Forex Trading

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Euler
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andyfuller wrote:It would have been great to have something like it in sports markets but due to the issue with scale it never will happen - it would have been interesting to have seen the reality v some of the fiction that is posted on the internet.
My main problem nowadays is getting a position in and out of the market without disrupting the market it and it seems easier than ever for that to happen. So I can't see how it would work in sports markets.

As you also mention, the market is small but flattered by people pretending to be something they are not which makes it look larger than it is. Thanks to this I still get a lot of stick despite actually being a large participant whom people mistake me for one of those guys! #frustrating
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megarain
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Do you mean by this the ability for your trades as a follower to be placed automatically in line with the tipster? Or is it something else?
I haven't tried, but think the process is :

Tipster has his bet on the software.

Lists tip on site.

Tips get sent to followers, as an input file.

Software automatically picks it up, and places trade, with your criteria (so, if he makes it a 2 point bet, it allocates funds accordingly )

For in-play mkts, it might be tricky - but, pre, can't really see many issues.
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Euler
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megarain wrote:Software automatically picks it up, and places trade, with your criteria (so, if he makes it a 2 point bet, it allocates funds accordingly )

For in-play mkts, it might be tricky - but, pre, can't really see many issues.
Straight tips would work, but it may just be survivors that bubble to the top of the lists.
xitian
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Regarding scalability of sports vs financials, I think it depends what markets you're talking about. I effectively run statistical arbitrage on sports, and the closest thing there is in financial markets would be trading shares. i.e. Large numbers of (reasonably) independent runners which I can place many different bets on to create a consistent return.

However with shares, I think the scalability is debatable at medium frequency or lower (unless you start using more complex order placement algorithms). It's not uncommon to see market makers quoting Apple shares with a volume of 200 shares. They basically want to see you from a mile away if you want to place any sort of decent sized trade.

However, if you're talking something like forex or index futures then sure, the volume is likely massive. But my view is that the more you scale in one specific instrument (rather than scaling by diversification) the more risk you're taking. So with forex or futures, sure you can get a huge absolute return especially if you leverage, but you can also have huge risk.

Sports will still be the only market where I can generate over 1000% return in 1 year with close to zero risk.

I might change my opinion one day, of course. But that's just my current feeling. I've still yet to pick marksmeets' brain about it. I get the impression he probably has some ideas to alleviate some of my concerns. Andy, perhaps you have some ideas as well? I'm basically about talking ways to trade, effectively unmanaged (in my case automated, rule based), which is what I do with sports right now.
andyfuller
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megarain wrote: I haven't tried, but think the process is :

Tipster has his bet on the software.

Lists tip on site.

Tips get sent to followers, as an input file.

Software automatically picks it up, and places trade, with your criteria (so, if he makes it a 2 point bet, it allocates funds accordingly )

For in-play mkts, it might be tricky - but, pre, can't really see many issues.
Sorry I miss read your original post and thought you were talking about financials and not sports. I didn't realise this was becoming available in sports trading.
xitian wrote:Regarding scalability of sports vs financials, I think it depends what markets you're talking about.
I think that is a fair comment - I was generalising which I shouldn't have done so, many financial markets you can still run into issue with scale.
xitian wrote:Andy, perhaps you have some ideas as well? I'm basically about talking ways to trade, effectively unmanaged (in my case automated, rule based), which is what I do with sports right now.
I couldn't help you with regards to automation - it is one area I have never looked into be it sports or financials - I wish I had back in the day on sports markets as even with the PC it would have been worth carrying on with getting 40% as opposed to having 100% of nothing.
xitian
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andyfuller wrote:
xitian wrote: Andy, perhaps you have some ideas as well? I'm basically about talking ways to trade, effectively unmanaged (in my case automated, rule based), which is what I do with sports right now.
I couldn't help you with regards to automation - it is one area I have never looked into be it sports or financials - I wish I had back in the day on sports markets as even with the PC it would have been worth carrying on with getting 40% as opposed to having 100% of nothing.
I suppose I'm not necessarily looking for automated. I'd just be looking for relatively hands-off or unmanaged. Basically I don't want to have to be on the button ready to sell within seconds if some kind of news breaks which I need to react to. However I'd still like to have a sizeable portfolio (in value regardless of what it's formed of) with close to zero risk. Yes, of course that's what everyone is looking for, but I'd be happy to hold for a long term or adjust/rehedge at a medium frequency if needed.

