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Discussion in 'The Trading Floor' started by nottibird, Sep 28, 2013.


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  1. nottibird

    nottibird Moderator

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    The Importance of Buffer When Trading With A CFD Account

    Yes. To trade via CFD, you MUST ALWAYS provide a buffer. One simple solution to this problem is to treat your CFD account exactly like a Cash Account. So let's say I have $100K of trading capital in my CFD Account and I am LONGing an index stock which requires 10% margin, I should buy not more than $100K worth of that stock. Let's say the stock is trading at $1.00 and I buy 100 lots, that's $100K worth of stocks and I do have $100K of trading capital. But what my CFD House will do is to set aside 10% of the value of the stock, ie. $10K as margin. This $10K margin will be deducted from my trading capital of $100K leaving me an " Available Balance" of $90K to trade in other stocks. Assuming my stock price falls to 90 cts, I would be sitting on a paper loss of 10 cts x 100 lots = $10K. My CFD House will set aside another $10K from my trading capital to buffer that $10K paper loss. At this juncture, my platform will show:


    Capital : $100,000

    Margin : $10,000

    Profit & Loss: -$10,000

    Available Balance : $80,000.

    If I have only $10,000 of trading capital and I buy 100 lots x $1.00 worth of stocks, my entire $10,000 of trading capital will be set aside as margin for that position leaving zero dollar to buffer any possible paper loss. In such a situation, if the price of my stock falls to say 95 cts, my paper loss is 5 cts x 100 lots = $5,000. And since I have no more trading capital to buffer that paper loss of $5,000, my CFD House has the right to give me a Margin Call to top up my account by $5,000 by a specified date/time in default they will be entitled to close my losing position at the prevailing market price. Let's say they force close my position at 95 cts, I would have lost 5 cts x 100 lots = $5000 plus com + finance charges (if any). And my Available Balance which was $10K will be updated to show a reduced balance of say $4750 ( after deducting the loss of 5 cts x 100 lots + com + finance charges). And after my House has closed my position at 95 cts (which they are legally entitled to if I do not meet their Margin Call), it matters not anymore if the price of my stock rebound strongly the next day or even on that same day to close at $1.10......ie. 10 cts above my entry price. My stock having been force sold, what happens to the price thereafter is hindsight and irrelevant.

    To avoid the above situation, you must ALWAYS set aside capital to buffer any temporary paper loss. You musn't use up all your trading capital as margin. Having enough capital to buffer a temporary paper loss will make all the difference to your trading outcome. Earlier this month, prior to Super Group releasing her Results, I LONG her at an average price of $4.2154 x 55 lots. At one point in time, she fell to $4.00. My paper loss was $11,847. But I had enough capital to buffer that paper loss. So as far as my CFD House was concerned, this was a non-event. Super Group then rebounded to 4.45 and I started to sell her slowly (I could not sell all 55 lots at one go without crashing the price) at 4.42, 4.40, 4.39, 4.38, 4.37 and 4.36. It took quite a while to slowly unload 55 lots and I did that one day before she announced her Results. After selling all 55 lots, my profits worked out to more than $8K nett after deducting com and finance charges. Why am I telling you all this? To highlight to you all that this trade was at one time sitting on a paper loss of $11,847 + com + finance charges and that paper loss would have become a real loss if I did not have enough capital to buffer it and I kena force selling by my House. But becoz I had enough capital to buffer that paper loss, it remained only a paper loss. No more and no less. And that trade soon turned around from a possible loss of $11,847 + com + finance charges to one of real profits of more than $8K nett. In an earlier trade the week before, I made more than $4K nett from Super Group. All in, I made more than $12K from her for this round of Result Play. That earlier trade of $4K profit was also at one time sitting on a paper loss of $8400 when she fell to $3.90. Thankfully, she rebounded and that paper loss of $8400 simply vapourised and I sold her for a profit of more than $4K.

