TV show about trading

[arabianights]

as far as I can tell cash equities

 

[Skill Leverage]

In the 'millionaire trader', are they trading CFDs/Spreadbetting or something else altogether?

As far as I can see they are trading BBC News 24

 

[dilesh23]

"No wonder the regulators shortly afterwards banned shorting stocks like HBoS and B&B"- Richard Northedge

yep does sound pretty naive considering eveyone knows the hedge funds were still at it (short ftse/long each individual stock apart from banks) ...the only people who were left out in the cold were the ones who spent their life savings building up a stake in their local bank after hearing of year after year of record profits and were left no realistic opportunity of hedging their own position by shorting them by spread betting etc and left with the only option of holding on to them or selling at a huge loss.

And on that note id still prefer to think my moneys coming from some hedge fund wideboys second Ferrari money rather then Mr. Average Joes nest egg ..... maybe that makes me the naive one :|

 

[zupcon]

I was thinking that a possible trading strategy would have been to place the exact opposite trades that these people where trading??
It would have been very profitable.

I really have to disagree. They where trading essentially random punts, and doing the opposite of a random punt is essentially just another random punt.

The opposite of a losing system is NOT a winning system. This and many other boards discuss this same issue on a very regular basis

 

[rickoneeleven]

as far as I can tell cash equities

Sorry, my question was more focused around, what type of account would one require to trade in a similar fashion.

Would it be a CFD/Spreadbetting account or Share Dealing Account?

Thank you
Ryan

 

[Jaydee]

isn't every way of earning money some kind of exploitation of something? or some kind of gamble?

Depends on how you look at it. Typically, money is created by adding value to something. E.g. Take a tree, cut it down and turn it into planks of wood, now turn those planks into a table - the table is now worth more than the raw material used to create it.

Trading itself creates no wealth, it mearly exchanges risk between two or more parties, the outcome of which is the transfer(not creation of) wealth. Interestingly enough, the woman on the show who sold short TATE made the comment that she didn't like the idea of profiting from someone else's loss - she misunderstood that even if she had gone long, she would have been doing the same. The typical misconception that long is ok and socially and economically acceptable whereas short isn't and why we have this stupid short sell ban.

Anyhow, enough ethics from me - happy trading all...

 

[PokerBrat]

And on that note id still prefer to think my moneys coming from some hedge fund wideboys second Ferrari money rather then Mr. Average Joes nest egg ..... maybe that makes me the naive one :|

Dilesh, how do you make money trading? From other traders. How do you make successful trades? You act opposite to unsuccesssful traders. For evey winner there has to be an equal and opposite loser.

When you see the price retrace to resistance after breaking down through it, you know that the smart thing to do is to sell that stock. Given that every sale requires a buyer, who do you think is buying that stock as it comes back into resistance in the context of a downtrend?

The hedge fund manager or the poor amatuer sap who is investing his own limited money?

Trading is a zero sum game, the money comes from the losers who don't know what they are doing. I doubt very much that you are making your money from the institutions and professional funds.

It is the same as at the poker table. First thing you do is identify who the live one is, then you target him relentlessly and take his money. Having a conscience about whether or not he is some poor pensioner gambling away his last savings or some hotshot Ferrari driver has no place in that environment.

No one is forcing them to be there.

 

[Jaydee]

Sorry, my question was more focused around, what type of account would one require to trade in a similar fashion.

Would it be a CFD/Spreadbetting account or Share Dealing Account?

Thank you
Ryan

The latter, but you would not be able to go short with this account as there are legal issues where UK retail participants can't short the market in it's purest cash equity form. To get around this many use spreadbetting and CFDs.

The reason why the show can short cash equities in this capacity is that they will be trading as a member firm of the LSE - member firms are not affected by this restriction.

 

[rickoneeleven]

The latter, but you would not be able to go short with this account as there are legal issues where UK retail participants can't short the market in it's purest cash equity form. To get around this many use spreadbetting and CFDs.

The reason why the show can short cash equities in this capacity is that they will be trading as a member firm of the LSE - member firms are not affected by this restriction.

Ahhh thank you for that answer, it has certainly corrected my train of thought, as I thought they must be using a CFD account because they could short.

So, my only remaining question is, why would one trade actual shares with a £7 commission each time, rather than use a CFD? However, whilst asking it I believe I may have the answer.

I guess because these people are dealing with larger sums of money, the £7 commission is much smaller than the value of the spread.

Thank you

 

[Jaydee]

Ahhh thank you for that answer, it has certainly corrected my train of thought, as I thought they must be using a CFD account because they could short.