I think the only way to achieve low risk but maintain any sort of return is to either: have massive diversification (i.e. stat arb) with automation, or be manually trading and sitting at the computer all day.

PeterW, surely this is exactly what you're trying to do now too. How much risk would you say your financial investments have? And how hands-on are you? Or perhaps you have people managing your investments for you?
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Euler
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xitian wrote:PeterW, surely this is exactly what you're trying to do now too. How much risk would you say your financial investments have? And how hands-on are you? Or perhaps you have people managing your investments for you?
I've gone down the long-term investor route. I've also teamed up with an activist investor in the US. So we are putting all our work into the front end of the investing and just waiting for returns from there. It's much less stressful than trading!
xitian
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Isn't long term investment fairly risky too if you're not carefully watching the portfolio? There's so much crap going on in these big companies that you have no idea what's going to happen next. Just look at the banks, Tescos, VW, Samsung to an extent...

Is an activist investor a bit like private equity then? I suppose an activist investor isn't buying purely to look for an exit plan but for the long term returns? And if you're on the board or own a controlling stake in the company then you have more knowledge about what it's doing and what its prospects are, or have an influence in that I guess.
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marksmeets302
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By owning pieces of many, many different companies the law of large numbers sets in. You will own shares in companies that committed fraud, but also in companies that have positive surprises. It all evens out. I agree with Peter that long term investing is much less stressful.
andyfuller
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xitian wrote:[I suppose I'm not necessarily looking for automated. I'd just be looking for relatively hands-off or unmanaged. Basically I don't want to have to be on the button ready to sell within seconds if some kind of news breaks which I need to react to. However I'd still like to have a sizeable portfolio (in value regardless of what it's formed of) with close to zero risk.

...

I think the only way to achieve low risk but maintain any sort of return is to either: have massive diversification (i.e. stat arb) with automation, or be manually trading and sitting at the computer all day.
I would say it sounds like you want long term investing not automation and/or sitting at the computer all day. Both of those sound very short term and high risk - the opposite of what you think they currently are.
xitian wrote:Isn't long term investment fairly risky too if you're not carefully watching the portfolio?
Long term investing is the least risky imo. I would suggest the opposite of watching the portfolio carefully for long term investing - the idea is to buy and hold not buy and constantly be checking and reacting to every bit of news. Doing that is likely to damage your portfolio very badly over the long term.
xitian wrote:Is an activist investor a bit like private equity then? I suppose an activist investor isn't buying purely to look for an exit plan but for the long term returns?
Activists from my experience tend to be looking more short/medium term than long term. They see something they think isn't being done correctly and look to get it corrected and make their money that way. One of the most well known being Carl Icahn.

This episode of the Bottom Line was on just last night:

Activist Investors

Are activist investors good or bad for the firms they target? They hunt down companies they think are underperforming. They buy a stake in the business, then lobby for change. Critics say activists want to make a fast buck and then head for the exit. But you could regard these investors as doing a valuable service - challenging poorly performing company boards and making more profit for shareholders. Top UK names like Rolls Royce and John Menzies have been affected. Explore the world of activist investors with Evan Davis. Joining him will be: activist investor, Harlan Zimmerman, senior partner at Cevian Capital; Chris Walton, a company chairman and non-executive director; and Sacha Sadan, director of corporate governance at Legal and General Investment Management.

http://www.bbc.co.uk/programmes/b07z728y

I also listen to all the Motley Fool Podcasts - highly recommend them if you are interested in long term investing:

http://www.fool.com/podcasts
xitian
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marksmeets302 wrote:By owning pieces of many, many different companies the law of large numbers sets in. You will own shares in companies that committed fraud, but also in companies that have positive surprises. It all evens out.
Aren't you almost equally better off just investing in an index tracker then? Or else you're basically saying you're able to pick out the better performing half of the companies. Wouldn't you be better than any fund manager out there if you can do that?

Had I invested all my money at once 32 years ago in the FTSE100, I'd have got on about 6.5% a year. If I had invested 20 years ago, I'd have only got only a year 3%. If I had built up my position slowly, I'd have got even less. Not hugely attractive to me for the risk involved.
andyfuller wrote:
xitian wrote: I suppose I'm not necessarily looking for automated. I'd just be looking for relatively hands-off or unmanaged. Basically I don't want to have to be on the button ready to sell within seconds if some kind of news breaks which I need to react to. However I'd still like to have a sizeable portfolio (in value regardless of what it's formed of) with close to zero risk.