    The moral of the story? When you trade via CFD, never trade to the max of your capital. Always keep some money to act as a buffer for paper loss. Hopefully, your paper loss is temporary and LOONable and for that, it is all about timing your entry correctly at or near the Bottom. If you anyhow BUY or SHORT without checking where your stock is and only after you have entered that you realised you SHORT at the LOW or you LONG at the HIGH, then LOONing your paper loss is the worst thing you can do to yourself. In such an instance, no choice. CUT. And then open a new position in the opposite direction to recoup your loss.
     
  2. nottibird

    nottibird Moderator

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    Direct Market Access Model & Market Maker Model

    Direct Market Access means when you key in a BUY or SELL order, your actions affect the queues in the Order Books of The Exchange.


    Say CMA now shows 233 buyers at 2.02 : 2.03 has 300 sellers.
    If I use DMA to queue to BUY 200 lots at 2.02, you will see the BUY queue at 2.02 jump to show 433 buyers.
    Same same if I key in a SELL.


    If I sell by throwing 200 lots to the buyers at 2.02, you will see the buyers in the queue reduced by 200.

    That's what DMA means. Every action you make, BUY or SELL affects the Order Books of The Exchange.
    DMA also mean you can participate in Pre-Opening and Pre-Closing which is VERY important.

    Your IG Platform is by default set to Market Maker Model.
    To have DMA, you must enable your account by enabling Data Access and that's when they will levy you
    a charge of $60. But if you do 4 trades within that month, you get a full refund of the charge.

    Market Maker Model, which is the default setting means you CANNOT queue and cannot participate in
    Pre-Opening and Pre-Closing. And the most salient feature of Market Maker Model is when you want to
    BUY, you MUST buy at the current SELL price. And when you want to SELL, you MUST sell at the current
    BUY price.

    Say CMA is now trading at 2.02 : 2.03.

    If I want to sell 20 lots, the price will be 2.02. There is no queueing.
    If I want to buy 20 lots, the price will be 2.03. No queueing too.
    I cannot buy at 2.02 or sell at 2.03. Not with the Market Maker Model.
    And whether I buy or sell, my action DOES NOT affect the Order Books of The Exchange.
    Becoz when I buy or sell, I am trading against the House. The House becomes macam like a bookie lidat to collect my bet.
    If I win, the House pays me. If I lose, the House Chiak me.
     
    Last edited: Aug 27, 2014
  3. nottibird

    nottibird Moderator

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    Why I Use A CFD Account To Trade And Not A Cash Account

    I am a CFD trader. I trade wholly and exclusively via a CFD Account. Hence, there is no such thing as contra for me. I can open and close a position within intraday or I can hold for as long as necessary till my position bears fruit or when I decide to cut and take the loss. Its only a question of paying finance charges for my open positions. So the longer I keep a position open, the more finance charges I incur. Why I prefer CFD? Becoz of 3 very important reasons:

    1. My com is only 0.09% (inclusive of GST) of contract value. This means for stocks trading at between 0.005 ct to $5.50, I can run with just 1 lousy bid, if need be. The ability to run with just 1 bid gives me a VERY important edge over other traders. For stocks trading at $5.51 to $11.00, I need only 2 bids to run. Take a heavyweight counter like UOB trading at $20.94. If you trade with an online Cash Account say at 0.25% com + clearing fee + GST, you need 14 bids to cover your 2-way charges. So if you LONG 1 lot of UOB at $20.94 and you SELL at $21.09, ie. at 15 bids profit.... you make $10.00. Your broker make $140.00. Whereas for me when I do the same with a CFD Account, I make $110.00. My CFD House makes $40.00. You get the drift now why low com is so very important and it gives me an edge over online Cash Account traders?

    2. The next VERY important reason why I trade via a CFD Account is that I can SHORT the market as well. An online Cash Account trader can only LONG. No SHORTing is allowed unless you take the risk of covering your SHORTs intraday WIN LOSE or DRAW and that is like trying to walk on a tightrope suspended 20 metres above the ground without any training and without a safety net below you and hoping not to fall. The BULL does not reign and run all the time. When the BULL is exhausted, he will leave the market to make way for the BEAR to take centrestage. And when this BEAR starts to maul, stock prices will take a plunge and freefall. In such a market, the only way to make money is to SELL HIGH and BUY BACK LOWER to profit from the difference. And you can do this only if you are able to borrow scrips (which is very cumbersome and costly) or if you SHORT a counter via a CFD Account which is very convenient and hassle free.

