouse.

averagejoe said...

yes yes, even my loved ones can't accept it. I guess most people's expectation are that one ought to look for a job that provides maximum stability.

Patrick, can i ask u a technical question regarding to trading? what is the ideal number of lots of nikkei 225 index futures contract one can hold up to with a capital of 50k?

Fat88Trader said...

How do you want to trade?
Scalping? Day Trade? or Position Trade?

If you are a new trader, try 1 lot at a time until you are consistent over a period of time till you are comfortable to increase the size.

If you can't even make money with 1 lot, then you are asking for trouble to trade more than that.

What's your expectation? How much you want to make a month? How much are you prepared to lose for a given trade?

Remember, when you start out, preservation of capital is your no. 1 goal.

coconut said...

yes, 50k is like small knife you can only cut small trees. learn to cut trees first, small one.

when you discover you like to cut trees, than slowly change to an axe and eventually chain saw, motor one, then you will be able to cut big trees plus the small little one, yes small little one must cut also.

try not to use a small knife to cut big trees.

coconut said...

cos before the big tree fall, you have use up all your little small knifes.

averagejoe said...

oh don't be mistaken i am not trading the nikkei futures just trying to find out more more info about it as one trader claims that it is possible to trade up to 100 over contracts a time with 50k just wondering if its possible.

Fat88Trader said...

Yes, it's possible on leverage given by certain brokers for scalpers, it's maybe like 4x the normal margin required by the Exchanges. It's only for day trading margin and revert back to Exchange margin for overnight positions.

It's highly risky for both traders and brokers for offering such high leverage to encourage traders to trade excessively to earn comm.

I heard of rumours of a Trader who busted his account on the day the nuclear reactor exploded in Japan. The Nikkei crashed so fast that this trader average up to more than 400 contracts losing more than S$2 million at one point with only 600k margin in his account.

Luckily for the trader, the Nikkei recovered immediately or else both he and the broking house will be in trouble.

Broking houses should not offer such high leverage for day traders, it's a highly dangerous game.

And, for traders, where is the money management when you are in fact gambling big stake.

Unknown said...

Hi Fat,

With regards to that guy who lost 2mlns at one point, I have few queries if you could help enlighten me.
1) With only 600k margin, was there something amiss that Phillip's thermostat device failed to liquidate his positions automatically.
2) Have he over-traded? If so, why have not Phillip report it to SGX?
3) IMHO, Phillip should have a "thermostat" policy to autocut a position when a loss hit a certain level. Just imagine what if the same guy lose 5 mlns next time in the future and he opts to go bankrupt. Phillip will have to bear the losses. In turn, Phillip may have to impose higher comms on all other traders recoup back its losses.
4) IMHO again, I am quite sure that guy has never make 2 mlns in a day. Hence, when he lose the amount in one day, he is likely be stuck in the state of denial. He would die die wait till his cows come home; or else.....

Fat88Trader said...

It just happened so fast, the market crashed within minutes, the trader had not over traded if the Broker allows the trader to trade up to the maximum allowed based on his margin.

The only fault lies in the Broker's thermostat device that failed to kick in automatically to cut off his position. It's indeed a close shave for the Broker who make that peanut comm.

Time must also be given to the trader to put in more margin to hold the position. Of course the fault still lies with the Broker for their failure to reduce trading limits to all traders especially those that have bad track record.

On hind sight, no one have expected such trading volatility.

The compliance department need to seriously look into this episode and take preventive action for another occurance.

Brokers should follow strictly to the Exchange margin requirement and not allow traders additional leverage and compete with each other for traders. The risk is extremely high for those very gutsy traders that demand such leverage.

This trader is extremely lucky, it happens many times before and I hope that he learnt his lesson not to average on bad trades and follow strictly to his money management rules.

He is a fellow trader and friend, I still wish him well.

coconut said...

oh my goodness, sometimes i feel that in turn of risk taking, i'm no way near some of those traders you mentioned fat.

its either they are too hardup or they don't feel anything about money. thats extreme.

Fat88Trader said...

Yes, there are many big traders around, some are holding positions in the thousands for interest rate contracts that are not so volatile. Their comm a year is in the millions!

Rumours of another trader who lost a million on that fateful day, this is part and parcel of trading big time.

These big traders have a heart of a lion. Yes, they don't feel anything about money, it's just like placing chips on the casino table.

coconut said...

ya its nice to hear all this story after feeling like i'm on top of the world, and i could immagine they have something to fall back on when they screw up big time.

still i have great respect for them. money means little to me too but fortunately i have whole army of family who does not agree with me. it takes a long time to learn to respect money, not in the way what money can buy but as a tool for trading like a position or a saw or a fish net or simply a basket to hold our durains.

Fat88Trader said...

Of course, it will take some time for them to recover from their injuries especially psychological and emotional.

Those who are strong wil recover faster and become better traders.

When you are down to earth, you will respect money. I have great respect for these big boys, they have the courage that is extraordinary which get them to the pinacle of this profession.