How traders lose money?
When you do not know something, there is risk. Many people who buy and sell regularly think they are traders. Well most of them are not. For being a trader you need trading skills, tremendous discipline, fantastic connectivity to the world markets – I know people who see the markets at 9pm, then 1am, then 5am before hitting the Indian markets at 9am.
One of them is a trader in gold – and makes fab money in gold movements while sometimes leaving the currency without a hedge. This is not easy, but he has an office and a room in the house which has one big board, a soft board, a cable connectivity, a net connect card, 1 desktop, 2-3 laptops, charts and strategy books. This room looks like a workshop of a scientist rather than a ‘trading’ room. I think he is online 20 hours a day – sleeps in bits and pieces.
If you buy and sell because your broker tells you, well you are not a trader, but you believe you are a trader.
I know another trader who has a delivery taking ability of Rs. 10 crores – which he can WRITE OFF in a worst case scenario. He takes delivery and sells more as an interest arbitrage. One of his strategies is to go against the market. Let me explain. For those who know (which means all people in the equity markets except ….you know who!!) there is an unorganised funding mechanism which allows you to buy on Monday, but HAVE TO sell on Friday. This comes at a low cost of funding – say 13-14% p.a. interest, but if you take delivery on Friday, the interest rates go up to 30%p.a. So this whole army of ‘aam aadmi’ traders / investors (to me they are neither) WILL SELL on Friday evening and buy back on Monday. This guy ties up with the same broker, same scrips and takes what is called a ‘ulta position’ and reverses it on Monday morning. When we exchanged notes about 3-4 months back he was talking of 3-4% p.m kind of return – even though there were many weeks of zero trades.
Then of course there is the stag – who makes money in IPOs by tying up with the promoter, merchant banker, broker,….etc. the yields here are in the region of 4-5% p.m. Again not bad considering that the money may not go out of your account for too long, no risk of application rejection, no chance of refund being delayed….amazing deals come to you when you want such deals! You need the ability to write cheques in the region of Rs. 10 crores per issue – it could even by a consortium….but there has to be ONE decision maker.
And then there are the ones who do not read, do not study, do not think….but consider themselves traders. They lose money. Sadly for them, they are in a majority.
Muthu
Do we need to trade at all? Why don’t we question this basic premise itself? Trading is mere play of prices, nothing but gambling. As Buffett said, the tax rate for these guys,including the mighty Rs.10 Crorer mentioned above, should be 100%. Let them play and pay the Government!
M S PANJWANI
Dear muthu, ur question is “Do we need to trade at all” traders are the backbone of any markets, they provides us the liquidity, they provides us the opportunity to buy, to sell, to do what ever we want to do.
Imagine, if everyone things that they will not trade, then who will buy if u want to sell your infosys today after hoding it for 15 years or viceversa.
If Buffet wants to sell his cocacola shares today, if there are no traders who will buy them?
Manish
Agree with MS Panjawani
When you say “why trade at all ? Trading is mere play of prices, nothing but gambling” , One hears that you didnt succeed in Trading , even I didnt succeed for 1.5 yrs and finally decided that I stop stop for now and come back later , but I dont think trading is bad or waste or “Gambling” , when a person does not know what he is doing , its gambling , whether its trading , value investing , job in some company or whatever it can be .
There are enough traders who can prove that trading is not gambling , its an art , its a skill, sadly for most of the people who try to just randomly buy and sell based on tips , intution etc as subra said , for them trading is nothing but a gamble and a way of loosing money .
Manish
Muthu
Dear Panjwani – I agree with you that traders create opportunities for investors. Still it makes sense to be an investor and not a trader. Let us not be the ‘fools’ of the market. Let someone else be.
Dear Manish – Trading is an art or skill as much as playing in Las Vegas is.
sukumaran
Subra nice to see arguments between newbies! You should write about some of the brilliant traders in the world including George Soros. We all know the kind of traders who are millionaires. Nay billionaires.
Muthu
Good to know from oldbies like Sukumaran and from this article, trading is part of personal finance. I think if rest of you all, including the blogger thinks that trading is an integral part of personal finance, I don’t know what to do. If I believe in prayers, atleast I can pray for you guys! Since I don’t believe in prayers, I wish you all good luck. Trade and enjoy. Sukumaran, I hope oldbies like you would have read Nasim Nicholas Taleb’s ‘Fooled by Randomness’.
BS
Dear Subra,
as said by u the guys trading mon -friday & indulging IPO arrangement make decent 3-4%pm ,at this rate the annual return is 36% p.a which is a handome return.
People doing that would have hawks eye on markets combined with super stock section ,guts to enter the stock & timely booking of profits.
Can u pls share the strategy they follow?
subra
BS – there is no one strategy that can be documented. Also the ability of a person reading this blog to understand what is being said is not known. Really very, very difficult to address the ‘average’ reader of this blog. Sukumaran knows some of the best Indian traders – Muthu says traders are not needed. So there is no average. I may have to put up a sign saying ‘Do not try these tricks at home, the people I am talking about are super experts with a tremendous risk appetite, and some of them can have a drink on a day that they have lost Rs. 20 crores in put options – because this is 5% of their net worth and there have been days that they have made Rs. 22 crores’ – not sure how many people will read the warning signs before attempting 🙂 :). Most of these guys wear seat belts while sitting in the BACK SEATS of their cars. Will not travel with their partner in the same flight, – and have all the risk reduction pieces in place. Some of them are so good you cannot believe it….I know of a ‘technical analyst’ who is paid a MONTHLY RETAINER of Rs. 12 lakhs + profit sharing…need I say that he adds value to the broker? LOL.