...

I think the only way to achieve low risk but maintain any sort of return is to either: have massive diversification (i.e. stat arb) with automation, or be manually trading and sitting at the computer all day.
I would say it sounds like you want long term investing not automation and/or sitting at the computer all day. Both of those sound very short term and high risk - the opposite of what you think they currently are.
Sorry, let me reclarify. Last time, I promise. I'd be looking for the best investment ideas for:

- Relatively hands-off - i.e. mostly passive investment
- Good risk adjusted return - e.g. whether this be low risk with medium return or medium risk with high return
- Something which is scalable

Now let me cover where I think several options we've discussed already fall:

- My sports trading (automated) - mostly unmanaged, low risk, high return, pretty unscalable (or at least you quickly hit the limit and grow faster than you can invest)

- Medium frequency manual trading - actively managed, low to medium risk, medium to high return, high scalability

- Long term investing - debatable about how managed/unmanaged it can be, risk is relatively low if you can build a diversified portfolio so let's say low to medium, returns are also debatable (i.e. depends on your picks) let's say low to medium, very high scalability

- Activist investing - a lot of work initially, but then mostly unmanaged, medium risk (because you could lose big and you're unlikely to have loads of different investments), returns potentially very high, very scalable

That's quite generalised of course, but perhaps what I need to do is pick out sub-categories, or specific ways of doing things in the above categories to achieve that slightly better risk/return. Does the way I'm framing the problem make sense though?

Perhaps it's one of those things where if there were a clear answer then everyone would be doing it. In which case, perhaps I should add another criteria which is - possible to be learnt through hard work, reading and practice. For example, long term investing could fit my requirements if I manage to achieve low risk, medium return and relatively hands-off, but the big question is can you really learn to be a good long term investor? Or is the fact that it takes 20-30 years for an investment too long to allow for learning by practice? You won't know whether you're good or bad until it's too late already because it takes you most of a life-time for one attempt.
andyfuller wrote:Long term investing is the least risky imo. I would suggest the opposite of watching the portfolio carefully for long term investing - the idea is to buy and hold not buy and constantly be checking and reacting to every bit of news. Doing that is likely to damage your portfolio very badly over the long term.
I do get that. Trying to second guess everything every day when you have a long term goal is definitely going to be detrimental, let alone considering the transaction and spread costs. However, isn't long term investing basically fundamental value investing? So you're looking for something which is intrinsically cheap, and hope that over the long term you get good value for your money (people will see its value after you). Now should that value change for some reason if new information comes to light - VW cheating on their manufacturing, Tescos cooking their books, etc... Don't you have to re-evaluate your original decision about what value those shares hold? Sure you don't hold a position in shares or your trade on a horse, if you think the value isn't there any more because the situation has changed. In which case don't you have to continually re-evaluate your holding/bets even if they are long term?
andyfuller wrote:Are activist investors good or bad for the firms they target? They hunt down companies they think are underperforming. They buy a stake in the business, then lobby for change. Critics say activists want to make a fast buck and then head for the exit. But you could regard these investors as doing a valuable service - challenging poorly performing company boards and making more profit for shareholders.
Does pretty much sound like private equity to me? Not sure what the difference is. Perhaps the scale?
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megarain
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My OP (opening post), trader, is having a bad day.

Interesting to see how he gets out of it :
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andyfuller
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xitian wrote:Aren't you almost equally better off just investing in an index tracker then? Or else you're basically saying you're able to pick out the better performing half of the companies. Wouldn't you be better than any fund manager out there if you can do that?

Had I invested all my money at once 32 years ago in the FTSE100, I'd have got on about 6.5% a year. If I had invested 20 years ago, I'd have only got only a year 3%. If I had built up my position slowly, I'd have got even less. Not hugely attractive to me for the risk involved.
There is a lot to be said for just going for a very low cost index trackers - most funds do not out perform them and individuals are also unlikely to outperform them. But people in my experience to date don't tend to like trackers, one of the main reasons being that people think they are better than they are at stock picking. The FTSE100 isn't the most diverse tracker to invest in as it is quite highly weighted in certain sectors.

