Number Crunchers, check my math

Beginner Questions
1

I’ve come to the conclusion that the Stock Market is geared at 1% risk and 100 leverage, wanting someone to look over this and see what I’m missing.

If you have 100k to put into Forex, and chose to risk 1% at 100 leverage, a 10 pip move will make you 100 Dollars.

Same 100k in the Stock Market, You chose to buy a 100 Dollar stock, and to keep it even with above example, will use a 10 increment gain also… so we sell at 100.10 that will make us 100 Dollars. Even Steven ;o)

I can hear you now saying, but you can bump your risk in Forex to say 2% which you can’t in the Stock Market.

100k into Forex at 100 leverage but this time 2% risk, the same 10 pip move will now net you 200 Dollars

100k into the Stock Market same 10 increment move, but this time it will be on a 50 Dollar stock, this will net you 200 Dollars. At same time exposes you to more risk, since your now playing with a lower stock price that can be easier to manipulate than a 100 dollar stock

Does this make sense? So gearing Forex at 1% risk at 100 leverage puts it even with returns you see on Stock Market. Unless you chose to go to a lower stock price and up your risk.

Just to make another example
100k into Stock Market on 5 buck stock sell at 5.10 give you 2000 bux
100k into Forex leveraged at 100 risking 20% on same 10 pip move gives you 2000 bux

Stock Market is at least more regulated than Forex, one you can possible wait out a bad trade possibly, the other wipes your account balance out.
I like Forex as much as the next pip’er, but starting to wonder if it is really worth the risk to trade currency over equities and possibly lose the account balance. Rewards are the same if my numbers are right above. Pip for Cent being Equal, Rewards being Equal… Risk not being Equal!!

The only advantage for Forex, would be the killer Tax Advantage over Equities, but at a risk of destroying an account balance?

If you lever lower than 100 then your slowing down the gain in Forex per increment compared to Equities. Correct?

100k into Stock Market on 100 buck stock sell at 100.10 give you 100 bux, which in a nutshell is 100 leverage and 1% risk, given in the first example.
Reducing Leverage:
100k into Forex at 10 leverage risking 1% 10 pips makes you 10 bux, not in this Lifetime will I Leverage that low, to make 90% less just to reduce risk?
I hear something along the lines of risk to reward.

Seems that levering under 100 in Forex, reduces the rewards that would be had in Stock Market, and at same time leaving you vunerable to having your account wiped out. Case in point DJIA Crash/Correction on Feb 27th wouldnt have wiped you out, since you didn’t sell. And it rebounded same day much did 1987 Crash. But take a hit like that on Forex and your toast even with a low leverage.

Can anyone possibly shine the light of reason on me. ;o)

Thanks Kangi

2

Leverage refers to what you have borrowed. So the comparison you have made is not legitimate. With forex the amount you make is dependant on contracts and stops. To take your example with 100,000 currency (ie 1 contract) with say a 5 pip stop and 1% risk then you will make 1% for every 5 pip move. So with 100:1 leverage you put down $1000for your contract and it moves 10 pips and you close out you just made $2000 for your trouble (ie a 2% return on equity and 200% return on equity at risk). If your general thesis is however that fx is a high risk high return business because of leverage which people dont understand then I couldnt agree more. To take the above example a bit further if you do 10 trades like that in a year you would return 20% ROE and there arent many stock markets that can do that. Average return of the S&P since 1981 is about 14% I think which is the highest in history

3

Tony…

Thanks for the response, as for your math I don’t agree with the numbers your tossing out, unless I’m just way off on my math. Which I’m not perfect… ;o)

Will expand more on the one example, that you was trying to show me.

