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Market maker: who is it and what function do they perform?
Market makers have become as a key link in the financial markets. There is a misconception that market makers can influence the price of assets. In fact, this statement is far from reality. The main task of a market maker (MM) is to provide liquidity of any asset. If an asset traded on an exchange is provided with sufficient liquidity, the price and spread will be at an adequate level. If there is no liquidity — it will not be profitable to trade an asset, the price will stop at one mark and the spread will expand. So, what exactly do market makers do? Let’s analyze in more detail in this article.
Definition and responsibilities of the market maker
A market maker (MM) is a firm or individual who actively quotes two-sided markets in a security, providing bids and offers (known as asks) along with the market size of each. The profits of the market maker is made up of several aspects:
Payments from the exchange as stipulated in the cooperation agreement.
Spread from the execution of orders.
Speculations and investments.
The SEC regulator explained the functions of the market maker — willingness to buy and to sell an asset on a permanent basis, at a public quote. In other words, maintaining an adequate level of supply and demand, as well as confrontation with the market, for example, selling bitcoin in case of its rapid growth or buying in case of a fall. In addition, the market maker may act as an intermediary seller or a buyer in case of absence of one of the parties. If you decide to buy or to sell an asset on the exchange and your transaction has passed within a second, the market maker is acting as an intermediary. In this way, the liquidity providers remove unnecessary delays and difficulties in exchanging assets.
Market maker trading process
For example, there is a buyer on the exchange who is ready to buy 100 ETH and there is a seller who is ready to sell 90 ETH. The task of the market maker is to add 10 ETHs and to provide a price to a buyer, for example $200 and for a seller, for example $199. The buyer will pay $20,000 and receive 100 ETH, and the seller will receive $17,910 and give back 90 ETH. The market maker will receive $2,000 for the 10 ETHs and $10 spread, for providing liquidity. The liquidity provider makes a lot of such a trades a day, and as a result has a good profit. However to do this, you need to have an impressive stock of assets to maintain a level between supply and demand. With such not complex machinations, the market maker ensures the efficiency of financial markets, maintaining an adequate price for the asset and the minimum price divergence between exchanges. Based on the above example, we can think that the activity of a market maker is not complicated and a stable way of earning, in the presence of impressive capital. However, this is not quite true. During time when the market is very volatile, liquidity providers can suffer losses. For example, there is a buyer on the exchange who is willing to buy 100 ETH and a seller who is willing to sell 10,000 ETH. A buyer buys 100 ETHs at $20,000 (price for 1 ETH $200) and a seller gets $19,990 (price for 1 ETH $199), the market maker gets $10 as a spread. At the same time, there are 9,900 ETHs left, which the seller wants to sell, and the market maker, respectively, must buy them back. Having paid $1,970,100 for the entire offer (price for 1 ETH is $199), the liquidity provider will not be able to sell them for the same price. Even if the price drops to $198.5, the total sale price of 9,900 ETH will be $1,965,150, with a loss of $4,950. Considering that the crypto market is famous for its volatility, the price difference may not be 50 cents. A market maker cannot simply sell the ETHs they receive at a reasonable price for the following reasons:
No one will buy the asset at an unfavorable price, and a sale of 9,900 ETH is likely to have impacted the market.
The exchange’s service agreement states that the market maker cannot simply take and sell the assets, otherwise its services may be refused.
This method can be considered as market manipulation.
Therefore, in a moment of strong volatility market makers simply leave the market, otherwise — it can lead to a serious loss. During high market volatility, it is often impossible to close a position at the right price, due to the lack of liquidity on the exchange. This indicates that the market makers have withdrawn from trading. It is also possible to track the presence of a market maker on the exchange in the following way: if the spread is narrow and the price of an asset is in a sideways trend, the liquidity provider participates in trading on the exchange. If the spread is wide and the price of an asset is subject to volatility — the market maker has withdrawn from trading. In the same way, you can find out whether there is a market maker at the exchange at all, i.e. whether they resort to its services. The Market Maker performs vertical market analysis, not horizontal market analysis as ordinary traders do. For the liquidity provider, in addition for buying or selling an asset, the order glass displays pending orders, Take Profit and Stop Loss. This allows you to correctly interpret the mood of the market participants and perform your direct duties as a market maker — to maintain liquidity levels and narrow spreads, as well as to provide large volumes of orders.
Market makers on the crypto market
Market makers in the crypto market are much more in demand than the traditional market and that’s why. If we talk about crypto currencies from the top 10 list — their liquidity is enough to buy or sell a coin almost instantly. However, there are about 3,000 crypto currencies for 2020 and not all of them are liquid.
The process goes like this:
Startup is going to be carried out by IEO (Primary Exchange Offer), a modern analogue of ICO. The stock exchange considers the token and leaves it. After a week, a month, six months the amount of investment in a token is minimal. There are two reasons for this:
A skilled trader, when investing in a new coin, will rely on the order book. As the token is new, even if it is promising, but there are no records of selling and buying, so the trader will refuse to invest.
A significant player has learned about the listing of a new token and its future prospects. It was decided to open a large, long term position, but there is no liquidity, that is, if the position is opened, it will be time consuming.
To avoid such a development, the crypto market should resort to the services of market makers. Liquidity providers may buy a token and artificially “fill” the order book. In fact, this will be a twisted indicator of liquidity and is suitable only for speculative purposes. But 90% of cryptotraders came to this market because of its high volatility, i.e. to earn on price hikes. For this reason, crypto currencies need the services of market makers for the systematic establishment of the market and attraction of new, professional traders.
As a rule, market makers always resort to ATS (Automated Trading Systems) and HTF-trading (High Frequency Trading). Both systems require very advanced programming skills. In addition, it will require economy knowledge, preferably not minimal, in order to make right assessment of work and potential risks. Sell-Side strategy — automatic trading systems are used to constantly maintain optimal prices and profit from spreads. It is not rare to have a strategy of placing Buy and Sell orders simultaneously. In fact — a common risk hedging. HFT or high-frequency trading- is a type of algorithmic trading characterized by a high speed and turnover of capital, as well as short asset holding periods. To become an HFT trader you will need specialized robots and powerful computers as the main task of high-frequency trading is to conclude a lot of transactions in the shortest possible time. With the help of HFT trading market makers must set a quote or the last price and constantly update it.
Market makers are a necessary part of the economy. They do not earn on price movements, but create comfortable and loyal conditions for trading. In the end I would like to tell you about some myths that exist in the network in relation to market makers.
Market makers can affect market quotes
That’s true, however in a slightly different understanding. The task of a market maker is to create the market mood and push its participants to open orders in the right direction. Market makers cannot influence the quotes price for two reasons:
The exchange where the market maker trades, monitors all its operations. In case of intentional influence on the price of the asset, the reaction will be immediate.
This kind of activities are trade manipulations, i.e. they are prosecuted by state regulators, up to including deprivation of license to operate such activities.
Market makers cooperate with each other
At the beginning, I would like to mention that all market makers are competitors, and to disclose their plans to competitors is not a good idea. In addition, it is also punishable by law, up to deprivation of a license to conduct activities.
Most transactions on the platform are initiated by market makers
It’s not a very clear statement. The main profits of a market maker is spreads. How in this case should the liquidity provider earn, if all transactions on the site belong to him? These are the most popular myths in the network regarding market makers. In the end I would like to add that the work of the market maker — is a complex and time-consuming process, the result of which is a balanced financial market. Please don’t forget to follow us on Telegram and stay updated!YOUR CRYPTO BOSS
Hi, I've been trading options on securities for about a year and am interested in trying my hand with bitcoin options. However, I am quite concerned with the wide bid/ask spreads -- at least on LedgerX (not sure if this applies to other platforms, but I imagine so). With stocks, it's suggested that one avoid this by only trading highly liquid options. But the bitcoin options are liquid enough, volume is not the issue. So I was wondering if anyone cared to shine some light on why this is the case, and how one might avoid selling for a loss even when they've made a correct directional bet. Thanks in advance.
I will tell you exactly what is going on here, this is critical information to understand if you are going to make money in this space. How prices work, and what moves them - and it's not money invested/withdrawn.