A combination of trackers and stock picks is a better happy medium.

Dollar cost averaging is by far the best way of opening a long term position imo as it removes the issue of timing your entry.

xitian wrote:That's quite generalised of course, but perhaps what I need to do is pick out sub-categories, or specific ways of doing things in the above categories to achieve that slightly better risk/return. Does the way I'm framing the problem make sense though?
Yes that makes sense.

I would say you can forget about activist investing unless you have a hell of a lot of money - reason being your vote scale is likely to be meaningless and you won't be able to get on the board to make changes.

I guess Peter is doing his within a fund that has substantial resources.
xitian wrote:perhaps I should add another criteria which is - possible to be learnt through hard work, reading and practice. For example, long term investing could fit my requirements if I manage to achieve low risk, medium return and relatively hands-off, but the big question is can you really learn to be a good long term investor? Or is the fact that it takes 20-30 years for an investment too long to allow for learning by practice? You won't know whether you're good or bad until it's too late already because it takes you most of a life-time for one attempt.
Your scale of long term investing at 20-30years is not what I class as long term investing. For me as a rough rule I class anything 5years+ as long term. So it should be perfectly feasible to get a good hand on if you are any good at it, also you will start to get a good idea well within the first 5 years.

Likewise I don't understand your thinking about needing to be hands on with long term investing, imo you want to behave the exact opposite and timing the price entry/value isn't how I go about looking for long term investments - price comes well down the list due to the time period I am looking to hold for.

I will happily buy a stock at its all time high if I think it is suitable.

xitian wrote:However, isn't long term investing basically fundamental value investing? So you're looking for something which is intrinsically cheap, and hope that over the long term you get good value for your money (people will see its value after you).
For me that isn't how I approach long term investing but I am sure many do. I am much more along the lines of the Motley Fool in terms of how I look at investing and would highly recommend spending time listening to their many free podcasts.

The Rule Breaker ones are an excellent place to start and listen from the first episode:

http://www.fool.com/podcasts/rule-breaker-investing/

Also I would look at many more areas of investing than just sports markets and financials.

I don't know how old you are but with life expectancy as it is now a days you are likely to have decades ahead of you to invest and take advantage of the 8th wonder of the world...compounding.
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marksmeets302
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Xitian, just to give an opposing view, to help you choose which type of investor you want to become: I'm not in the business of outsmarting people on valuing companies. To be honest, I don't think I can. That's why I like to be in all companies at once. By doing that it becomes a numbers game where I do know a thing or two. So my focus is elsewhere. I try to estimate volatilities, correlations and (to a much lesser degree) returns in order to build a portfolio that suits me. It's an entirely different game, in which stocks play an important but not exclusive role. A role that is further simplified by not having to worry which companies to buy - I just buy them all.

This doesn't mean such a portfolio doesn't need maintenance. It does, just not on the scale that I'm buying and selling like a madman every day. I usually do about 10 trades per quarter - often just to roll futures to new expiration dates and rebalance a little bit here and there.

Key word in the above is "I don't think I can". For those who know how to read balance sheets it might be rewarding to pick individual stocks. Or people that play golf with the CEO etc. I agree with Andy, for the majority of people buying a simple index fund is probably smarter.

It sounds like you need to be a billionaire to own that many different shares, but it can easily be done nowadays with index ETFs: you can buy the entire S&P500 for 200 dollars. It's very cost effective. Once you scale up to futures it's even cheaper, you buy about $100.000 value of S&P for just 2 dollars :-)
xitian
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andyfuller wrote:The Rule Breaker ones are an excellent place to start and listen from the first episode:

http://www.fool.com/podcasts/rule-breaker-investing/
Thanks for the links. I'll definitely take a look!
andyfuller wrote: Also I would look at many more areas of investing than just sports markets and financials.
Yes, I'm always thinking about that too. I only consider financials because they're vaguely related to sports. In some ways very different though.
andyfuller wrote: I don't know how old you are but with life expectancy as it is now a days you are likely to have decades ahead of you to invest and take advantage of the 8th wonder of the world...compounding.
In my 30s. Yep, no better example than me starting with £500 on Betfair, and having over £10,000 by the end of my 4th month back when I started. I was compounding growth every day (increasing stakes), but quickly hit the limit.
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