[I]“So with 100:1 leverage you put down $1000for your contract and it moves 10 pips and you close out you just made $2000 for your trouble. ie a 2% return on equity and 200% return on equity at risk”[/I]

You have 100k to invest in Forex, 1 contract is 100k, you put down $1,000 which is 1%, Total now leveraged at 100 on your $1,000 is now $100k at $10.00 a pip, a 10 pip move in your example would bring you $100 for your troubles not $2,000. (i.e. .10% return on equity and 10% return on equity at risk.) Which $100 Dollars is what my first post showed.

[I]“To take the above example a bit further if you do 10 trades like that in a year you would return 20% ROE and there arent many stock markets that can do that.”[/I]

I agree with you that S&P is a good benchmark, but at .10% return on equity 10 trades like that in a year would be 1% not 20% ;o) so to get to the 14% benchmark your using, you would need to 140 trades x .10% return on equity to bust even with a 14% for the year return on equity. To achieve the 20% ROE in your example, you would need 200 trades not 10 trades, 200 Trades x .10% on each trade would give you the 20% ROE

To Acheive the $2,000 in your example:
To get $2,000 for your troubles, you would have to be at 100k put down $20,000 which brings you up to 20%!!! from 1% in the above example, Total now leveraged at 100 on your $20,000 is now $2,000,000. Which puts you in control of 20 100k lots at $10.00 a pip. A 10 pip move x $10.00 a pip x 20 lots will give you the $2,000 in your example. (i.e. 2% return on equity and 10% return on equity at risk.)

Which that example is in my post below to make $2,000 for your troubles is like the same risk in Stock Market as putting 100k into a $5.00 Stock and selling it at $5.10 that makes you $2,000, keeping the increment move the same across the board in both markets.

[I]“If your general thesis is however that fx is a high risk high return business because of leverage which people dont understand then I couldnt agree more.”[/I]

I guess what my general point of it all was apples to apples Forex isnt High Risk High Return it is High Risk Same Return. Stock Market is levered also it is just not talked about but it is in the Stock’s price. Hence the examples of $100 to $5 Dollar stock prices in the examples.

If I have to give a serious thumbs up to Forex, it would be on Tax Advantages and simple fact that you can increase risk much like in Stock Market, but at 20% risk you don’t have to factor in the currency rate flucuating on your investment, like you would have to worry about the Stock Price flucuating if you dumped 100k onto a $5.00 Stock.

Money is a numbers game, which I do agree with you. Most people don’t understand it, and willing to take on enormous risk to achieve it. Forex is a very slick, well thought out Market, before they let in the masses. Most books as well as most people on this and other forums, preach against 100 leverage, which is exactly what the Stock Market is on a $100 Dollar Stock. So if you get use to trading under 100 Leverage to so slow down the increment gain/loss, then you have to up the Risk. Just to break back even with Stock Market at 100 leverage and 1% risk and put your account balance in more jeopardy doing so.

Any thoughts on it, Tony?
Thanks Kangi

4

Maybe we are just at cross purposes. I will take 1 of my recent trade examples. I trade a 235000 account and so 1% is 2350. I took a trade on GY on Friday with the following parameters, short at 230.80, stop 231.44. (64 pips) Therefore I took 4.5 contracts. GY is approx $8 per pip. Therefore if stopped out I would lose 4.5 x 8 x 64 ie $2304. I took half my profits at 230.10 (70pips x 8 x 2.25) and the second half at 229.50 (130 pips). Total profit therefore was equal to 70x8x2.25 = 1260 plus 130x8x2.25= 2340. Therefore total return in a matter of an hour or so was2340+1260 ie $3600. This represented a return on equity of 1.5% and return on equity at risk of 150%. To manage that in shares without the leverage and assuming say a daily share movement of 1.5% I would have to put my entire equity at risk. If prepared to do that then of course I could achieve the same dollar return. Of course (although I wouldnt) because my capital is not committed I can open additional positions.

5

Hi Kangi,

Regardless of the instrument, gearing is higher risk, higher return. There would be no reason for it otherwise; people wouldn’t bother with it.