/edit: Hi /all. While I have your attention, I want to take 5 seconds of your time and bring some exposure to something that is threatening our existence as the human race. If you aren't interested, please skip down to the main article. I'm talking about finding a way to live sustainably on this planet, regenerative agriculture, where we get our food from, and how we can make sure that our kids and grandkids have something left once we leave. Please consider reading up on Permaculture, sustainable living, Forest gardening, Backyard Chickens, etc. Consider following what I did and do it for yourself. This all used to be a useless lawn. Bored for a night? Go watch "Sustainable" on Netflix. Look into people like Geoff Lawton, Mark Shepard, Sepp Holzer, these people are going to save us. Want to make a small change yourself? Grow a tomato plant on your balcony in a pot. Reduce transport of the tomatoes you eat, and make ~$50 per plant in saved money. Want to do something bigger? Plant a fruit tree in your backyard. Maybe two. Maybe a raspberry bush. You are now part of saving the human race. If everyone reading this planted a fruit tree, or even some wild flowers, we could save the bees. While you are at it, planting a fruit tree has been shown to be one of the best investments on the planet. There's pretty much no investment on the planet that is more financially lucrative (while still being nearly bullet-proof safe) than planting a fruit tree. You can get a tree at an end of sale auction for literally 5-10 bucks, and that tree will produce THOUSANDS of dollars of fruit for you in it's lifetime. Go spend $200 bucks at an end of season sale, plant 10-20 trees (if you have room), and that $200 will be worth tens of thousands of dollars of saved money. Do it right, set it up right and it's almost no work because you offload the work to nature - as it has done for the last few billion years. Go learn how, let me show you how. If you do it right, it's zero work after you have planted and wood-chipped, and all you do is pull dollars off a tree. Original post starts below. I apologize for the shilling of Permaculture, but I think loss of topsoil will impact us all if we don't reverse it soon. We need soil, we need bees, we need food. We need to stop buying December Bananas in Canada. We need to start supporting local permaculture sustainable farms. We need to do this or we may not make it, and our grandkids stand no chance. I also expended the "now what happens" section, to explain how these pullbacks are a good thing, make crypto more stable, and why we keep seeing larger ceilings after every pullback... this stuff is really important for you to make money on this thing, if that's your goal.... I've made a similar post in a few spots, and this is something that is absolutely critical for people to understand... what impacts price, and what is going on lately. Price has only a very minor correlation with money invested, and a major correlation with opinion. ... and Humans are an emotional bunch. So what drives price of any commodity, crypto, gold, pizzas, whatever? The money invested in it, right? Kind of, but not really. What if I told you that you could theoretically raise bitcoin from $15k to $20k by spending $1, and lower it from $25k to $1k by spending the same $1? Crazy right? AN EXAMPLE This is going to start out slow, I want to make sure I get everyone on the same page before I pick things up and lift the curtain. Stick with me here.... This is an example to help illustrate why prices aren't driven by money invested, but rather consensus and opinion. Lets imagine the following exists (we will use bitcoin as an example, but this is how everything on the planet works) Lets say Bitcoin is currently priced at $10k (the last sale). From $11k to $99k, every $1k there is someone with a sell order of 1 full bitcoin. From $9k to $1 dollar, every $1k on the way down there is someone with a buy order of 1 full bitcoin. So, right now if you wanted to buy bitcoin you have several options... meet the lowest seller's price of $11k, or, put your own buy order up, above the highest buyer's bid order (overcut them). If you decide to just place an order, the price doesn't change. If you decide the buy the $11k bitcoin, now bitcoins value is $11k, with a new lowest sell offer of $12k, and a highest buy bid of $10k. Someone else comes in an overcuts the buy bid and puts 1 BTC for sale for $11k. No trades are made until someone matches a buy/sell. Okay, that's kindergarten stuff, most people here understand that. So how much money drove the price up in this situation? $11k, and BTC price raised 11/10, 1.10, or 10% from the last sale. Now the entire marketcap of BTC raised 10% (last sale multiplied by circulating supply). So it takes $11k to drive a 10% increase, right? Not at all. Lets look at what happens when news is released. News comes out that Warren Buffet thinks bitcoin is a scam, a bubble, and he wouldn't touch it with a 10 foot pole because he only invests in things he understands and he doesn't understand crypto. People panic everywhere, and believe "this guy is smart, I'm overvaluing this thing". Suddenly people don't want to buy this scam anymore, and the buy orders for $11k, $10, and $9k are taken down. At the same time, the people wanting to sell start to panic and just want out. The guy at $32k (who just had that offer up "just incase it moons") drops down to $11k sell order. The guy at $12k, who was the lowest, now undercuts him to $10k. The other buyers see the sellers undercutting and think that if these people want out, why am I buying in. The $8k guy pulls his offer, and so do the $7k, $6k and $5k guys. The highest offer is now $4k. The sellers panic further and the $14k guy undercuts the $10k guy and puts up a $9k sell. The $15k, 17k and 11k guys all see this flurry of panic and now a storm undercutting is triggered, to $8k, $7k, and $6k. The $8k order pulls his again and goes down to $5k. The price on the buy and sell orders has moved around a ton, but no sales have actually happened yet. Technically, BTC is still "worth" $11k, and the market cap reflects that. All this horseshit has happened, and it only happened in 10 seconds, but the price hasn't moved yet. The $27k guy wakes up and checks his phone. He had a $27k offer just incase the price moved also, and he also only has a tiny infinitesimal fraction of a BTC. Well, he decides "he's out" and fills $1 worth of the part of the $4k guys buy offer. The latest price information is now updated, and BTC fell from $11k to $4k price per BTC with the movement of a single dollar. This is exaggerated example, but this is what moves price. Not money in vs money out. The ONLY THING that moves price is perception. OPINION FLOW AND NOT MONEY FLOW Now the above example only happens if everyone simultaneously believe the same thing... this the asset they are holding is a steaming turd. What happens in reality is there's no black and white, it's shades of gray. It's flow in vs flow out. But again, not flow MONEY, but rather OPINIONS. If 66% of the holders of something all of a sudden unanimously decide that their asset is overvalued, then they panic sell. Even if 33% of the people decide they are going to buy up as much as these panic sellers sell, if the panic is strong enough, and they are slitting eachother's throat to sell, then the buyers just happily sit and let them do that, and time their buys in. Very little money has to actually change hands in order for this price to crash, all that matters is the FLOW OF OPINION has to be swift and violent, and in majority. The sellers will leapfrog eachother on the way down, faster than the buyers scoop up their sales, and the net result is a crashed price. Note, this happens both ways... fear, uncertainty and doubt (FUD) as well as overhyped FOMO (Fear of missing out). So now what happens? Time goes by and all holders opinions of their asset hasn't changed. They still think it's worth $11k and they got great deals scooping up what these sellers were selling. The weak hands have left the market and have been replaced with holders. Overall, now a higher percentage of holders believe in the product they are holding and are unwilling to sell for the panic prices of the last week. Panic sellers were also replaced by new money, people who have wanted in for a while and are now in on their perceived ground floor. Also, people who bought BTC at $1 ten years ago and have been looking for an exit to cash profits have now been replaced by either long term holders, or by these new people who are thrilled to have finally entered, and they are looking to hold long. So what happens on pullbacks? The number of people waiting to jump off the ship has decreased. The new ground floor is established. Are we done? Who knows, this could go on for another year, but what matters is that people who want off are getting off and people that want on are getting on. People who have panic sold and never believed in this in the firstplace... people who have wanted out for 10 years... they have been replaced by people who are now getting in on THEIR GROUND FLOOR, and are going to be holding long. The market is suddenly increasingly more stable today than it was yesterday, even though prices are down. This is a good thing. This is why crypto keeps bouncing back from pullbacks and reaches new higher ceilings and floors each time. Old money who wanted out, and new panic holders, they are gone. They are replaced with adopters, holders, believers in this technology. These people aren't selling anytime soon, because they believe that this thing is going to revolutionize the world. Every crash brings more of these people in, and removes more panic sellers out. Moving forward Now news releases start coming out about how stock ETFs are being created, NASDAQ index funds, bank support, government support. Companies are using this tech, and companies who use blockchain for transportation are putting non-blockchain companies out of business. The people on the outside