    An effective trader is one who can play from both sides of the market. BULL or BEAR, rally or correction, a CFD trader is kept busy in both phases of the market. But an online Cash Account trader is helpless during a correction, retracement or pullback. He becomes a sitter. He can only wait for his stock to bottom out before he can trade again. Being able to SHORT is very important for one other reason. When prices rise, they rise slower than when they fall. When prices rise, some weak traders will take profits. This translates into price pullbacks which slows down the ascend. But when prices fall during a correction, there is no buying support to slow down the decline. Instead, panic selling or indiscriminate throwing will accelerate the fall of a stock's price. Did you notice that a stock can take 1 month to rise by 50 cts but yet can lose half or more of that rise, in just one or two days? Now you know why. Becoz when prices fall, they fall faster than when they rise. Which means if you can SHORT, it will take you much, much lesser time to profit from that position than if you LONG.


    3. CFD is a leverage product. It offers margin financing. This is of course a double edged sword. It can make you, in good times. It can break you, in bad times. Margin is like fire. Control it...and it can serve you. And you can use it for cooking, lighting, heating, etc. But lose control of it and it can burn down your house and everyone in it. Margin gives me much needed additional firepower. But this additional firepower must NOT be used recklessly. Or it will wipe you out in just one bad trade.

    Take UOB as an illustration. If I want to LONG 50 lots of UOB at $20.94 with an online Cash Account, how much must I have to pick up those 50 lots? $1,047,000 !!! But at 10% margin, to do the same with a CFD Account, I need only to put up with $104,700. And when will I do a trade like this. Certainly not when UOB is trading at $20.94. Maybe, if UOB is trading at $20.00. Better still, if she is trading at $19.00. If the market should go into a minor correction, we may see UOB fall to $20.00 or below $20.00. If the correction is very nasty, we may then see $19.00 to $19.30. At this level, I will dare to LONG UOB when she starts to rebound. 50 lots to 100 lots is what I will be looking at. Coz if the entire market has bottomed out and the market is ready to stage its next rally, UOB will trade back up to $21.00. And if it coincides with Earnings Reporting Season and dividend announcement, UOB can continue her rally towards $22.00. A move from say $19.30 to $22.00 is $2.70. This can happen within 1 to 2 months. A trade of 50 lots will yield $135,000. And if you have enough capital to do a 100-lot trade, your harvest is $270,000. Far fetched? Look at the chart of UOB for the last 1 year and you will know what I mean. You can make money from her Big Moves. You just have to be patient to wait for her to Bottom Out (to LONG) and to Top Out (to SHORT).


    Scanning The Market

    In any market across any time frame, there are ways to make money. We just have to FIND them. And understand what kind of set up must occur before a profitable trading window opens up. And then patiently wait for it to appear. And when we see it, to act immediately to seize the opportunity. Hence, over the weekends, I scan the market to look for such money making opportunities.....and their set ups. Sometimes I find a couple. Sometimes I dont. It is not all the time that such set ups will occur. We just have to be patient. Afterall, we dont have to trade everyday. Trade only when it is easy to make money. And it is easy to make money when those money making set ups appear.
     
    Last edited: Nov 30, 2013
  4. nottibird

    nottibird Moderator

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    How Not To Lose Money In The Market?

    When do we lose money?
    When we cut.
    As long as we dont cut, we wont lose money.
    So try to reduce cutting loss in our trades.
    That way, we also reduce losing money.
    And how do we do that?
    By buying/shorting stocks which will "Never Fail To Come Back" up or down.
    Timing is very important.
    LONG a stock when it is near its bottom.
    Meaning...downside is limited and a reversal should be nearby.
    That way, if the price continues to dip after you have LONG it, you dont have to cut.
    You can LOON and wait for it to reverse.
    Then add positions after the reversal comes.
    Likewise, SHORT a stock when it is near its top.
    Meaning....upside is limited and a correction should be nearby.
    If you SHORTed too early, you dont need to cut.
    Just LOON and wait for the stock to top out and come back down.
    Then add SHORTs when the correction comes.