Your cash will make 10% at 1:1 leverage on a 10% move and 100% at 10:1 leverage on a 10% move. Obviously, it’s just leverage multiplied by the percentage move of the instrument. More Bang for your Buck, as I always say.

As for comparing ‘risk’, it’s erroneous to talk about the stock market as a one trick pony. CFDs and Spread Bets mean people have geared positions on all sorts of stocks. An index CFD on the S&P or FTSE is much less ‘risky’ than a CFD on a mining stock. Hence, risk cannot be so easily quantified as the cash you put down. There are other factors to consider.

Sharedealer

6

Thanks for the reply Sharedealer

I agree with what your saying on regardless of the instrument. And the cash you make on the leverage x percentage move.

I never said Stock Market is/was a one trick pony. ;o)
Every Market has its pitfalls.

But to keep true to point I was initially getting at, you do have to compare the instruments against each other to see where you can maximize the amount you can make per increment move. Stock Market isn’t that unlike Forex from the numbers I was showing, you do quantify your risk as you go down from $100 Dollar Stock down towards $5.00 Stocks or pennies for that matter.

So Stock Market is in a sense, is geared standard 100 leverage so to speak and ups the risk % as Stock Price drops and increases the potentional rewards, which is same difference.

My thinking on it is like this…
Ok Fed Gov lets me open up a brokerage house, I offer 100 Leverage and % risk of Account like on Forex but on Stock Market, 100 dollar stock is 1% required 50 Dollar would be 2% like 5 Dollars around 20%. How many people would jump from Etrade over to KangiTrade if I said just like Forex you can trade Stocks here, but if a landslide happens even if you don’t sell, you will have your account wiped even if the Stock Price rebounds back up in matter of minutes. Which in the examples I showed almost the same return on likewise risk. Yes I know about stops hehe. Just looking at the overall picture if it fell fast right through the stop.

Don’t get me wrong, I like Forex. Main reason that attracted me was not having to have the 25k in order to be able to short, like in the Stock Market. But I have tremendous more risk to my account on a freak of nature with no chance of hoping for a rebound it is just gone, just to be able to short.

Will be able to put more thought into the response and Tony’s tonight have to get busy with work.

Thanks Kangi

7

Tony

Thanks for the time in putting up some real numbers. I guess I can be stubborn at times hehe. ;o)

I’m not use to calculating nonbase usd pairs so have to take your word on per pip and leverage amount to obtain those numbers.

[I]“I would have to put my entire equity at risk. If prepared to do that then of course I could achieve the same dollar return. Of course (although I wouldnt) because my capital is not committed I can open additional positions”[/I]

I’m glad that you see the overall point I was making on being able to achieve the same rewards in Stocks as in Forex. Yes you would have to commit all your capital in Stocks but at same time to keep the risk same for both opening new positions in Forex would up your risk % overall since you just dimished your margin amount to obtain new contracts correct?

or come the other way on it and say, since you just put x amount up, to make x percentage in forex so you can buy more contracts, you would have to treat the stock market the same and only tie up the equal portion to match the reward and invest the rest in stocks as well. to do a comparison.

Tony, since I kinda been looking at cent movement and pip movement and showed examples in Stock Price that matches rewards seen in Forex. I’ve watched IBM recently go from 103 to 119 which would be like 1500 increments in matter of days, I’ve also watched the usd/jpy move when DJIA drops, gain 600 to 1200 increments over in forex in days.

But option in Forex not in Stock Market, I would have to find something that is around 50 to double the risk/reward wherein Forex you don’t have to search stocks just change the risk % before the trade and stay on the same pair. Which simplies matters alot.

Interesting Discussion though… Well got to get back to the grind.
Kangi

8

kangi –
could you please elaborate the FX’s tax advantages?
I assume you were talking the tax adv in US.