looking-in feel they are missing out. They now start coming in and buying. They start overpricing eachother on their buy orders, and eventually it gets close enough to a sell order that someone decides they are just going to meet the sell price. The sale goes through. Sellers (HODLERs) see this action, and they start pulling sell orders off the table almost as fast as they fill. Sure some trades go through, and incoming money is driving the price up as market orders are filled. But what's also happening is people are seeing this flurry of volume, and sellers are pulling sell orders and placing them higher. Junk coins and pump and dump scam coins are dying by the millions. In their ashes, good solid technology projects whose coins have fundamental economic reasons for growth, these are rising. Corporate partnerships continue forming. The real world continues to create actual use cases. Companies start storing more and more corporate information on blockchain. Public companies use blockchain to store scientific research (See Canadian Research Council announcements), and blockchain acts as a Library of Alexandria. People can travel out of country without any monetary exchange, using their chosen cryptocurrency to buy the things they need abroad. The world is slowly actually USING this technology. Money is coming in, but more importantly, OPINION IS CHANGING. Literally nothing could have happened in terms of fundamentals, partnerships, etc... this can all be driven entirely emotional, so long as it's wide-spread and strong. Infact, the market could THEORETICALLY rebound in this way from $4000/BTC to $1 MILLION PER BITCOIN by the sale of ONE PENNY. $4000 sound low? Does that number make you uncomfortable? We may go that low. We may not. If we do, I'm not panicking and selling, I'm buying more. SO WHAT HAS HAPPENED IN THE LAST FEW MONTHS? and where are we going? A lot of new money has come in from Nov-Jan, and they don't really know what they are investing in. Sure some of them have done great research and are smart investors but most people aren't and isntead they are buying Symbols and Names and trading on speculation. They are treating their favorite coins like a sports team, and will follow them irrationally off a cliff. These new people came in and invested in cryptocurrency because their OPINION was heavily influenced in Nov, Dec, Jan, from media. They saw this money making machine called crypto. They were willing to pay huge, ride the wave up, keep buying, etc. They were "ground floor adopters" and were going to get rich. They outnumber the old money by A LOT. Their OPINION MATTERS. It matters the most. To keep this in perspective, they are also a VAST MINORITY of "new money" that will enter the game in the next decade. This cycle will continue over and over and over. Their opinion rose nearly unbounded and price rose accordingly. Market cap rose from 10B to 750B, and it could have been VERY LITTLE actual money that did this. How much did it need to be though? Literally ONE PENNY, theoretically. All that matters in moving price is MOMENTUM OF OPINION. I believe it has been estimated that as low as 6B USD was responsible for the bull rush. These people then started hearing "Bubble", "Scam", Fake news about governments banning. They don't understand how technology wins, always. Crypto is beyond government control. If they could have stopped Bitcoin they would have done it already. WHO IS DRIVING ALL THIS? Most investment opportunities go first to "accredited investors". You need to have multimillions in order to get in on the ground floor for most stock IPOs, and we're seeing that start to happen with coin ICOs. Bitcoin was a joke for the first few years, while lunatics picked it up. At this point, it was really too late to get in "early", and who would have wanted to anyways, it was all still a joke. So Wallstreet, banks, governments have generally watched on the sidelines as average Joes who were crazy enough to be early adopters and toss $100 on fake internet money slowly became millionaires. Not only that, but the idea of blockchain started to become understood. The power and value in it became understood. Not only as a way to track "monetary value" but for many other applications as well. Platforms were created, business uses brainstormed, products started being made. This thing started taking off, and wasn't a joke anymore. But regardless, big money wasn't in on the ground floor. They have stakeholders opinions to think of, and what do they say to investors when they lose all their money on magic internet points? But they have woken up now. This thing has "popped" many times now and keeps recovering. This thing won't die. could they have been wrong all along? If they want in, how do they get in? They are no dummies, they have been controlling the world their whole lives? Look at the media experiment that Trump is doing? He is testing just how we work... you can do literally anything and we remember it for like 30 seconds, until the next news story comes out. We change opinions very easily. We are swayed very easily. We are their puppets. Media controls the world. They know their way in. They have ONE WEAPON against cryptocurrency. YOUR OPINION OF IT. And they know it. Media. That's why FUD is so powerful and needs to be respected. It's why we need to read more than titles on news articles. We need to question what we read, whether it's good news or bad news. We need to think about "what are the motives of the person saying this to me". Does the government have a conflict of interest when they state that crypto is gambling? Do they have skin in the game? What about wall street? Does WEISS ratings possibly have incentive to come out with poor ratings? Do banks have incentive to lock accounts in order to "protect" customers from "unsafe investments" when their entire business model revolves around holding as much of your money as possible and making money off it? Do you think banks have any super secret hidden interest in preventing you from storing your money elsewhere? I'm not sure, maybe you can critically think about that. Just understand that this goes both ways. When crypto is booming and Fox news is showing people how to buy $4 ripple on prime time, you may want to start putting in some stop loss orders. When the suicide hotline is stickied at the top of /cryptocurrency and everyone is panic selling, you may want to start picking up some firesale deals. So, the question is this... Is crypto undervalued or overvalued at it's price today? Where is the price going long term? I'm not talking about it's use case, I'm talking about in the court of public opinion, where is THAT going? Because THAT is what is going to drive price in the future. Without a crystal ball, this is of course impossible to know. Do your own research and form your own opinion. It could very well be that the technology having a use-case will in and of itself drive opinion, and thus price. But make sure you understand that it's not the technology itself, it's not the value of the business itself, it's not the use case itself that will drive price, it is the publics OPINION of that thing which drives price. They are intertwined, but they are NOT the same thing. TLDR: VERY VERY little money has to move around in order to swing prices drastically, up or down. Money in and out doesn't drive price, OPINION does. How do you let the news you read impact your opinion?How are you being played (on both sides, shilling and FUD). Something is only worth what people think it's worth. Often that's based on reality, value, business, money, but often it's entirely emotional. Structure your portfolio in a balance, intelligent way, using risk methodology.. Invest money you are willing to lose. Support legitimate technology and teams who are actively driving their product to completion, coding, and marketing. Stop trying to make money overnight in pump and dump scams, or pyramid schemes. Every day, take one coin, do a deep dive on it, learn it inside and out. Look into their team and their past. Do that every day for a year, and you just learned 365 coins inside and out. Ask yourself the following key questions: Have those members consistently jumped ship on previous projects? Is that where you want to invest in? Is their team capable of executing on their vision? Are they trying to solve world hunger, and their team is a few 16 year olds in a garage? How active is their github? Are they adding chunks of code regularly, or is a ghost town? Are they marketing their product at all? Or is marketing the only thing they are doing? What are the economics of their coin itself? Is it required to be used to gain access to their technology? Are there burns? How premined is it, and what portion do the founders hold? What about their vision? Are they trying to solve a problem that needs to be solved? What are the economics of that problem and how much money does the solution potentially save clients? These are all questions you should be asking when you give your money to someone else. We're a lot more stable than we were - a correction was bound to happen. Too much early money wanted to cash in profits. These people have been replaced by new money who is holding on their own ground floor. The whole industry in general is still in very early stages. Rest assured that anyone reading this is still very much an early adopter. Just make sure you are investing in actual technology, and supporting capable teams, and not buying air. Buy the Googles and Amazons of Crypto, not the pets.com or flooz.com of cryptos. Happy investing everyone. /EDIT: some have asked to donate some crypto. Do me a favour instead, sub to my YouTube channel (link at top) watch my videos how to get started properly, and plant your own trees and establish food sovereignty for your family and your community, and help save the bees, save our topsoil, and sequester carbon to reverse global warming. My goal is to get a gardener back into every home on the planet. THAT is how we heal this world.
