Slow Trader

Category: Medium-term trading

  • New funds to trade

    All traders look for an edge, an ideal way to enter, manage and exit a trade.

    It is crucial that a chosen edge suits us individually too.

    The time-critical stress of the day traders world is probably not for everyone. Nor, for others, the weeks or months of being out of the money, as in the longer time frame deals.

    However, if we have the time, the knowledge and the inclination we might be comfortable trading in both disciplines.

    More than this, one helps to condition the other. In day trading we have learnt the art of the identification of a likely trade. In longer-term trades, we appreciate the need for trade management and a requirement to ignore emotion and the uncanny ability to hit targets when we are not necessarily observing the trade moment to moment.

    A big supporter of the commitments of Traders (COT) report, not everyone is as it is infrequent in its signals and notoriously broad in its message. However, with longer bets, as a ‘conditional’ trader, the COT provides arguably the only edge that is not in itself related directly from the price.

    Day trading has provided us with skills that can be coupled very well with the longer term charts and this, in conjunction with the COT, offers an exciting way forward.

    With additional funds coming in to trade, we looked at what would complement our day trades but not emotionally or otherwise interfere.

    Significant commodities and a selection of currencies traded from weekly charts in unison with the COT is our chosen direction.

  • Margin, a big deal?

    Margin, or deposit requirement, in financial trading, is the good faith amount that we need in our trade account to cover a deal. The margin is not a loan, but rather a means to cover a loss.

    If we wanted to purchase a stock or share from a traditional broker, and the value of that purchase is £5,000, then we’d need £5,000 available in our account to complete the deal.

    A financial spread bet, or derivative based account, is a leveraged account and only a ‘margin’ of the full-trade amount is needed.

    Take Sterling versus the dollar for example, a trade of £5 per pip, at the current value of this market, without a leveraged account, would cost £67,500.

    However, we are only required to cover the broker’s margin.

    (A margin rate of: 0.5% to 1.5% is common in FOREX and 5% in stocks and shares; but each of these can vary significantly if a market becomes non-liquid or volatile)

    A margin rate of say 1% would require an account to hold £675 for the £5 per pip example.

    £5 x 13500 x 1% = £675 margin (This is a non-stop calculation, a with-stop calculation reduces the amount)

    If the trade goes against us, however, the margin requirement increases. Therefore, a good amount more than £675 is required to comfortably cover the trade.

    It is easy to see how novice traders could get into financial trouble if they lose sight of the overall risk of such trades.

    Probably why margin rates are on the increase to retail traders.

  • The Long, the Medium and the Short

    There are many different views, for lots of good reasons, as to what defines a trade period. But let’s try this:

    Day trading, as the word suggests, is a trade that is entered and exited within the same day. Mostly this will be technical trading, but could be news or event based.

    Short-term trading is again primarily technical; but could include fundamental, news and event based criteria. Usually one day out to several months.

    Medium term could be 9 months (as defined by Peter Lynch as the period beyond which fundamental information provides all the influence) out to several years.

    Between medium term and long-term we see a gap. A sort of no man’s (or women’s) land.

    A large correction, substantial pull-back or crash (call it what you will) happens between 7 and 15 years. Historically not before 7 years, but could be more than 15 years.

    So, lets take 15 years as a guide. For our ‘long term’ investments to survive, to grow, they may have to outlast a couple of crashes. That takes the longer term to 30 years, or thereabouts, depending on the date of purchase of the investment relative to a previous crash.

    It makes sense therefore that investment money that is needed for a pension ought not to be invested over the medium term some 7 to 15 years from a previous crash.

    2008 was our last crash, so between 2015 and 2023, or until the next one, it might be prudent to only invest short-term or longer term.

    And, we would say long-term only with excellent value equities probably purchased prior to 2015.

  • Margin to increase for retail traders

    We have been awarded professional client status by our brokerage.

    To be classified as a professional client the qualification is 2 out of the following 3 statements below:

    1. Carried out CFD, spread betting or forex, in signicant size, at an average frequency of 10 per quarter over the previous four quarters
    2. An investment portfolio (including cash deposits and financial instruments) exceeding €500,000
    3. Work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of CFDs, spread betting or forex

    Why is professional client status a big deal? Because margin requirements will increase substantially for ‘retail traders’; for professional clients they will not.

    What is ‘margin’?

    • It is a good faith deposit that a trader puts up for collateral to hold open a position.
    • It is not a transaction cost, but a portion of our account equity set aside and allocated as a margin deposit.
    • When trading with margin the amount of margin needed to hold open a position is determined by trade size. As trade size increases, margin requirement increases.

    This has no effect, however, on our usual spread payment: which we consider as a true identification of a retail trader. If we pay a standard spread then by definition we are retail traders.

    Institutional proprietary traders (or ‘prop’ traders as they are known) trade the firms money (not clients money) and often at a reduced spread cost, or no cost at all. They are, to our mind, non-retail traders.

    But to be considered a professional client, and thereby maintain a desirable margin commitment, is great.