TIA

Sean

9

Hi szbu…

Yeah I was talking about Tax Advantages in Forex for U.S. only. Not sure how it works in other countries. ;o) Basically in a nutshell a Forex Trader vs a Stock Market trader, The Forex trader has a 17% advantage over the Stock Market Trader since at year end, Stock Market trader will have to Cough up 40% of the profit while the Forex Trader only shells out 23% ;oP

Knowing your taxes advantages can either make or break a business. Especially in a tough year.

Currency traders involved in the forex spot (cash) market, can choose to be taxed under the same tax rules as regular commodities

IRC Section 1256 contracts
or under the special rules of
IRC Section 988 (Treatment of Certain Foreign Currency Transactions).

IRC 988 applies to cash forex unless the trader elects to opt out. ;o)

Under Section 1256, forex traders can have a significant advantage over stock traders. By reporting capital gains on
IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles), forex traders are allowed to split their capital gains on Schedule D using a 60% / 40% split. This means that 60% of the capital gains are taxed at the lower, long-term capital gains rate (currently 15%) and the remaining 40% at the ordinary or short-term capital gains rate, which depends on the tax bracket the trader falls under (as high as 35%). This results in an average rate of 23%, which is 12% less than the regular (short-term) rate.

Companies that profit from the fluctuation in foreign exchange rates as part of their normal course of business, fall under Section 988. This means their gains and losses from foreign exchange (such as buying and selling of foreign goods) are treated as interest income or expense and get taxed accordingly. Consequently, they do not receive the beneficial 60/40 split.

Since forex traders are also exposed to daily exchange rate fluctuations, their trading activity falls under the provisions of Section 988 too - but don’t worry. The IRS wants to be nice to you (so far). Because these daily fluctuations can be considered part of a currency trader’s assets in the normal course of his business, the IRS gives the trader the option of rejecting (opting out) of Section 988 and electing that the gains be taxed under the favorable 60/40 split of Section 1256

Hope this helps… ;o)
Kangi

10

thanks for good info. I will pass this to my accountant.

11

I am getting lazy so I didn’t read all the posts. So if I reiterate some information I am sorry.

First of all, getting leverage in the stock market is a pain in the ass. I believe at best you could get 3:1. Furthermore, you would be liable for that money you borrowed. We are lucky enough to have retail brokers with forex that believe you are an idiot and will margin call your ass so you don’t loss their money.

Second of all, it is a pain in the ass to short stocks!

I am just trying to point out that the unregulated forex market seems to be a lot more flexable than the U.S. stock market.

12

Hi Sword…

Yeah your being lazy… ;o)

In the first post, I was showing how if you view the Stock Price as your % of risk and you leave the leverage across the board at 100. So with Stock Market and Forex being on equal ground at leverage 100. Alot of the rewards you can figure out xxx Dollars into this share price would equal same thing in Forex at 100 leverage xxx % risk. Without really getting into borrowing on the Stock Market. Would have to look at that once you start getting over 100 leverage in Forex.

Stock Market will give you like you say about 3 to 4 times over that which you can really “leverage” on and not attempt to do it with merely the Stock Price.

Haven’t really looked at the numbers over 100 leverage think it is unrealistic for most people, but sure with leverage maxed at in Stock Market then you start diminshing the stock price you could find the stock price that would match that same reward in Forex. Which if you do choose to borrow and play Stock Market like the Forex when you try to stay on even ground with over 100 leverage you run in same probelm as Forex and can get a margin call. But 100 and under you wouldn’t have to worry about it since your only leveraging with the Stock Price. ;o)

Kangi

13

As I was driving to Cheyenne last night, got to ponder the Two Markets.

I’ve been trying to make a point that Equities Market not even been Margined can produce the same returns as Forex without the marginal risk, if you have

  1. Leverage = Amount invested in Equities
  2. Same increment (pip) movement in Forex as in Equities in (cents) movement
    So comparison can be made as to which increment makes you the money.
  3. % risk = Stock price to match that same risk that is being taken in Forex
    to give you x dollars on a forex pip movement to equal out pip to cent

If all three of the above the same, then it will put both making same amount per movement whether up down or sideways.