The below is the text from my latest blog post about bonds, if you want to see the original with pretty pictures, charts, graphs etc then click on this link. Ok, the title is an obvious dad joke, but as it happens it still fits in with my naming convention for posts so happy days! On to more serious stuff. The most common proposed asset allocation for people pursuing FIRE seems to involve having absolutely as much invested in equities (or to a lesser extent property) as possible, and reducing every other asset class to as little as possible. Which is certainly one way of doing things, and given the great performance of shares and property over the last 20 years or more there is an argument to be made for doing things this way. It’s certainly not the only way of doing things though, and I will be trying to show why there is a case to be made for investing some money in other asset classes, in particular Fixed Income aka Bonds. So what are bonds? Bonds are a type of debt that is issued by governments, semi-government organisations, and corporations, so basically you’re lending them money. In Australia we also have what are called hybrid securities, but they’ve got some big enough differences that I’ll talk about them in a future post (probably). Bonds are also one of those fun areas where there is an exception to every rule, so although what I’ve written below is broadly accurate there is always going to be some type of bond or a specific issue that breaks one of the rules. So please don’t be an internet hero and “well ackshually” me about premium redemption/issue bonds, soft calls, hard calls, investor puts, floaters, PIK notes and all the rest of it because broadly speaking it isn’t going to make much difference for the purposes of explaining bonds. Basically play nice readers! Talk numbers to me… Bonds are all about math. As I’m sure regular readers of this blog can imagine this makes me very happy, and probably explains in part why I spent a large part of my career working in an area where understanding bonds was crucial, although to make things more interesting we added on a bunch of other stuff like equity options, credit derivatives, FX etc. The main numbers to think about are the price you paid for the bond, the coupon on the bond, the yield on the bond, the time to maturity, and the maturity value of the bond. From those main numbers we also derive a bunch of other numbers I’ll talk about later. Bonds are normally issued at a price of 100, with a fixed coupon (interest payment based on the maturity value of the bond) and a fixed maturity value at a known maturity date. So that’s 4 of the numbers covered already, happy days! A lot of the time though you’re not going to be buying that bond when it is issued, you’ve buying it when it’s already trading in which case chances are pretty good you didn’t pay 100 for the bond. Buying it along the way doesn’t affect the coupon or the redemption amount at maturity or when it matures. What it does affect though is the yield. There are a bunch of different yield measures but I’m going to go with yield to maturity, ie what yield (return) will you get if you hold the bond to maturity. It’s not a perfect analogy, but one way to think about bonds is that they’re like a term deposit where the amount that you can buy it for moves around. If you buy a bond for $10,000 that is going to mature in a year and it has a 2% coupon and redeems for $10,200 (redemption price plus coupon payment), then your yield (2%) is the same as your coupon (2%). But if interest rates have changed and so the price of the bond has changed and you buy that bond for $9,900 or $10,100, then your yield will be different from your coupon, either 3% or 1% respectively. Hopefully that makes sense? BTW I’ve rounded the numbers here to try and keep it nice and simple. Most bonds pay interest on a semi annual basis (I used an annual payment in the example above to make things easier) so to figure out how much interest you get when it gets paid it’ll be the coupon divided by two. Hopefully all of that makes sense, if not let me know in the comments. Issuers of Bonds As I said above the main issuers of bonds are governments, semi government organisations, and corporations. Debt issued by governments is generally the safest type, because so long as they control the printing press then they can always print more money to pay you back. The Eurozone is a bit of an exception to this (understatement of the year) but in most of the other major sovereign bond markets like the US, Australian, the UK etc it’s true. Emerging markets are a bit different because they often issue debt in USD, which means that if things go pear shaped then they can’t just print more money to pay off bondholders. There can also be issues with getting your money back from sovereigns if they have too much debt, such as when they either don’t control the printing press (Greece) or the bond is issued in a different currency (Argentina) but for the most part if you lend money to a developed country in their own currency then you can pretty reliably count on getting your money back. There are also bonds issued by semi government organisations like the World Bank, European Bank for Reconstruction and Development etc, these are slightly less safe for the most part but you’re still not taking on much risk of not getting your money back. Debt issued by corporations is riskier, partly because businesses obviously can’t just print more money to pay you back, and because corporations can and do go bust. Sure it doesn’t seem likely that Telstra or Woolworths or the big banks are going to blow up any time soon, but there are plenty of other bond issuers out there with much more fragile finances. As you would expect the more risk you are taking on the more return you want in order to be compensation for doing so. This is because unlike a term deposit the value of your capital isn’t protected. If you put $10,000 into a term deposit for a year with an interest rate of 2%, then you know that in a year’s time you will get back that $10,000 plus $200 in interest. If for some reason the bank you invested that money through goes bust, the government will make you whole (up to the value of $250,000 per entity per approved deposit institution. If you invest in a corporate bond and the company goes bust, well you’re probably not going to get all or maybe any of your money back. The good news is that you’re more likely to get money back than equity holders, but if the debts of the company are a lot more than the assets then you’re going to be in trouble. There’s a clear framework for what happens if a company goes bust and who gets paid first and in how much etc, the short version of this is that equity holders are absolutely last in line but depending on what type of bonds you own you may not be a meaningful better position either. And unlike a stock, when you own a bond you don’t own a piece of the issuer of the bond, you just own part of their devt. So if the company does great and starts making a fortune, you as a bondholder don’t get paid any more than what the terms of the bond state. Basically you can get a fair chunk of the downside and none of the upside beyond the terms of the bond. On the plus side this doesn’t happen particularly often, most of the time you’ll get what you were promised Bond ratings Now obviously some companies are more secure and stable than others. If you take a bond from the biggest company in the ASX200 which is CBA, then it’s more likely to fulfil the terms of the bond than whatever the 200th company is. That’s not to say the 200th company won’t, just that there is more risk. The actual degree of this risk is quantified in a couple of different ways. First of all there are ratings agencies out there who will assign a rating from anywhere to super safe (AAA) to D (in default) with a bunch of graduations in between. Anything rated from AAA to BBB- is what is called Investment Grade (IG), everything below that is called High Yield (HY) or less politely Junk. Just because a bond is IG doesn’t guarantee it will pay off, likewise something which is HY isn’t guaranteed or even likely to fail. For the most part though the different ratings given tend to play out that way in the real world, with far less defaults for bonds rated AAA vs bonds rated BB for example. The big three ratings agencies are Standard & Poors (S&P), Moodys, and Fitch, and between them they’ll rate most of the bonds and/or issuers. They tend to be fairly backward looking in my opinion, and they were hugely and obviously wrong on rating mortgage backed securities back in the GFC. Still, they will generally give you a reasonable idea of the creditworthiness of the bond issuer. Because bonds are also traded in the marketplace you can take the yield offered on a bond with a particular maturity, compare it to an equivalent government bond, and using some fun math (yeah baby!) back out a credit spread which that bond trades over treasuries (or swaps but I’m not going to get into that). The higher the spread, the higher the perceived risk of the bond, and vice versa of course. Are bonds safe? Well it kinda depends on what you mean by safe. If you mean are the bonds likely to deliver what the issuer of the bonds promised, then generally yes. As I said with government and semi government bonds you will almost certainly get all your coupons and the maturity value of the bonds delivered on time. Yeah, there are some exceptions to this but you’re unlikely to run into trouble with Australia, the US, the UK, the more economically sensible members of the Eurozone etc. Similarly with corporates the vaast majority of the time you will get your money back on investment grade bonds, and it’s pretty rare to not get your money back on high yield bonds as well. That’s not to say it doesn’t happen, but it doesn’t happen much. If you mean am I going to get back what I put into the bond, well no they’re not necessarily safe, particularly if you sell before maturity. Remember when I said bonds are kinda like term deposits that can trade? Well when they trade those prices move around, and they can move around a lot! Why do bond prices move? There are a bunch of reasons why bond prices move around, the main ones are changes in the interest rate environment, changes in economic conditions, and changes specific to the issuer of the bond. We’ll talk about interest rates first. Bond prices have an inverse relationship with bond yields, which is a fancy way of saying if interest rates (yields) go down then bond prices go up. How much do they go up? Well that depends on the magnitude of the change in rates, and a bunch of factors involving the bond. Basically the longer till maturity on the bond, and the lower the coupon on the bond, the more sensitive it will be to changes in interest rates. This is measured using modified duration and convexity. Modified duration takes into account the timing of the cashflows of the bond (so coupons and maturity) and gives you a number which is typically a little less than that number of years to maturity, the higher the coupon the more it decreases the modified duration. If you multiply that modified duration by the change in interest rates in percentage terms, it will tell you how much the bond price will move by (in theory at least). So if you have a modified duration of say 7.117, then for every 1 percent move in interest rates the bond price will change by 7.117 points. So if your bond price was previously 100 and rates moved down by 1%, then your bond should now