Tuesday, April 30, 2013

A standard problem with businesse in the developed world

Sunday, April 28, 2013

"Micro Trading" racket invades New Zealand (OTC spot FX, reality, problems)

The New Zealand population is generally uneducated in areas of financial derivative trading, and now exploited for it by a wave of bucket shop (illegal in the US) "micro trading" BS campaigns. It has probably drawn a good number of desperate, lazy locals in search of fool's gold, and I hope to help those on the fence make a more informed decision about dumping money into these things.

Would it work, and make money?

Highly unlikely. 

Given that they have spent all this money on this aggressive marketing campaign, hints that they expect to make a higher return on the software sales effort than actual trading with the capital. Successful PROPRIETARY trading firms keep trading strategies discreet because inefficiencies become less profitable if they become exploited at higher volume. Nobody making good money trading would ever think of selling or making their trade(s) publicly known.

Those who are looking to raise money to trade proprietary, self-developed strategies tend to approach family, close friends, or take shots at smaller institutions.

About automated financial trading

Ironically, software automation often adds to operation liabilities than value due to bugs, crashes, hardware incompatibilities, etc. At the institutional levels, automation is only applied where manual trading isn't viable due to things such as speed requirements.  

About Spot FX trading 

These are some of the most liquid, efficient products in the world, and that is undesirable for the professional trader. The space is filled with smart institutional money, what little inefficiencies found are barely worth the work. Given the OTC nature of spot FX, the implied transaction costs alone would kill any profit potential for any serious trader.

Wednesday, April 3, 2013

Making friends in the industry

Going back the past few years where I had made the most development in professional trading, much of what I have gained, whether information or opportunities, resulted from practical, sometime harsh discussions with friends and associates in the field. Therefore it has become apparent that this business is still very much people dependent, not what I had imagined starting out, that I'd end up sitting alone in front of the computer in some dark room all the time.

Stress testing

Ray Dalio has mentioned his personal Principles to "beat the market", and this process requires additional minds for stress testing.


The pursuit of this goal (to beat the market) taught me:

1) It isn't easy for me to be confident that my opinions are right.
2) Bad opinions can be very costly.
3) The consensus is often wrong, so I have to be an independent thinker. 


1) I worked for what I wanted, not for what others wanted me to do. 
2) I came up with the best independent opinions I could muster to get what I wanted. 
3) I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong. 
4) I remained wary about being overconfident, and I figured out how to effectively deal with my not knowing.
5) I wrestled with my realities, reflected on the consequences of my decisions, and learned and improved from this process. 


Go out there and make friends, preferably with smarter people.

Monday, April 1, 2013

Fundamentals of Trading Energy Futures and Options (Book Review)

Fundamentals of Trading Energy Futures and Options by Errera and Brown was one of the better books on the subject in my experience. Because the book was written as a guide for commercial entities' risk management objectives, it gives the reader some interesting ideas around the (possibly exploitable) behavior of large institutional trading.

Newbie friendly, straight forward instructional

The book assumes no former familiarities with energy commodities, and explains the mechanics of energy futures and futures options, covering mostly crude oil, natural gas, and associated derivative products. Unlike so many crappy quasi-sales books in the field, the authors do not advocate trading of energy futures or futures options, and instead take an impartial role.

Trading energy spreads

The authors did a great job going over the high volume exchange supported energy spreads e.g. crack, spark spreads, heating vs. gasoline, and etc. It is absolutely fascinating to learn the industrial processes that influence changes in spread values; this is the kind of information edge with potential for making money, with significantly more value than quantitative curve fitting empirical data. 

Other things I liked about the book

Like me, the authors also found little value from technical analysis, at least in the pure form. 

Over all the book is a great primer on energy derivatives.