$100,000 account, 1% risk $1,000, 100 leverage controls 100,000, 10 a pip, 1 pip movement 10 bux (margined)
$100,000 account = 100 leverage, 100 stock price = 1% risk, 1000 shares x .01 cent movement gives you 10 bux (not margined)

If you try to say but you can buy more contracts because less is required on the margin ok then you have to keep the increment movements the same. So I would have to reduce the stock price and get to buy another stock as well. One Apple Pie is One Apple Pie no matter how many times you try to slice the thing. ;o)

There is only two things left to consider

  1. Does one get margined called before the other one hits zero. No!
    Had to change my stance on this one, to be fair to forex with margin call then zero price on equities is same difference as being busted.

$100,000 account = 100 leverage, 100 stock price = 1% risk, 1000 shares x .01 cent (not margined) you will be able to withstand (stock price) $100.00 dollars worth of decline before you bust or $100 / .01 cent (cost of increment) movement = 10,000 increment or cent slide.

$100,000 account, 1% risk $1,000, 100 leverage controls 100,000, 10 a pip, 1 pip movement 10 bux (margined) 100k - 1,000 = 99,000 you can withstand before your are margined called. 99,000 / 10 a pip (cost of increment movement) = 9,900 increment or pip slide.

the 100 missing is the money you put up 100 increment difference x 10 a pip = $1,000 left so in equities to be fair will cash out equities when forex bust that way both has 1,000 bux left

So neither lose any more than the other forex margined and leveraged or just buy Stocks not margined. just a numbers game.

  1. Last thing you can consider is ok if reward is the same risk is the same.
    Man I hear forex moves more than Stocks!! was even said in this thread ;o)

Run your numbers increment to increment
IBM just to name a $100 dollar stock of top of my head.
Moves at high to low on average daily $1.60 to $2.74 based on last week’s performance. which equals if you total up movement for each day, last five days $10.67 of movement equals 1067 increments for the comparsion

IBM
This Week (5 daily’s) 1,067 increment moves
This Month (20 daily’s) 4,795 increment moves
This Quarter (60 daily’s) 12,760 increment moves
This Year (260 daily’s) 37,765 increment moves (depends on what a yr is)

USD/Jpy
Moved this week anywhere from $0.67 to $2.27 based on last week’s performance. Which equals if you total up movements for each day, last five days $5.74 of movement equals 574 increments for the comparsion

This Week (5 daily’s) 574 increment moves
This Month (20 daily’s) 2,305 increment moves
This Quarter (60 daily’s) 7,079 increment moves
This Year (260 daily’s) 29,574 increment moves (depends on what a yr is)

Equities move more even on 7 hour cycle day and not 24 hours
Weekly 85.89% more action on Equities than Forex
Monthly 108.03% more action on Equities than Forex
Quarterly 80.25% more action on Equities than Forex
Yearly 27.91% more action on Equities than Forex

My viewpoint is still the same
Forex (margined) isn’t High Risk High Return it is on par with Stock Market (not margined) increment for increment and a slower moving increment pace for weekly, monthly and yearly time frames.

It is a smoke screen got to check your math to see where most bang for the buck is really coming from on increments. Risk from outside effects both differently but increment for increment right now Equities is 27.91% better than Forex for the past year in performance maybe minus 17.00% off for losing the tax advantage so down to 10.91% better performance/action.
But if you notice this week is cooling off but for the month it is blowing the yearly performance out of the water over Forex.