be worth 107.117. Happy days! Conversely if rates moved up, well your bond is now worth 92.883. Not so happy days. I’ve used the [ASX bond calculator](http://%20https//www.asx.com.au/asx/research/bondCalculator.do) to give a couple of examples using the current Aussie 10 year bond. You can hopefully see below that by changing the yield on the bond from 1.5% to 1% the market price has gone from 116.87 to 121.83, roughly a 4.25% change in price for a 0.5% change in rates, so presumably the modified duration on the bond is about 8.5. To make things slightly more complex, that relationship isn’t fixed due to something called convexity. Instead of being a linear relationship, it’s actually a changing one (a curve rather than a line). Basically the more bonds prices move away from where they were issued the more that relationship will change. Then there are things like GDP numbers, employment numbers, consumer sentiment surveys, PMI surverys, and all sorts of other economic news which will potentially move bond yields around, generally pretty slightly but it really depends on how important that economic number is and how much of a change from expectations it is. On top of that for corporations changes in their own situations will have an effect on what their credit rating/spread is which will affect prices as well. If a company goes from being loss making to suddenly making a profit, then that’s going to be good for their credit and the bond price is likely to go up. Bad news like a profit warning will potentially mean a higher credit spread and lower price for the bond. There is also general investor appetite for risk, so if investors are happy to take on more risk in their asset allocation (risk on) then they will likely sell off lower risk assets like bonds and buy higher risk assets like equities and to a lesser extent property. If things change and they want to go risk off, then the reverse happens and money tends to come out of equities and into bonds. What happens to bonds if the stock market crashes or we have another GFC? A stock market crash is actually one of the more compelling reasons to invest in bonds. This is because when stock markets crash investors tend to put their money into asset classes where they feel a lot safer ie, bonds. The rationale is that getting your money back is now hugely important, and even more important is not losing all your money as you will in those horrible equities which you knew you should never have invested in but that horrible financial adviser talked you into. People. Are. Not. Rational. People panic. People sell assets which are going down in value even though they know they should be holding on for the long term. This applies not just to retail investors, but also to professionals who should know better. In the GFC I spent plenty of time talking to institutional investors with a long term time horizon (ie 5 or 10 years etc) who suddenly decided they had to get out because of bad one month performance. People will bail out if the proverbial is hitting the fan. I wrote a bit about my experiences with the GFC here, and believe me there are a lot of people who are not going to be as cool calm and collected as they think they will be. It’s very very very very (extra very for emphasis) important to note here that at this point in time investors will not be thinking that all bonds are much the same. When they are looking for somewhere to put their money that they now have after panic selling out of equities, they will park it in the safest place they can find, ie government bonds (aka treasuries). This will cause the price of those bonds to rise because of supply and demand. If they still want to take on some amount of risk then they might put some into investment grade bonds, again this will push the price up a bit. They will almost certainly not put money into high yield bonds, because those are risky and in a crisis will behave pretty similarly to equities, ie they will fall in value. If anything they will more than likely try to pull money out of HY bonds, pushing the price down. This excellent post really shows this in the below graph which shows the average performance of different types of bonds for a 10% or greater fall in the stock market (all of this is for the US but the same principle applies to Australia). It doesn’t work in every case, as shown below (same source), but in almost all cases of a big crash in equities, treasury and to a lesser extent IG bonds gave you a big positive return to help out. HY, not so much and in some cases actually gave you a worse performance than equities themselves. Please believe me when I say it is a huge help psychologically to have some of your investments going up when the others are going down, which to me at least is a great reason to have some money invested in bonds. You’ve convinced me, how much should I have in bonds? Ok so I’m probably being slightly optimistic here given the number of posts I see on reddit about how VDHG would be so much better if Vanguard got rid of that terrible 10% that’s invested in bonds and put it all in equities instead. It would be nice to think though that some people are now realising that come the next crash they too might not behave entirely rationally, and it sure would be nice to own some assets that are going to zig when the stock market zags, so to speak. On the off chance that I have actually convinced people, well it really comes down to your particular risk profile. This is going to be hard to believe for some people, but in the US the default portfolio for most investors is 60% stocks and 40% bonds. Looking at Oz , the default balanced investment option for most super funds over here are supposed to have something like a 70:30 split between growth assets (shares and property) and defensive assets (bonds and cash) although the reality is a long long way from that if you actually look into how they invest (that’s a discussion for another time though). So that maybe provides a useful starting point. I know that the average FIRE portfolio that gets talked about particularly from younger bloggers (who have likely never experienced a sustained down market) is pretty much 100% equities and property, maybe even leveraged up. Which is fine if you can hold on through the downturns, but not everyone can do this because it is extremely difficult to do psychologically. I wish them all the best of luck, but I am pretty sure that at least some of them will decide that it’s all too much and sell whenever we have the next crash. There are exceptions to the rule though. One of my favourite bloggers, and someone who I know thinks deeply about this sort of stuff, is the FI Explorer who has about 15% in bonds and 15% in defensive alternatives (gold and bitcoin) as per his latest portfolio update. Whilst I don’t like Bitcoin myself, or gold for that matter, he writes a good explanation about why he holds both here. I still don’t like either asset myself, but I recognise that I am not infallible, I could well be wrong about this, and certainly historically they have worked well as hedges. In any case the more important point here is that there is basically a 30% allocation to what would be regarded as defensive type assets. This is actually a bit over his actual target of 25% in defensive assets, but he probably sleeps just fine at night. I’m a little more aggressive in only having about 21% of my assets (excluding PPoR) in cash and bonds, but it’s not a huge difference. Both of us have been invested through stock market crashes and hopefully have come to realise that we are not the hyper rational investors that economists believe we are, and therefore it’s best to have a bit invested in stuff that will go up or at least hold it’s value when everything else is crashing. How do I buy bonds? You can buy bonds individually, but you tend to need to have a fair amount of money to do so and you can run into a lot of problems with liquidity, big bid/ask spreads etc, it’s hard to build up a diversified portfolio etc. I buy bonds the same way I buy stocks, ie via an ETF. Most of the major ETF providers have some variety of index ETFs tracking Treasury only or Treasury plus Investment Grade bonds, or you can buy HY stuff if you want. Personally I just use one ETF which has about 75% in treasuries and the rest in IG. There are also some actively managed bond funds out there, either as ETFs or managed funds. For the reasons I outlined above about bonds being a psychological safe harbour I personally would (and do) only invest in bonds which are likely to up in a crisis, but different strokes for different folks applies as always. Any more questions? I’ve only really scratched the surface here of talking about bonds, but at the same time I feel like it’s an overwhelming amount of information. If you have more questions then as always I’m happy to answer them in the comments! Do you invest in bonds? If you enjoyed this post and would like to read more like it then please subscribe!
WSB101 - THE BOOK OF YOLO: BEGINNERS GUIDE TO TRADING LIKE A DEGENERATE AND EVERYTHING WSB
The Book of Yolo: COMPLETE GUIDE TO WSB The goal of this is to actually create something that all of you WSB newbies can read - because we’re all tired of seeing the endless wave of uninformed and unavoidable stupidity from those who have never touched the stock market. CALLING ALL NEWFAGS AND NORMIES. If you can’t read, GFY now. Now that we will be on the popular section of reddit, this has become pertinent. WSB can't avoid newcomers, so we might as well explain how the clock ticks here. This one is for you all. This is to serve as a reference what values we hold, what instruments we use, and as a general place to educated the uneducated. First off, this is the LEAST helpful stock market-based community for newcomers. Sarcastic answers are the only thing of true value here. It isn't a place to learn, but a place to plan out where you will dock your yacht. Newcomers are usually berated upon asking the inevitable stupid questions that they could learn slowly from reading here, or just using a damn search engine. Instead of embarrassing yourself here, you now have the opportunity to read this and get what we’re all rambling about. This will help you understand what to expect if you make the decision to undertake a WSB style trading career, so you can stay here and contribute to the yolo lifestyle or otherwise GFY. I will edit in any suggestions that our frequenting users or mods want to add to this as well. To begin: Here are our topics for WSB101 -Basics (Equities/Stocks) ; -ETF's ; -Options ; -Futures Trading ; -SubCulture ; BASICS/EQUTIES Skip if you understand basic stock stuff Okay, so what is an equity/stock? An equity is essentially what you’d think of as your “vanilla” trading tool. They move up or down depending on market forces, and can range from pennies to thousands of dollars per share. To explain how stocks work, let's define a few terms. Volume: The number of shares of stock traded during a particular time period, normally measured in average daily trading volume. Spread: The difference between the bid and the ask price Bid Price: The current price in which someone wants to buy at Ask Price:The current price in which someone wants to sell at Volatility: The WSB favorite. Volatility is referring to the price movements of a stock as a whole. The higher the volatility, the more the stock is moving up or down. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin. Margin is one of WSB’s popular instruments of wealth and destruction. Dividend: This is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all companies do this. PPS: Acronym for “Price per Share” Moving Average: A stock’s average price-per-share during a specific period of time. Bullish: Expecting the stock to go up Bearish: Expecting the stock to go down Any raised hands can redirect themselves to here: http://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 Now that these terms are defined, let's move into the details of why this is even useful. Most people know what a stock is, but how and why stocks move is a different story. The stock market is essentially a big virtualization of supply and demand - meaning that usually high positive volume creates upwards movement in the PPS, where high negative volume does the opposite. This creates a trader’s opportunity; Generally, the most effective time to buy or sell is where the candlesticks (volume data) are thinning out. When you are ready to take an entry point or execute an exit point, waiting till the volatility (candlesticks) thin out is one method to give you best trade possible. WSB FAVORITE EQUITIES: Of many equities, WSB favors the riskier ones - but avoiding penny stocks is a policy. AMD - CEO Lisa Su, Next Gen Processors, chips, graphics. It’s the gamers gambit. Up roughly 1400% as of 2/7/2017 since WSB first mentioned it NVDA - AMD’s sister? Mother? Daddy? Who knows. NVDA has been a sexy semiconductor leader. Is up 400% since gaining traction on WSB. FNMA / pfds - Mnunchin, Trump, Big fat fannies. Get your self deep in the fannie. We all want it. WSB 10 bagger candidate for reforming the housing market. WSB holds a large cumulative position that can be seen below. Also a good read is the beginners guide to FNMA. Any post by u/NOVACPA is very often VERY informative on FMNA/pfds. https://www.reddit.com/wallstreetbets/comments/5oissp/results_wsb_fnmafmcc_holdings https://www.reddit.com/wallstreetbets/comments/5t7gba/beginngers_guide_to_fnma_fmcc_read_this_before/ ARRY - A biotech champion that prevailed after a lot of failures and huge losses in the biotech sector. Dark times for WSB. Up ~300% since getting traction on the subreddit. TWTR - WSB likes to buy put option contracts on her. Exemplary of a social media platform that is unable to monetize itself. TSLA - Maybe not unanimously a favorite, but loved for it’s sexy volatility, Elon Musk, and ridiculously expensive options. GILD - A Shkreli pump and dump? The greatest large cap pharma recovery of all time? Who knows. Martin took the time to make a post on this reddit and it is up $5 dollars since. ETF'S Welcome to the world of investing made easy. Exchange traded funds (etfs) are devices that can be traded like stocks, but often track the value of many companies by investing in their listed assets accordingly. Specifically, An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. ETF’s come in beautiful and delicious varieties, often with a BEAR form and a BULL form of each; but the most delicious to WSB are the 3x etf’s. A 3x ETF is one in which the underlying movement of the ETF is leveraged 3:1. Meaning for every movement within the underlying index or stocks, the 3x ETF moves well.... 3x as much.. WSB FAVORITE AND USEFUL ETF’S: JNUG - 3x Gold Miner Bull - A hit or miss, has extreme intraday movements and essentially tracks GDX (gold miner’s index). Jnug will usually move with a pretty strong correlation to gold, which is affected by the mentioning of rate hikes (negatively), movement of the US dollar (inversely), uncertainty (positively), and supply and demand. NUGT - Jnug with a different price tag JDST - The inverse 3x etf of JNUG - or the bear etf. It does almost exactly the opposite movements of JNUG by the tick. Moves for the same reasons, but obviously opposite directions. DUST - Jdst with a different price tag. UGAZ - Natural Gas 3x Bull ETF - essentially tracks the price value of the commodity Natural Gas, but more specifically the S&P GSCI Natural Gas Index ER. The index comprises futures contracts on a single commodity and is calculated according to the methodology of the S&P GSCI Index. Natural gas is most affected by Weather temperature conditions (use your brain), petroleum prices, and broader economic conditions. DGAZ - Inverse of UGAZ UWT - Crude Oil Bull 3x ETF - extreme intraday movements, closely follows the price of oil. More specifically, it tracks futures. UWT seeks to replicate, net of expenses, three times of the S&P GSCI® Crude Oil Index ER. The index tracks a hypothetical position in the nearest-to-expiration NYMEX light sweet crude oil futures contract, which is rolled each month into the futures contract expiring in the next month. The value of the index fluctuates with changes in the price of the relevant NYMEX light sweet crude oil futures contracts. DWT - Inverse of UWT FAS - Financial Bull, specifically FAS seeks daily investment results, before fees and expenses, of 300% of the performance of the Russell 1000 ® Financial Services Index. The fund creates long positions by investing at least 80% of its assets in the securities that comprise the Russell 1000 ® Financial Services Index and/or financial instruments that provide leveraged and unleveraged exposure to the index. Can be used when bullish on US financial services - so banks, lenders, etc. FAZ - Inverse of FAS UPRO - S&P500 Bull 3x ETF, essentially tracks the S&P500 and multiplies it’s returns by 3x. BRZU - Tracks Brazil (in its most basic form). It creates long positions in the MSCI Brazil 25/50 Index. LABU - Tracks the Biotech sector, or specifically 300% of the performance of the S&P Biotechnology Select Industry Index ("index"). It should be noted that LABU has doubled since just before the election of Donald Trump. LABD - Inverse of LABU RUSL - roughly creates 300% of the performance of the MVIS Russia Index. RUSS - Inverse of RUSL SPY - Tracks the S&P500, but is not 3x. OPTIONS: Alright, so half you are going to understand this, and half of you are not. Pull up an options chain now on any stock (penny stocks and specific stocks do not have chains because of their market cap). Options are truly the ultimate way to achieve maximum risk/reward. An option is a contract that gives the buyer the right to buy or sell 100 shares of a stock at a certain price, on a certain date. This concept makes options a commodity themselves. KEY TERMS: A CALL - is the right to buy. Buying calls is taking a bullish position in its most extreme form. A PUT - is the right to sell. The underlying - is the stock that the option is covering i.e. AAPL, GOOG, AMZN Strike Price - the price at which a put or call option can be exercised. ITM, In the money - In the money means that a call option's strike price is below the market price of the underlying asset or that the strike price of a put option is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising. OTM, Out of the money - a call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. ATM - At the money - Strike price at the same price as the underlying Expiration - Expiries for options are every friday of every week usually, with exceptions such as every month, or every other day - depending on the underlying. SPY and SPX are great examples of very active option chains with expiries every other day. On the expiry date or any time before (with american options), an option can be, but doesn’t have to be exercised, meaning the holder of the option can use it to buy or sell shares of the underlying stock at the strike price. Most people on WSB do not exercise the contracts, but merely flip them for increases in value as the underlying moves. For example, when AAPL was at 120 before its earnings report, Joe Shmoe Yolo buys 10 FEB 17th CALLS at strike 127 for .60 , each. Now .60 cents is really 60 dollars each, because the contract is multiplied by 100 (the right to 100 shares). In total, Joe Shmoe Yolo spends $600 dollars + commision on this trade. The next day, AAPL leaps to 130 upon great news. These same option contracts are now worth 3.50 each. $350 dollars per contract, times ten contracts is $3500 dollars. Joe Shmoe Yolo just turned $600 into $3500 dollars. MAGIC. Spoiler alert: Joe Shmoe Yolo was me. That same Joe Shmoe later buys FEB 17th XOM calls at 90, hoping for similar results. However, XOM ends up never reaching anywhere close to the strike price, and the options expire worthless. Get it? Now what determines the pricing of options? OPTION PRICING: Below is sourced from investopedia Intrinsic Value: The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Additionally, intrinsic value is primarily used in options pricing to indicate the amount an option is in the money. Time Value: Time Value = Option Price - Intrinsic Value. The more time an option has until it expires, the greater the chance it will end up in the money. The time component of an option decays exponentially. The actual derivation of the time value of an option is a fairly complex equation. As a general rule, an option will lose one-third of its value during the first half of its life and two-thirds during the second half of its life. This is an important concept for securities investors because the closer you get to expiration, the more of a move in the underlying security is needed to impact the price of the option. Time value is basically the risk premium that the option seller requires to provide the option buyer the right to buy/sell the stock up to the date the option expires. It is like an insurance premium of the option; the higher the risk, the higher the cost to buy the option. Makes sense, right? Time value is determined by the expiration date. An expiration date in derivatives is the last day that an options contract is valid. When investors buy options, the contracts gives them the right but not the obligation, to buy or sell the assets at a predetermined price, called a strike price, within a given time period, which is on or before the expiration date. If an investor chooses not to exercise that right, the option expires and becomes worthless, and the investor loses the money paid to buy it. Volatility: In an options pricing, you see IV. This stands for implied volatility. The higher that is, the higher the options will be priced Volatility is the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used. Decaying Nature of Options: Decay refers to derivative trading (i.e. options). When you sell or buy a call/put (using those two for simplicity purposes) you don't get an infinite time frame to make your dreams come true. Time is your enemy; the further out the expiration date, the less time decay there is. Time decay really hits the worst the week of expiration. Sound confusing? Say you're buying options of the stock WSB (I hope you're seeing what I did there) - and the option costs $1, the expiration is this Friday. Say today is Monday. You buy a call expecting WSB to take you to the moon and beyond. Each day the stock doesn't move closer to your strike price or remains stagnant/drops, you lose value on your option + the time decay. Meaning if it finishes closer to your strike price, your option could be worthless because of that time decay. Questions? Ask away. A great example of these factors in action is TSLA. TSLA’s options are among the most expensive for companies in its price range, why? An in the money TSLA call expiring this week is worth around $1100 per contract. Insanely expensive. But for a reason. TSLA has extreme intraday movements and calls have an implied volatility of 40.92%. Which is fairly high. In addition to that, it holds high intrinsic value / price per share, and a week of time value. -Futures 101 - The Ultimate YOLO Guide (thanks to u/IncendiaryGames) Okay, a lot of you have been YOLOing on faggot delights on SPY options. How would you like to trade something with the same or more leverage, 1.0 delta, and no time premium costs? Have you considered futures? What are futures? Unlike options, futures is a contract where both the buyer and seller is obligated to perform the transaction by the expiration. Conversely, in options, only the seller is obligated to perform. That means you can lose more than your investment. Originally they were used by farmers to sell future crops early and guarantee some amount of sales. Since then futures have expanded not just to commodities but currency and equity indices like the S&P 500. Why the heck would I want to trade futures? Here are the advantages: Leverage $5k is the margin requirement for most contracts. For example with the E-mini S&P 500 with 5k you're trading $120k worth of stuff. 