Forex

Haha this blog just started and I am already behind in my blog posts – been busy at work and all.

I have been experimenting with Forex trading of late. For the uninitiated, forex trading is the short term trading of currencies, betting that one currency will appreciate against the other in the short term. Many factors influence why one currency appreciates against the other. These range from interest rate policy, announcement of trade figures, general doom and gloom stories from said country.

I have researched quite extensively into forex trading recently. I recall in March 2012 when I first started stock trading, I did look a little into forex trading. But honestly, the forex quote itself scared the hell out of me – add to the fact that forex trades were so highly leveraged (up to 98% omg!) – I simply swore I won’t touch forex and will start responsibly with good old stocks and blue chips. I decided to take a closer look at forex trading a year into my trading journey because I discovered a few things about myself during my first year of trading.

1)      I have a severe distrust of the market. I am trying to move to a buy and hold passive dividend income strategy, but usually my trades are short, never more than a year. I believe limiting exposure to the market is the best bet of all

2)      I am not very greedy. You know the saying “lets your profits run”? For me, as long as profits start to jog, I take them off the table.

3)      I buy risky stuff. For a first year investor, I have bought into dubious declare-massive-profits-but-no-dividends S chips, Myanmar counters, pennies. Actually that is quite bad. But I digress

4)      I can take massive portfolio draw downs. Stock lost 20% of value? Shrugs, let me look into averaging down.

From all this, I was just thinking that actually forex trading could suit me really well. It’s short term get in get out, very risky (which I can take) and I’m not greedy (so it rises tens of pips and then I’m gonna go). So all this led to me to exploring forex a bit more.

Ok, let me impress upon the reader that I am honestly quite shit at exchanging money. Like, I even have problems reading the quote at a money changer. So imagine my horror seeing a forex quote like this:

EUR/USD = 1.3077/1.3081

Wert. I’m never gonna master this.

But I read on and I began to realise some basics. For example, putting money in SGD banks gives you quite a shit rate yeah? But imagine converting SGD to AUD where the Aussie banks give you a better rate. You earn just on interest alone! [So I asked my hubs, why on earth doesn’t everyone in Sg convert all their spare SGD to AUD and earn the higher interest rate? He  mumbled something about interest rate parity and said that was something I should have known in J1 econs. But anyone knowing me during J1 will know that I pay close to no attention in econs class so obviously how would I even know about interest rate parity.] Anyway, apparently one of the basics of forex trading is something called the currency carry which means that if you use SGD and buy AUD, and you have an overnight position, you get the difference of the higher interest rate credited to you. It’s like wow. But of course that is assuming ceteris paribus no movement between the SGD/aud pair, which in a 24 hrs totally liquid forex market is not possible. So really, the appreciating factor of one currency vis a vis the other is of paramount importance here.

Ok So lets say you think EUR is totally going to depreciate against USD cos of all the horsemeat thing and the Italian elections. What you should do is short the EUR/USD pair which means you sell EUR to hold USD. So that next time you can use the AUD to buy back a weakened SGD and get more SGD! Few things to consider:

1)      Spread

Ok rmb the quote I put up there? EUR/USD = 1.3077/1.3081. The 1.3077 is the bid price and the 1.3081 is the ask price. If you want to long (buy) the EUR/USD, you have to pay USD $1.3081 to get 1 Euro. If you want to sell this 1 euro immediately, you get paid only USD$1.3077. So the market earns the spread of USD$0.0004 (4 pips). This is the cost the forex broker charges for opening the position. Apparently there are no transaction costs unlike stock positions. Dunno why. 

2)      Currency Carry

Ok I mentioned this above. And if you buy a higher yielding currency by selling a lower yielding currency, then you get paid the difference in interest rate. The reverse means you pay the interest rate difference.

3)      Overnight closure of positions

Ok I read somewhere that some brokers close your positions overnight and reopen them in the morning which means each day you incur the spread fees (omg), I am not sure if CMCmarkets do this (I am experimenting with their demo account now), so I guess I will have to email them to us before I get a live account

4)      Holding fees

So I also read somewhere that if you hold a position overnight you have to pay holding fees to your broker. Again I think this varies amongst forex brokers so I gotta make sure that any brokerage I open with will not have holding fees like that.