So, my only remaining question is, why would one trade actual shares with a £7 commission each time, rather than use a CFD? However, whilst asking it I believe I may have the answer.

I guess because these people are dealing with larger sums of money, the £7 commission is much smaller than the value of the spread.

Thank you

It's actually to do with the time period you hold the shares for. With cash equities, unless you are a member firm, you have to pay 0.5% stamp duty on each purchase. With CFDs you don't but, because they are leveraged and you only have to put up a deposit (margin), you will be charged interest on the amount of money you borrow from your broker to make the purchase.

Therefore, use cash equities for investments where you plan to hold for a period of time (see below), and cfds for shorter term trading (or going short).

The maths behind it is pretty simple and involves the base interest rate. Most cfd firms charge interest +/- 2 over/under the base rate.

You need to work the CFD funding cost vs stamp duty:

E.g for a long position:

0.5% = (d/365) * (base + additional charge) = (d/365) * (1.5 + 2.0)

0.5 = 3.5d/365
(365 x 0.5)/3.5 = d
d = 52 days

Therefore, if you plan on holding longer than 52 days, at current interest rates, you should use cash equity rather than the CFD.

 

[stevespray]

I watched the show and was quite frankly appalled by what I saw.

During the meltdown in financials in late 2008 a few of the national newspapers effectively conducted a witch-hunt of so called ‘spiv traders’ on the grounds that traders were benefiting because prices were falling. The show has so far done nothing to explain how markets work and indeed why prices move in the manner which they do. On top of that they’ve left the audience to conclude that selling short is in some way cheating or unethical.

Having watched episode one I’m struggling to see what the aim of the show is. Is it merely an attempt to create a stressful environment and then study how people react to certain situations?
I’m asking myself why these people are using Bloomberg equipment, which would cost thousands of pounds a month to maintain, whilst only trading a few hundred shares at a time in FTSE stocks?

Early on in the show I concluded that none of the trades were actually being placed in the real market but instead were just being bucketed somewhere – did anyone else consider this?

Let’s be honest here, if you really wanted to make some money then you could just get a group of people in a room like this and then do the exact opposite in terms of the trades. Has anyone considered that this is what the experiment could be about? My suspicions to this were aroused after a huge amount of pressure was placed on members of the team to actually make trades. People in that situation will make worse and worse trades so if you’re taking the other direction then you’ll be even better off.

Any thoughts?

Steve.

 

[dilesh23]

ahhh the old if your a mediocre trader ....find a really bad one and do the opposite of him :smart:

anyone requiring my services in this aspect ... all offers will be entertained for a % :cheesy: just dont blame me if you end up losing alot

 

[Jaydee]

I watched the show and was quite frankly appalled by what I saw.

During the meltdown in financials in late 2008 a few of the national newspapers effectively conducted a witch-hunt of so called ‘spiv traders’ on the grounds that traders were benefiting because prices were falling. The show has so far done nothing to explain how markets work and indeed why prices move in the manner which they do. On top of that they’ve left the audience to conclude that selling short is in some way cheating or unethical.

Having watched episode one I’m struggling to see what the aim of the show is. Is it merely an attempt to create a stressful environment and then study how people react to certain situations?
I’m asking myself why these people are using Bloomberg equipment, which would cost thousands of pounds a month to maintain, whilst only trading a few hundred shares at a time in FTSE stocks?

Early on in the show I concluded that none of the trades were actually being placed in the real market but instead were just being bucketed somewhere – did anyone else consider this?

Let’s be honest here, if you really wanted to make some money then you could just get a group of people in a room like this and then do the exact opposite in terms of the trades. Has anyone considered that this is what the experiment could be about? My suspicions to this were aroused after a huge amount of pressure was placed on members of the team to actually make trades. People in that situation will make worse and worse trades so if you’re taking the other direction then you’ll be even better off.

Any thoughts?

Steve.

Hi Steve

It's been suggested that someone else is paying the bill for the terminals because they are so expensive when compared to the losses the group is making.

Regarding the idea of being forced to trade - I'm in two minds on this. I can see your point about forcing people to trade only forces them to punt wildy in the market. But, the other thought is, if a person won't trade through fear of losing, the best way to fix that is to get them to make trades and build their confidence by showing it is nothing to fear. They certainly don't get any benefit sitting there shaking and just looking at the screen saying, "I wish I had bought".

Yes, the way the market shorting was portrayed was a disgrace. I mentioned earlier about the women feeling bad about shorting TATE because it's counter productive for the company and a person loses money by doing it. The latter is true, but that is also true for going long. The former is complete nonsense because the company gets money from the initial float of the shares, it does not profit or lose money directly from the market fluctuations. The directors may lose money on their share holdings and the employee share scheme will be affected but the company profitability has nothing to do with the share price.

