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S&P Over Time

Reading through other investment blogs, I came across this picture of the S&P over time showing how important it is to be in the market on big up days. This shows why time and time again daytraders get burned. If you aren’t in for those few big up days throughout the year, you would have ended up losing money over the course of 50 long years.

S&P Over Time

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The FSA–the UK’s main financial regulator–recently announced plans to allow regular types to invest in hedge funds, sort of. The United Kingdom, like the U.S., has til now kept a lock on who could invest in the vehicles. Since hedge funds lack many of the same regulations as other investment vehicles, most government agencies and regulators have required that those investing in them meet certain requirements.

Wikipedia’s take covers the basic requirements in the United States: $200,000 annual income for two years, $300,000 income for two years if married, or $1,000,000 in net worth.

Needless to say, these benchmarks prevent most U.S. citizens from taking part, which is why so many copycat products are coming into the market. Regular guys want to earn high returns with less risk too. Trouble is, the high returns may be over as strategies hedge funds pursue are too widespread at this point.

Hedge funds have risen at an average annual rate of 8.4 percent since 2000, less than half the gains of the 1990s, according to data compiled by Chicago-based Hedge Fund Research Inc. Vanguard Group’s flagship mutual fund tracking the Standard & Poor’s 500 Index climbed 15.6 percent last year, compared with the 6 percent drop of Goldman Sachs Group Inc.’s biggest hedge fund, whose management fees are about 10 times steeper.

The subpar performance isn’t stopping the world’s largest financial institutions, including UBS AG in Zurich and JPMorgan Chase & Co. in New York, from chasing higher fees by offering copycat hedge funds to people with as little as $1,000 to invest. Assets of the so-called long-short funds almost doubled to $16.5 billion in the U.S. in the past two years, according to Financial Research Corp. of Boston, which tracks money flows.

In a case typical of the Street–or in this case, the City of London–much of the the big money for investors has already been made, and the only way that hedge funds themselves are going to continue to exist and profit is by servicing retail clients, who are unaware that the strategies they’re pursuing are passé and not worth paying 2% and 20% of profits for.

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The question of whether margin FX trading is simply too risky for most investors has become more resonant as the FX market continues to boom at the retail level. One reason why risk is of particular concern is because the growth is predominantly in the retail market, which is seen by regulators as being less sophisticated and prone to using non-risk capital to trade. This discussion becomes very interesting when juxtaposed with what is happening in the world of hedge funds. Continue Reading »

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Do you sell anything online? Do you buy or sell online advertising? If you do and have been doing it long enough, you know how valuable it is to know the conversion statistics for different types of traffic. You could spend a lot of time and money doing trial and error, but wouldn’t it be a lot easier if you already knew which keywords and sites worked?

There are a few companies mining this information in masses already. The best way to market and make this work is to give incentives for doing it. One of the primary examples of this is the almighty Google. Google offers services to webmasters that lets them track traffic statistics with a nice easy-to-use interface for no cost. With Google Analytics webmasters can see all the traffic information including the following: geographic location, repeat visitors, referring sites, keywords, and since the information is tied in with Adwords the very important, cost per conversion.

Once you know what a conversion is worth (and it’s much easier to figure out than the cost per conversion) you can just look at the cost and determine how much profit is in the niche you are following. Even if you didn’t know anything about that niche, you would see areas that had tremendous opportunities.

Another company mining information is ALGOCO. ALGOCO is a company that pays you for surfing the internet. You install a toolbar in your browser which sends back your traffic information. The payment structure is enough to basically let you earn $10-30 per month depending on how much you surf. The nice part about it is you can refer others and earn more. They have a calculator that tells you the amount of money you can money with the network you build. This scenario yielded a monthly income of $9,767.50!

ALGOCO Calculator

This information is not quite as direct as Google Analytics for determining which niche to open up a new business, but it is very rich with marketing information. For example, let’s say someone visits Bloomberg, Reuters, Yahoo Finance, and… our blog, ALGOCO would then know that maybe our blog had a similar target market as the other sites mentioned.