So I have started a demo account with CMC and initially long-ed the EUR/USD pair until my hubs was like, dafuq are you doing, aint ppl fleeing from EUR now cos of the whole anti austerity vote in Italy. Then I was like oh yeah, so I closed that position.

I bought like 100 Euros, put up $3.25 sgd as margin and lost like $0.50. As you can see, not a great start.

So I started shorting the Eur/Usd, selling 1000 euros this time, putting up SGD 32 as margin. Omg, just as I did that, Euro started recovering, and my loss went up to SGD 12 before bouncing back to sgd 4 (at time of blogging). I wondered if it were real money and in much larger portions, would I have the mental strength to hold on or would I have cut losses pronto? All this is really hard to test with a demo account. It also showed me the great importance of stop loss.

Stop losses protect your profits and limit losses. But trading currency pairs with great volatility could mean you can stopped out of a trade prematurely. The one thing I do not understand is the trailing stop loss. You see when I sold Eur/Usd on my demo account for 1.3077, I set a trailing stop loss at 300 pips (half the margin). But when the Eur/Usd started recovering, I found that the trailing stop loss also moved! This baffles me and I still cannot explain it. Is not the trailing stop loss supposed to remain at the same level when price movement is not favourable? Only when price movement is favourable to the trade then the trailing stop loss follows it upwards? How can a trailing stop loss move down with a bad price movement – surely that defeats the point of a stop loss? I have no answers to why my trailing stop loss reacted this way but I guess I will have to experiment a lot more before I put real money to this.

蛇年行大运

Funny thing. The horoscope man on the Channel 8 CNY show cautioned Rabbits to be wary of the stock market and investing in this 蛇年。Now this is not too great shakes for someone like yours truly who has it amongst her 2013 goals to grow my yield stocks portfolio. And it got me thinking to how it all started….

                                  

Nevertheless, this constant zeal for yield (Z4Y) is necessitated by this low interest rate environs we are in (thank you QE), coupled with a rather high inflation rate of 4% (avg out over 2012). What started my whole Z4Y in Mar 2012 was a simple conversation over lunch which went something like this…

Friend: “Did you know banks’ interest rate per year is like 0.1%”

Me (busy eating): “Uh huh..”

Friend: “And like inflation is 5% this quarter”

Me (message sinking in): “wert…”

Friend: “yeah it means like money in the bank is just depleting and rotting by itself”.

Something like a fire alarm went off in my insides. Prior to this, I had never given much thought about my financial health. Money sort of appeared in my bank account every month, I would bid adios to about $700 (yeah I bought a car at 23 just before the crazy COE price spikes), $100+ off to insurance, odds and ends for credit card bills etc. I just left it to accumulate (very slowly though!), narry a care that while accumulating, it was also “depreciating” in real terms. Then came this epiphany over an ordinary lunch hour. I was shocked and scared into action.

Let’s illustrate the loss in real terms per year using $50 000 as an example.

Cash: $50 000

Bank Interest: 0.10% pa

Total Amt in bank after 1 year = $50 050

Cash (real terms after inflation of 5%) = $47 550

Net loss = $2450!

Well imagine that. So here I was, a year ago, in inflation crazy world, without an iota of financial knowledge at all but armed with that which is most precious: the realization that I had to do something. And Quick.

I started researching unit trusts and insurance products first – something I felt was more mass market and I didn’t have to take investing into my own noobish hands. It was a travesty. I have to admit, perhaps it is my less than desirable comprehension skills, but till today I have no idea what insurance products are selling (yes, even if you may have that Crystal Clear mark or whatever). I have no idea what I am entitled to and the factors that affect the payout. Seriously, no idea. Unit trusts, yeah I do understand how they work but the whole “you are totally diversified into a whole basket of thingys” didn’t really appeal to me. Nor did the manager’s fees still payable even when the fund is totally chui part. So it was then I decided I had to take a leapt of faith and take investing into my own hands.