1 contract = 500 spy shares. Some brokers offer intraday daytrading margin rates too - TD Ameritrade is 25% of the overnight margin rate($1,250.) Some brokers go as low as $500 an /ES future. SPAN Margin If 24x overnight leverage and 240x day trade leverage didn't give you a hard on there is also SPAN margin, which is like portfolio margin on steroids. The beauty of SPAN margin is you don't need a $125k+ account to be eligible. SPAN will greatly reduce your margin requirements if you hold uncorrelated or inversely correlated positions (up to an 80% discount, here is a list of groups that give discounts) and if you hedge with options. Hedge with the right option or asset and now you have up to 500x day trading margin. 23/7 and day trading Ever get in and out of an equity only to have your broker yell at you to stop doing that or deposit $25k? There is no pattern day trading restrictions on futures. Feel free to day trade and blow up your account as often as you want! You can also trade 23 hours a day. Get trading on how the S&P 500 index will react to news from China right away. Taxes No matter how long or how short you hold you always get taxed under the 60/40 rule. 60% of your profit from futures will be taxed as a long term gain and 40% will be taxed as short term gain. No wash sales. Trade your hearts out. Just remember holding past Dec 31st will treat you as if you closed all your positions that day and you'll be taxed on unrealized gains. Long/Short No need to pay interest or borrow shares as being short a future contract is being a writer, just like an options writer. Options Of course there are options. What fun would it be without options? Unlike stock options each contract gives different number of future contracts. Research what you're trading. Ok. I'm convinced. I want to strat trading futures! What are some good strategies? YOLO Strategies Swing trading Trying to guess/predict/ride sudden market momentum. A low volume average day in the S&P 500 (/ES) for one contract can swing +- $500. Get it right and you can see a huge appreciation of value. /ES is usually highly liquid during regular hours with average volume of 1 million trades and usually bid-ask spreads of one tick. One approach is to buy or short in your direction and put in a stop loss to an amount you're comfortable to lose (say $200.) Since it's so liquid you'll likely be filled at or near your stop loss during the day if your trade goes against you. If you can guess the direction 50% of the time and have trades like this: trade 1 - gain $800 trade 2 - lose $200 Then you may profit over the time period. If you have a 50% chance of being wrong and losing $200 or 50% chance of being right and gaining $800 then over time you'll gain more than you lose. Also, since the present value of your futures contract is included in your margin calculation then if it goes strongly in your favor your position can quickly grow to cover its own margin and you can let it ride for a while. You'll want to be sure you enter a combo buy/short order along with a stop loss order simultaneously, like this for Thinkorswim. Futures can move suddenly and a sudden movement can make you lose a ton of money. Exploiting outdated SPAN margin guidelines There are several out of date correlations between popular futures like oil and say things like wheat that SPAN gives you margin credits on. Take whatever position you want in oil (/cl) then take the opposite in something that doesn't move much day to day with less volatility such as /w (wheat)) and your /cl and /w positions will get a 75% credit, giving you 50% more buying power on crude oil. (2 positions * .25 = 0.5). Trade your heart out on the more volatile future then when you're done close your safer future pair. SPAN is constantly changing but such a complex system definitely has its exploits. Automated/algorithmic trading For you programmer geeks out there it's really hard to algorithmic trade on small accounts due to pattern day trading rules and economies of scale with broker fees. Futures is probably the best way to get your feet wet. Join us on /algotrading if you want to explore more! Boring safer strategies I'm including these for completeness but these belong on /investing. Scalping With high frequency trading scalping is less guaranteed. Basically scalping is using tiny momentum as usually there are small micro patterns in futures buying and selling activity where it will rise or fall a couple of ticks. Since the notional value of each tick is $12.5 it's profitable for retail investors and small accounts to act as a market maker after fees at the smallest bid-ask spread possible. Spreads Just like you can trade spreads in options, you can trade calendar spreads in futures. Futures have contracts with different expiration dates and the prices are different for each month of expiration based on the market's expectations. You can go long or short the near month expiration and the opposite for the far month. This will hedge out any sudden market moves as that would likely affect both months. Bull markets in general tend to increase the price of the near month faster than the far month. Basically with a spread trade you're making a long term bet on bull or bear for the underlying future. Pairs trading You can go long in one future say the dow jones (/ym) and short the S&P 500 index and profit off the relative growth. This is a hedged trade as any market ups or downs will likely affect both positions with the same % value. For the past 180 days /ym - /es has been really profitable. Even if you don't do a full perfect pairs trade it is still a great option to reduce the leverage too on whatever index future you're trading so you can stay in longer or overnight. Interest rate and optimal leverage plays Since the $5k investment is equal to $120k of the S&P 500 index currently then you'll likely beat out the market by buying one future contract and putting $115k in safe treasuries or bonds or uncorrelated assets. Some people choose to leverage their stock portfolio and you can get the exact leverage ratio of liquid investments to future ratios. In probability theory the max leverage you can gain is determined by the Kelly Criterion which modeling shows indicates the S&P 500 index to be leveraged to 1.40x. Yes, you could do the same with options but even on SPY deep in the money call leaps are illiquid and have a time premium. Even today they are so deep ITM that the options you would need to use have 0 open interest and a bid-ask spread of $5 per share (so $500 per contract.) You'd need ~5 contracts per 120k so you're already eating $2.5k/$120k - 2% interest rate a year for that leverage. SPX isn't better, it's bid ask is 22 so you'd be eating $2.2k/$120k - 1.83% interest rate. It's doubtful you won't get much past the ask as its only market makers providing liquidity and guess what the market maker will do if you buy/sell the option? They will hedge with the underlying futures until their minimum profit is the risk free interest rate. Hedging Going long and short in various non correlated or negatively correlated assets to seek out a high sharpe ratio and have a higher risk free return that is market neutral. Basic hedge fund stuff. The variety and price efficiency of futures makes things pretty attractive in this area. SUBCULTURE Wallstreetbets is a community that has become infamous for the most wild west, moon or cardboard box trades on the planet earth. WSB is a place where you can take out thousand dollar loans, refinance your homes, cash advance all of your credit cards only to put it all on JNUG, and we will still love you. Your mother won't. Your father will never understand your spectrum of autism, but we will always love you. It is a uniquely beautiful community focused on praising its biggest losers as much as its biggest winners. To begin on the subculture, we should define some key moments in the sub's history. HISTORY: (As made by u/digadiga) + my additions 2012: Jartek [+1] creates /wallstreetbets, and word slowly starts to ooze out. 2013: americanpegasus discovers pennies. AP has seen the light, and is a penny stock evangelist. Jartek & AP have an epic options vs pennies battle - they both lose a couple of hundred bucks, but we are entertained, and WSB is officially born. AP blows up his retirement, swears off pennies and moves onto bitcoins. 2014: fscomeau [+3] discovers options. He repeatedly bets five figures on AAPL calls before earnings. FS claims a supernatural clairvoyance of AAPL. FS then posts about his chest pains and ER visits. He finally suffers an epic loss. Is he dead? Is he alive? Is he is mother? Is he banned? Who cares? 2015: Photos from the 3rd annual meetup are posted. Where a bunch of dudes hang out on the romantic beaches of Guerrero Mexico. In a completely unrelated event, the wsb banner is changed to thousands of ejaculating dicks. Modpocalypse occurs. Hundreds of random users are added as moderators for a few months. None of the new mods can change the CSS. The constant whining about how "wsb isn't what it used to be" continues. Someone attempts to show how selling covered calls is idiot proof, but gets lazy, bets all six figures on Apple, and suffers significant losses. Robinhood gets popular. Should you buy one share of AMZN or one share of GOOGL? Who gives a fuck. 2016: Everyone starts saying "go fuck yourself." Except me. Because I am what I am. And if you don't like it, you can all go fuck yourselves. u/World_Chaos performs one of the more impressive yolo's of the sub, starting with 900 dollars, and turning it into 55k. https://www.reddit.com/wallstreetbets/comments/414blh/yofuckinglo_900_to_55k_in_12_days/?ref=share&ref_source=link 2017: u/fscomeau preforms what he calls "The Final Yolo", a 300k trade against AAPL before earnings (that I, u/thor303456 inversed), supposedly supposed to net fscomeau 2.5 million or so, in which he will finally stop trading. FSC is featured on several market related articles and newspapers, showing up on yahoo, etc. Later we find proof during his livestream of AAPL earnings that he was paper trading. Even later, FSC writes a near 200 page book called "Wolfie Has Fallen" describing how he trolled the entire internet, some following him into that AAPL trade. Martin Shkreli visits the sub and proclaims that GILD pharma is worth over $100 a share and is deeply undervalued. KEY FIGURES: Donald J Trump - He is the Marmalade Manchurian, the Tangerine Tycoon, and our spray tan Stalin. Unbelievable night of election. WSB demographics show a primarily