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A New Way to Trade Currencies

For those too confused to trade FX futures, too timid to deposit funds with a spot FX broker, and too lazy to switch their regular stock brokerage accounts over to something else, currency trading is still an option.
Deutsche Bank, in conjunction with a company called Powershares, has launched two exchange-traded funds (ETFs) that allow investors to take positions on the US Dollar Index. The index is composed of a basket of currencies that are thought to be anti- or counter-dollar, so that the index itself is supposed to reflect a balanced view of the US Dollar according to how much trade the US does with the country or region behind each currency. The Euro is of course the largest component in the USDX (Dollar Index contract), because the euro-zone is United States’ largest trading partner.

In any case, these funds allow people to take a position based on their market view–pro-dollar or anti-dollar–without leaving the comfort of the E*Trade, Scottrade, BrownCo, Schwab, and Ameritrade accounts. The tickers are UUP for the dollar bullish ETF, and UDN for the dollar bearish ETF, and both are traded on the AMEX (American Stock Exchange).

AMEX’s own press release has more (below), but for now my view is that the convenience of these instruments is their primary benefit. Costs, leverage, etc. are no better here than in spot forex and futures, by any means. But if laziness and fear would have otherwise prevented you from staking your claim in the foreign exchange world, then by all means, have at it.

http://sev.prnewswire.com/banking-financial-services/20070220/NYTU13820022007-1.html

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EUR/CHF High

The Euro continues to climb against the Swiss Franc to new highs since the Euro induction.  Will this stop?  I like to go with the cliche saying “the trend is your friend” on this one.  The Eurozone fundamentally is strong where the Switzerland economy isn’t reflecting the rest of the Eurozone growth.

The CHF is also the other funding currency with rates only at 2% which makes it great for carry traders and this the EUR/CHF spread doesn’t appear to changing at any degree of speed for this pair not to keep setting new highs.

Euro Swiss Franc

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The Evolution of Markets

I’ve recently realized that the industry I work in is a microcosm of markets globally. Retail spot forex (foreign exchange, currency trading, FX) has rapidly gone through the phases of initiation and fast growth, and is in the middle of the “new competition” phase in the United States at least. This is where hundreds of new entrants realize the market’s vast potential and begin getting involved. Some are large banks, making deals with current market leaders. Others are venture capitalists buying out pieces of technology and investing in startups. Finally there are entrepreneurs who realize it is not too late to start a company and undertake the now much more difficult task of gaining market share.

Continue Reading »

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What kind of bizarre trade is this? Some are calling it the new carry trade. Bloomberg has an article describing the upsides and why it is less risky than many think.

Some reasons to take such a trade are the following:

  • China Yuan non-deliverable forward has an interest rate priced in at an extremely low .15% (the Japanese Yen is .63%)
  • Yuan appreciation already priced in to the forward so low likelihood of getting hurt badly on a revalution
  • The positive carry or yield is an astonishing 7.8% return
  • Fundamentals in India favor being long rupee
  • Carry trade diversification and there is potential of unwinding of other carry trades

The problem with it is the availability.  These currencies are ones with restriction in place and one can not trade them nearly as freely or in even the same standard methods of trading major currency pairs.

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There are new companies launched every day in the forex world. Well nigh on half of them are selling products that involve getting rich quick by trading news. Trouble is, few execution services are good enough for people to consistently make money trading news. This is the case even in the world of currency trading, where brokers and salesmen tout the amazing liquidity of the market left and right.

If your idea of a news trading strategy is to

1. Beat others to getting the news release.

2. Beat others to interpreting the news release.

3. Beat others to getting in the market.

4. Enter the market immediately following a major news release.

….or do all of the above, then you’re hopeless. Have at it, but most likely you’ll end up

1. Overpaying for your news feed (professional feeds run over $1000 / month)
2. Pissed off at your broker for poor execution, slippage, and the like.

3. Chasing the market…trying to get in after the move has already happened.

4. Misstepping as you place a trade before fully understanding the number.

I have a better idea:

Continue Reading »

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