So off I went to set up a UOB Kay Hian account – whole process of linking up with my CDP account and bank acct took a little over a month. It was really exciting times. In the meantime, I read up voraciously on REITs, dividend stocks and safe pillow stocks that I wanted to put my money in. I schooled myself from scratch in the basic stock analysis  - such as P/E ratios, P/Nav, payout ratios etc,  through helpful websites like www.investopedia.com. It was painstaking at first, for remember, I was going at it blind literally, with completely zilch financial knowledge – didn’t even know what last closing price was. But the more you read, the easier it got; the easier the understanding, the more you wanted to read to expose yourself to a whole range of analysis. I basically guided myself through the whole stock buying and selling process – reading the KH manual on how to put in order price, what’s a market order/limit order, what’s buy volume, sell volume. Ah, fun times. Navigating the Techanalyser on KH was what got me started in technical analysis. Stochastics, CMF, MACD divergence convergence, you name it – I have read it. And still learning so much more by the day.

Still remember my first transaction ever, like it was just yesterday. CMT at $1.745, order put in at 4.58pm and order filled during market close matching. Ah… I remember my direct debit link to my account wasn’t even ready then and my ever obliging hubs issued a cheque for it!!! (He owns a majority stake in our combined portfolio currently haha) Many buys and sells later, I feel each transaction yielded more than just profits. Experience, these transactions gave, experience to tackle and brave the protean stock market years ahead.

So what’s ahead for this 蛇年, during which I, as a Rabbit, am advised not to speculate in shares and invest? I will certainly err on the side of caution and not let GREED overrule rational thinking. Go for smaller gains and not try to pick market tops. Life is not always about money and it is important not to let stock market trading be the be all end all. Take time off to smell the flowers, spend quality time with loved ones and trade cautiously.

祝大家蛇年行大运，身体健康，心想事成！

The Man without a Face

On the way to the Lama Temple, I saw from afar, a shadow of a man, perched on a low stool, shivering uncontrollably in the bitter winter cold. His furtive eyes darted from each passing person to the next, hands outstretched for a coin that would promise at least his next bare sustenance. As I drew near, I saw a horror which haunts me in dreams till very day, even when ensconced in my comfortable marshmallow existence a thousand miles away; a physical horror translated into a mental horror which I have no doubt will continue to plague me till the ends of my days.

His face had no semblance of a living human face; it was bright pink, as if the skin had been burned right off; a gaping hole when his nose should have been; and his eyes – o his eyes! – glazed over with a bottomless misery I can hardly begin to describe. I averted my eyes – surely as anyone would have – and numbed my soul. My thoughts struggled to find flat ground upon which to make camp. A great conundrum rose within me – do I reach into my pocket to give him a couple of ten yuans to alleviate his suffering or do I pass him by as I would any of the countless beggars along Wangfujing Street?

Perhaps he was a political prisoner, now free (if one could call it freedom). Perhaps he was a Tibetan who took to self immolation as a plea to the world for help. Perhaps he was a victim of the Cultural Revolution – a learned man caught in the wrong age. Perhaps he was one of the Falun Gong, tortured beyond belief, if one is to believe the stories. In the end, it didn’t matter. For I simply walked on. For to stop to help him only makes me aware of the millions more that I would have failed to help. The millions more shivering uncontrollably in the bitter winter cold. The millions more who would give everything to have one tenth of what I have been given in life. I would despair at the helplessness to help.  A lesser being such as myself cannot fathom such depths of anguish. I walked on, not because I was indifferent –quite the contrary I was moved beyond tears – nonetheless I walked on, because to stop is to discover the depths of your helplessness, not something I can handle at this point of my young life.

But “The Man without a Face”, as I name him, stays with me. He stares at me melancholic when the trivialities in life get me down. He dares me to despair at my own life. He gnaws at my guilt, my guilt of having food and drinks larger than my hunger and thirst. Because of him, I cannot but be happy. For him and those millions more, I cannot but be content. He gives my life meaning. He reminds me of how far I am from the abyss.

When I emerged from the Lama Temple, he was gone – vanished without a trace – faceless from the face of the earth. 

first light of day.

For reasons unknown to me, I have decided to start blogging again. Sure, I have had blogs a plenty since my adolescent teenage years to the sarcasm ridden college days; but interest in blogging had waned following the tides of the blogging trend. Think Facebook sunk the final nail. My mctivities blog lay forgotten in the annals of time.

So in my 26th year, I have decided – to once again put pen to paper – or should it be, to put fingers to keyboard; and chronicle life’s little idiosyncrasies.

It’ll be fun. Let’s see how long this one lasts.