 

[rickoneeleven]

It's actually to do with the time period you hold the shares for. With cash equities, unless you are a member firm, you have to pay 0.5% stamp duty on each purchase. With CFDs you don't but, because they are leveraged and you only have to put up a deposit (margin), you will be charged interest on the amount of money you borrow from your broker to make the purchase.

Therefore, use cash equities for investments where you plan to hold of a period of time (see below), and cfds for shorter term trading (or going short).

The maths behind it is pretty simple and involves the base interest rate. Most cfd firms charge interest +/- 2 over/under the base rate.

You need to work the CFD funding cost vs stamp duty:

E.g for a long position:

0.5% = (d/365) * (base + additional charge) = (d/365) * (1.5 + 2.0)

0.5 = 3.5d/365
(365 x 0.5)/3.5 = d
d = 52 days

Therefore, if you plan on holding longer than 52 days, at current interest rates, you should use cash equity rather than the CFD.

Thank you for such a detailed response. Appreciate your time spent on this.

Thanks again
Ryan

 

[stevespray]

Regarding the idea of being forced to trade - I'm in two minds on this. I can see your point about forcing people to trade only forces them to punt wildy in the market. But, the other thought is, if a person won't trade through fear of losing, the best way to fix that is to get them to make trades and build their confidence by showing it is nothing to fear. They certainly don't get any benefit sitting there shaking and just looking at the screen saying, "I wish I had bought".

The market has a very nasty habit of sucking people in. The "I wish I had bought" feeling is just one feeling, there are many others like "Why didnt I get out at the stop loss?", "Why did I let a good profit turn into a loss" and "Why did I enter this trade in the first place?"
Each time, if you let it, the market will teach you to react in a certain way. Take ignoring a movement against your position as an example. How many times have you seen it? You sit there in a trade and it goes against you so you get out sharpish. Then it happeneds again and again. But then when you check the chart later you see that on each occasion the price rebounded so you see that if you had held on you could have taken a small profit instead of the loss. So next time you're in a position and it goes against you you decide to sit tight. And of course we know what comes next - the market doesnt rebound and instead goes further against you. Before you know it you're sitting on 4x the initial loss. It's like the market knew that you wouldnt close. The same goes for taking profits. Each time you close a winner it keeps going and going after you're out of it. Then, the time you decide to try and run it, it comes right on back and BANG all your profits gone.

That's really all this TV programme is going to turn into. A series of situations where the 'contestants' don't really know what they're doing and therefore end up getting caught out.

Can you predict what is going to happen the first time that old guy gets a trade which goes in his favour? Will he run it or will he close it quick?

Steve.

 

[Mr. Charts]

Maybe not as easy as that.
He'll either close it for a small profit and think he's a genius who has cracked it, OR he'll wait hoping it'll rise further then watch it turn back into loss
Then think he's been "cheated" somehow
Richard

 

[gooseman]

Dilesh, how do you make money trading? From other traders. How do you make successful trades? You act opposite to unsuccesssful traders. For evey winner there has to be an equal and opposite loser.

Trading is a zero sum game, the money comes from the losers who don't know what they are doing. I doubt very much that you are making your money from the institutions and professional funds.

No one is forcing them to be there.

not necessarily the case. two people can enter a trade (an option trade for example), manage it differently and both come out with a profit.

 

[stevespray]

not necessarily the case. two people can enter a trade (an option trade for example), manage it differently and both come out with a profit.

But by definition won't there be a third person involved? Because its an option you'll always need a counterparty in the deal. If two people are dealing in one option then its fine because one can buy what the other sells but if, at any point, one of the two people have an options exposure when the other one doesnt hold the opposite then a third person must be involved.

Steve.

PS The value of something is perception pure and simple. There is no actual 'money' as such but only a perception of money.

 

[gooseman]

yeah-your futures hedges etc will involve others

 

[gamma]

Trading is a zero sum game, the money comes from the losers who don't know what they are doing. I doubt very much that you are making your money from the institutions and professional funds.

Trading is not a zero sum game.
If it was just as simple as that the market would grind to a halt very soon.
Pension fund managers do not sit there waiting for for mugs so they can rob them.
When you invest in shares or bonds you are not robbing someone.You invest money which hopefully grows.
When you trade currencies you might be buying the currency of a country in order to invest in that economy through buying shares or bonds or you might simply be buying that currency because you want to move there.
Large companies might be hedging at a price to ensure the price they pay for raw materials etc are contained.
Anyone who thinks trading is a zero sum game should has a very limited knowledge of the market.