    As long as you never need to cut, you will never have to take a loss.
    And as long as you never have to take a loss and you LONG or SHORT a Never Fail To Come Back stock,
    your positions will sooner than later become profitable. And you will consistently make money in this game
    in the long run.


    Professor JohnPaul has been doing this for decades.
    Mother Hen Adonis also has been using this strategy for many years.
    And both of them are living off the market.
    That speaks volume about how workable this strategy is. :yes:

    Try it.
    Change your perspective about trading.
    Change your strategy.
    And change your trading outcome.
    And your life.
    And the lives of your family as well.

    The gist of the above message is "As long as you have a trading strategy which does not
    require you to cut, you will not lose money" and
    it is aptly demonstrated by a recent
    conversation between me and adonis and JohnPaul.

    And bear in mind the two traders who agreed with me are the very ones who never cut loss and are living off the market. :yes:

    I hope to join them soon. View attachment 14999
     
  5. nottibird

    nottibird Moderator

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    How To Ensure Your Order Is Filled During Pre-Opening/Closing ("PO/PC")

    The PO/PC Software is programmed to obey the following Rules:

    1. No buyer will be matched at a price higher than his BUY order.
    2. No seller will be matched at a price lower than his SELL order.
    3. Buyers offering to BUY at a price higher than the indicative price will be matched first.
    4. Sellers offering to SELL at a price lower than the indicative price will be matched first.
    5. The final matched PO/PC price will be the price which will match the most number of orders.

    If say the indicative price is $10.00 and there are more buyers than sellers, all the sellers will be
    matched at $10.00. But not all the buyers will have their orders filled. If say there are 100 buyers
    at $10.00 but only 80 sellers at that price, only 80 out of the 100 buyers will be matched at $10.00.
    The remaining 20 buyers will see their BUY order "Not done". So in this example, if you are a buyer
    and you want to be matched, be the first 80 buyers in the queue at $10.00. If you are the 81st
    to 100th buyer, you will NOT be matched. Becoz there are only 80 sellers at that price. So how to
    ensure that you are the first 80 buyers in the queue at $10.00? By offering to BUY at $10.01. That
    way, you will jump the queue and be matched ahead of all other buyers who offered to buy at $10.00.
    Likewise, a buyer who offers to buy at $10.02 or higher, will be matched ahead of you becoz he is
    offering a BUY price higher than yours.

    Using the same above example, if there are 80 buyers and 100 sellers at $10.00, all the buyers will
    have their BUY order filled. But only the 1st 80 sellers in the queue at $10.00 will be matched. The
    remaining 20 sellers will see their orders not filled. So if you are a seller, do not be the 81st to 100th
    seller in the queue. Offer to SELL at a lower price, say, $9.99 and hope to be matched at $10.00. By
    offering a lower price, you will jump queue ahead of all other sellers who offer to sell at $10.00. And
    a seller who offers to sell at $9.98 or lower will jump queue ahead of you.

    As the indicative price do change whilst PO/PC is in progress right until the cut-off time, you need to
    keep watching the indicative price to see if you need to increase your BUY price or lower your SELL
    price to ensure that you are ahead of the queue. Of course, you must be mindful that you could end
    up being matched at the price you offered and you will have to live with it. So if the indicative price
    keeps moving and is beyond your target price, you will have to stop chasing it.

    Quite simple, isn't it? Now you know how it works. [​IMG]
     
  6. nottibird

    nottibird Moderator

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    PLEASE DO NOT POST HERE

    This is NOT a discussion thread. This is my Cyber Storeroom, a convenient place to keep my own postings and
    other trading reference materials for easy access and recollection.

    If you wish to discuss the contents of anything found here, please cut and paste the material at The Trading Floor
    and post your query and comments there for discussion.

    THANK YOU
     
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