I don’t think that Forex Brokers let us margin really hard on basis that they think we are dumbasses as sword put it, I think the game of leverage and risk % confuses so many people that many believe they are on a high stakes, high risk, high reward, Gordon Gecko path to Glory when in fact you are making the same reward at the same risk but at a slower pace (half). It serves the thrill of the chase, the gambler instict. I’m controlling huges stacks of cash, possibility of whiping my account out, leveraged to my eyeballs, % risk is double what is recommended, my pair just moved 100 pips today and I captured xx% of it and he says if you don’t understand leverage then you need to demo for long time until you get the hang of it. Equity trader looks at him and blinks then says well my 100 dollar stock moved 2.00 today which is 200 increments, double your steriod ride. I didn’t catch % of my total possible for the day as you caught on yours, but we both hit the same amount of increments, we both was leveraged and % risk the same but I wasnt using margin and we netted the same. And I had to slide 100.00 dollars in price to be busted. odds? Forex trader just stares, Equity trader Yawns. Bit of scarasm but thought this was funny to make the point.

Would you not agree. If my math holds up in this thread? So far like 200+ something views at this point and no one is saying my math is wrong. Except one person and I think he was using cross or something for his figures. Cause I can’t get the same lots or pip value or profit level as his example, chalking it up to I don’t know how to figure non u.s. based pairs, which I don’t see what makes the difference when figuring lots, leverage, etc. I wont even touch pip spreads in this thread vs commission. ;o)

Thanks Kangi

14

I think that might be because your posts are fairly cryptic to say the least! I do, however, have the utmost respect for the effort you are putting in to your musings!

Anyway, how would you compare leverage on equity markets (CFDs, Spread bets etc) to the run-of-the-mill owning the stock? Your Forex/Equity tax comparison is interesting, but do your calculations hold up when considering leveraged equity instruments themselves?

It has to be said (without sounding obtrusive) that I’m still convinced, regardless of the instrument (as I said in a previous post), that leveraging is higher risk with higher reward, purely because the term ‘risk’ is instrinsically entwined with the instrument in question, and is not simply the capital involved with the trade. Might someone in agreement with Kangi correct me if I’m mistaken?

Regards,

Sharedealer

15

Sup ShareDealer…

I agreed in the last post to you, about what you were saying about higher risk, higher reward or no reason to bother with it. I agreed with your numbers. ;o)

Maybe the post were to long winded to capture what I was getting at. Was trying to add more of my thoughts about it, instead of just throwing out numbers hehe.

What was in question from the first post throughout the thread. “Is” Forex Higher Risk Higher Return when comparing to Equities. I don’t see the added risk after I thought about Stock Price going to zero is same as margin call in forex. With the numbers looking the same. Where is the Higher Risk if Forex can’t be manipulated or Cornered, have the books cooked by CEO’s / Accountants. But at same token where is the Higher Returns at, I’m staring at on paper without factoring outside risk just increment move for increment move forex is on par with Equities. But Equities increments move double to Forexs as shown in my IBM example. I honestly can’t expand on cfd’s or spread betting cause, I’ve come from strictly Equities trading to Forex. I’m sure you could answer those questions, with some forethought on it. It really isn’t that cryptic. Will it stand up against other instruments as well, don’t know that one since my background knowledge is only Equities. But regardless of the instrument if you break it down to the smallest increment and do the same comparision that I’m doing in this thread Forex vs Equities. Will you see same risk and same reward or will you see higher risk and higher reward guess won’t know until you run the numbers.

I’m a truck driver so I get paid by the mile (increment) everything to do with trucking is gauged by the mile, repairs, maintenance, tires, fuel, pay etc. So I’m use to breaking stuff down to the lowest increment and see how it stands to something else in comparison.

You can reread the posts, I’ve never said that there wasnt pitfalls with or added risk with any form of investment. I understand the point your getting at that I can’t just look at the outlay of cash and the output of profits and not look at the risk in the middle of the two. But do you just ignore the “odds” if profits seem to be more lucrative in one and not in another or they are both equal. Surely that is one of the first things you would look at, then you would start with the instrument that gives you most bang for your buck then research the risk that is associated with it compared to next on the list. I see that your saying your in agreement as far as leverage adds risk and adds rewards, I never doubted the statement. What I was trying to point out, check for yourself click around the forum about people coming from Equities. Most of them are under the impression that bang for buck they are going to make a killing since they are going to be able to leverage and %risk in Forex, I’m not saying they can’t what I’m saying is that leverage and %risk is in Equities and not even being marginalized on even par with Forex and people can’t wrap their heads around it. or so it seems.

If in Forex the biggest battle is people not understanding Leverage and % Risk. Most or Alot of people here have Equity backgrounds so if you put it in “those” terms for them, they will “realise” the risk.

Example
A new guy on the forum has 100k and is thinking about 500 leverage so he can make some real good money. he has done his calculator work and see this

100k account, 20% risk $20,000, 500 leverage controls $10,000,000 one huge super contract, $1,000 per pip, 100 pips makes him $100,000 Just doubled his money in one day if the market works with him, or so he thinks he can achieve this, what all the above garbage equates to is a 50/50 bet 100 pips doubles his account and 80 pips destroys him leaving only the 20 pips from his 20% outlay on the contract. not quite 50/50 but you catch the drift 80+20 =100 bottom line 80 stops the trade.

If you was to ask him since he is coming from Equities.
Would you drop 100k on a $1.00 stock to get 100,000 stocks to sell at same 100 increments which would be $2.00 to get 100,000 profit. Cause that is a 50/50 bet 1.00 up doubles the account, or 1.00 down destroys your nest egg.
Willing to bet he rolls his eyes and says I would never do something like that way tooooo much risk. I only deal with 20 dollar stocks and up, he says. ;oO

If his comfort level stops in Equities at 20 dollar stock and he feels comfortable shooting for 25 which is about a 500 increment move profiting 5k. Carried over into Forex he should be fine with 100k account: 1% risk $1,000: 100 leverage contolling $100,000: Same 500 movement generates same 5,000 profit as in Equities. If that is all he can stomach then a 500 pip movement would put him out of daytrading and into the daily entry and exit on the weekly charts. imo apples to apples then he can enjoy same risk same reward as he found in Equities but only have to deal with one chart and get a tax break. ;o)

Sharedealer I agree their are risk factor in more than just mere cash outlay, but do you not look at it, are you saying that standing at the horse track you don’t look at the odds card, you merely look at the breed, muscle definition, the direction of the wind. yada yada. not a horse track person but you see my point. of course I would look at the odds card along with everything else. The bookies aren’t putting a horse at 2:1 over the horse I think is awesome that is 100:1 for no reason. I would check the odds card and take a very close look at why that horse has a better odds. But you can never do something like that unless you first pick up the odds card and at least look at it. hopefully start with the best odds and work my way down. ;o)
[I]
“regardless of the instrument, that leveraging is higher risk with higher reward, purely because the term ‘risk’ is instrinsically entwined with the instrument in question”[/I]

I throw back to you, a comment that said about “Run of The Mill” Equities. Since you changed up and not talking about outside risk effecting the increments on two different insturments. You merely stating profits when talking about leverage in the above quote. Are you under the impression that Forex is “higher” risk i.e. leverage with “higher” rewards i.e. profits than “Run of The Mill” Equities? my beef isn’t with the statement of risk or rewards or same risk same reward, my beef is with the word “higher”. My examples show the “Run of the Mill” Equities is keeping up with profit seen on leveraged and %risked Forex? If so where does the word “higher” come into play? I’m looking for an answer like forex will give me this much more per increment move than non margined run of the mill equities and I’m not seeing that answer from anyone. That to me is same risk higher reward. if someone showed me I could be whiped out in half the distance as I was thinking when I first started this thread, then yes High Risk High Reward.

Forex is tight in my eyes based on not having to find a decent company at a certain stock price so I can make xxx amount, that one chart or pair in forex can become a 5 dollar stock or 100 dollar stock depending on how I chose to gear the trade but at same time I don’t kid myself that it is high reward over an instrument as Equities or higher risk. Maybe easier cause just wait for the setup in the one pair and fire away. Maybe I see something like Soros did, and Can jam down and turn it into a 1 dollar stock on that pair’s chart and get the 50/50 bet and double the account.

I mean if anyone sees I have a valid point please jump in. Not really easy being on this side of the fence, you know. ;oP

Kangi

16

Sharedealer

What’s your thoughts on Christopher Cox, Chairman of the SEC on Equities
this summer shooting down, Rule 10a-1 (SEC Release No. 34-55970) also known as the shorting on the uptick rule. The uptick rule has been in place since 1938. Was put in place as guards against bandwagon shorting on declining stocks been in place since the Great Depression.

IMO I think with the Volatility as of late in the Equities Market, that this is just another bad decision by this Administration who appointed Mr Cox. I mean can you make the Market any more unstable by changing rules set in place during the Great Depressions as safe guards, I’m not an economist so I’m not aware of the benefits of changing something like this.

I surely hope the next step is NOT to do away with the 25k shorting rule.

Kangi

17

The UK’s FSA has never felt the need to have an uptick rule nor a pattern day trader rule. I’m assuming the SEC saw that the rule was simply ineffective, and did away with it. What was true in the 30s is not necessarily so now!

Sharedealer

18

Shareholder

[I]“What was true in the 30s is not necessarily so now!”[/I]

Human nature surely hasn’t changed in 70 years. Guess we agree to disagree on alot of points.

Kangi

19

That would have to depend, of course, on what we mean by ‘human nature’. As far as investment strategy is concerned, it is very possible that human nature has indeed changed. It’s possible that our appreciation of pattern has changed on a mathematical level, or maybe changes in other regulations (of which there has been many!) have a knock-on effect and nullify the reason for other regulations, such as the uptick or the pattern day…

Sharedealer

20

Shareholder

Human Nature as in Greed, as it carries into investment arena’s as well.
The uptick rule stopped careless traders that piggybacked onto stocks that were heavily short ratio and dropping like deadweight. Greed kicks in, if there is not enough buyers to compete with the shorts the stock will not uptick, the only thing that makes a stock price go up is buying pressure period. It can have the tighest books and fundamentals you ever seen in a company in the last century, the best hidden gem on the planet, it can even gap up all it wants to, but if there are no buyers, it will not withstand the gap with all the shorts on its back. Market Makers have a decision if they gap the stock up for no reason cause on ecn there is 90% sell from the longs trying to get out, with the short ratio through the roof. the only thing the MM is doing is letting more shorts into the game by gaping it up the next day.

The only way a person right now could have got on the killer slide and demise of the stock would be for a gap up to happen if there is no tick up straight line down to the bottomless pit below. If the rule is abolished cause like you said it was “ineffective?” then that leads to a new ballgame that is alot more votalite. If you have a 90% short ratio and not enough buy pressure to offset the shorts then Greed kicks in for the easy money.

Not saying things aren’t different than Great Depression there have be vast changes since then. Merely saying I think the uptick rule was important as little as one uptick might sound.

The day trader pattern is a different boat, personally think it is a pointless rule. I don’t feel a Goverment should impose rules that keep me from trading a stock for 72 hours “for my protection” since so many day traders get burned.
If we look at something like the DOW most trends i.e. higher highs and lower lows on last typically 3 to 5 days. The day pattern rule can potentionally lock a trader out of taking advantage of a typical trend pattern and force him into a higher time frame trend.

$25k is alright, pisses me off at times. as well as other traders that do know what they are doing. But I can see the bigger picture of a bunch of fools that don’t know what they are doing jumping on a bandwagon and pushing a stock into its demise. Don’t know won’t even get into the Naked Short debate.

Kangi