capitalist and right wing (or at least joking to be so) point of view, and thus we are generally pro trump. In actuality though, WSB is focused on pro-market, which Trump happens to be. u/Jartek - Founder of the sub, original yoloer. Believe he has retired from reddit for the most part. Mostly inactive. u/Fscomeau - The Canadian as some call him, and perhaps one of the most profound internet trolls of 2016-2017. A French-Canadian trader who deals with mostly options. The man has been called "The Great Inverse", and for a good reason. Nearly all of the trades or statements he made on WSB were completely wrong or mostly wrong. Truly the strongest technical indicator. Martin Shkreli - An idol to many WSBers, Martin stands as the master of the biotech sector. A very debated character for very stupid reasons. Martin regularly tweets about the stock market, occasionally does a youtube channel, and livestreams fairly regularly. u/theycallme1 - Educated trader, and mod of WSB. Roasts people often and roasts them good. Ask him the questions that aren't stupid. One of the most active mods. u/world_chaos - some fucking college student with some real net worth. Sits on 100k or so (needs verification), and was an inspiring yoloer to all, with his 900 to 55k yolo with options. Lingo, Terminology, and Nomenclature: The Faggots Delights - Truly the most suicidal, yet clearest shot to the moon. This term is usually used to define either weekly, or daily option plays on the SPY/SPX. Some users trade them very profitably, such as u/MRPguy and many in the past. Cuck - Truly the worst thing you could be. A cuck is a man who likes watching his wife/girlfriend fuck other guys. Weak, spineless, and a term often throw around here. The YOLO - You only live once. This is something that is, and should be realized as undeniably true. Why are you sitting on a 5k emergency fund that is making you less interest in a year than what I just made in 10 minutes? Why haven't you used all of the credit on your 5 credit cards or used your testicles as collateral for a loan yet? YOLO or YOLOING is as much a psychological decision to embrace absurdism, and win with everything you have while risking it all. Yolo is what it means to be a WSB trader. Bagholding or a Bagholder - When you're stuck with the most ass trade of your life, because you know it'll go back up. A bagholder is the 59 year old guy at the grocery store who won't quit his Job because he knows he only has to wait another year until he gets a return on his investment (of his life). Anyone holding SUNEQ is the definition of a bagholder. Autists - Something we embrace, something we call each other, something we all are. Autism isn't used in an offensive way as much as it is a generally accepted term that defines us. The best traders have autism because of their distance from emotion. I bet you never made it to this part of the reading because you're such a damn autist. Tendies - Tendies are what you get after you make a small amount of money. "I SOLD AMD TODAY FOR A $13 DOLLAR PROFIT, GOING TO MCD's TO GET MY TENDIES". Tendie money is usually shameful and insignificant, but at least it got you tendies. Chicken tenders at McDonalds are the least expensive for the most cholesterol. I know some of the writing was half ass, full of errors, or otherwise not the best explanation. But I believe this will serve its purpose, and maybe help to promote new ideas from moderately educated traders. WSB has very strong traders, and the most uniquely risky trading styles on the planet. Hopefully this can serve to better the overall community. You guys are all faggots, upvote this so we can get the noobs to stop trying to bite on our cocks. Also I'd really appreciate input on anything to add to this overall. It took my over 3 hours to write up, so I eventually grew tired and probably have missing spots. Enjoy your time here at WSB. EDIT: Added a shit ton of stuff, fixed errors. THANKS FOR ALL OF YOUR INPUT, ACTUALLY MAKING WSB GREAT AGAIN MODS: Can we make this editable by others mods or something? My fingers aren't enough. Seems like this could serve as a good "official" thing. Paging u/theycallme1u/CHAINSAW_VASECTOMY etc
How To Fake Your Exchange Volume And Get Listed On CoinMarketCap
Gotbit`s team deploys bots for manipulating trading volumes to make a particular coin recognizable As the cryptocurrency sector strives towards introduction of stricter regulations, there are still individuals that take advantage of the industry`s blind spots to develop their own business models through utilization of various manipulation methods. The latest example of а crypto-manipulation is Gotbit, who is a Russian based services provider. Gotbit`s team deploys bots for manipulating trading volumes to make a particular coin recognizable by one of the leaders in the crypto data provision – CoinMarketCap. Alexey Andryunin, a 20-year-old Russian, states that manipulating trading volumes is pure business. He and his co-founder made programmable bots which trade coins and tokens between them on a given exchange. Trading volumes soar to the skies, and CoinMarketCap’s API sees that and puts the chosen cryptocurrency in its listing. This is a great way for unknown cryptos to take place under the spotlight and use the manipulated data as marketing tools. The data manipulations seem to be a confirmation of Bitwise Asset Management’s statement that 95% of trading volumes for Bitcoin are not real. According to Bitwise, only around ten exchanges provide genuine and trustworthy information about their daily volumes. Cryptobrowser.io experts firmly believe that companies like Gotbit will continue to exist because of the potential of such services. The trading volumes inflation is called “Wash trading” and it is not legally acceptable. Wash trading can be detected easily by either looking at patterns in trade history, intervals and sizes, or by diving straight into transactions for patterns of bid-ask spread trading. The process of listing a specific crypto project on CoinMarketCap starts with the coin/token being listed on two smaller exchanges. After that, clients have to pay Andryunin a fee of 2 Bitcoins (around $20,000) to list the coin/token on CoinMarketCap. Representatives from the data provision website explained that a coin or token must meet a series of criteria before being eligible for a spot in the rankings: coins tokens must be listed on the two smaller CoinMarketCap exchanges; they must use blockchain; they have to have a direct contact with project representatives; there must be a working website, and etc. Andryunin’s clients are companies with past ICO projects. The co-founder of Gotbit states, however, that only two or three of the 30+ companies “actually have made value, the others imitate activity to calm down the investors. Exchanges, on the other hand, are more than happy with the circumstances, as more trading volumes resemble more new client opportunities. Also, exchanges have a high trading volume listing benchmark, which forces crypto projects to use companies like Gotbit. Despite Gotbit’s agreements with over 30 companies, the time of such a business model is coming to an end, Andryunin states. Crypto regulatory frameworks and strict legislations will eventually kill the wash-trading. The FATF, on the other hand, is making big moves into regulating the crypto market with their goal being regulatory requirements close to these on traditional stock exchanges. Andryunin, however, is not concerned about regulations, as he and his colleague are going to migrate towards Initial Exchange Offerings (IEO), which are close to ICOs, expect that they are being launched on exchanges.
Square is an SMB focused payment company. The company provides merchants with a POS terminal and charges a fee per transaction to process payments.
The payments are then routed through merchant acquirers JP Morgan Chase or Wells Fargo.
Square sits between the merchant and the merchant acquirer, as illustrated in this chart. The important thing to keep in mind when looking at this chart: the merchant acquirer is the merchant's bank, while the issuer bank is the cardholder's bank. In between them is Visa/Mastercard/Amex.
Why Square has been successful
Ten years ago, merchants looking to accept card payment contended with credit checks, complicated pricing and a lack of integration between POS terminals and business software.
Square simplified the onboarding process, established a flat 2.75% fee for most transactions (on average it is 2.94%) and introduced business applications for integration with its payment hardware.
JPMorgan Chase and Wells Fargo wholesale their payment processing capabilities to Square, which earns a margin of 1.06% on each transaction.
For an illustrative $100, Square charges the merchant $2.94 and pockets $1.06.
Why Square will ultimately fail
Traditional payments players are increasingly targeting SMBs as their core businesses, serving large corporates, slow down.
Merchant acquirers can go direct to the merchant and undercut Square. In other words, they can charge less than 2.94% per transaction. This is the result of scale: platform costs per transaction are low for players such as JPMorgan Chase or Wells Fargo or First Data, as they are processing hundreds, if not trillions of dollars of transactions per year. Square processes somewhere around USD 60-70 billion.
Remember, Square charges the merchant 2.94% and pockets 1.06%; the merchant acquirer takes the difference, ie 1.88%. While Square is unprofitable charging 2.94% per transaction, a merchant acquirer can come in, sell direct to small merchants, and increase its own margins by taking half of Square's 1.06% margin - this would result in 2.94%-0.53%=2.41% transaction fee to the end merchant.
These fee differences are nontrivial for “large” merchants (ie >USD 500k Gross Payment Volume per annum), which have grown from 16% of Square's GPV in Q1 2017 to 20% in Q1 2018. If I'm processing USD 1 million per year, I could save c.USD 5k per annum under the above scenario by switching away from Square.
Hardware companies and merchant acquirers are rolling out feature-rich products with transparent pricing and a focus on a simple onboarding process.
Verifone is rolling out its line of Carbon/Engage POS terminals over Q2-Q4 2018. These will connect to a marketplace where merchants are able to download business applications.
Ingenico is rolling out Axium in H2 2018, an SMB focused solution that will allow merchants to download business apps.
First Data is digitalising its credit check process. One of Square's selling points is its quick onboarding process, which can take seconds. Traditionally, a merchant had to go to a bank branch to open an account with a merchant acquirer, and had to submit to a credit check process, which could take days. First Data, a large merchant acquirer, is bringing this process online and shortening the decision making to just a few seconds.
Moderation of bitcoin mania
Square's stock has been on a tear ever since the company announced testing and eventually support for Bitcoin on the Cash app.
Square does NOT make money buying/selling you bitcoin. Check the last quarter's "bitcoin revenue" and "bitcoin costs" figures. To better understand the mechanics behind this, look at this webpage at the section "How much does buying and selling Bitcoin cost?". Very simply, Square sells you Bitcoin at the mid-quote (ie between the bid and ask); Square loses the spread when you buy, but earns the spread when you sell. There's a reason they only allow you to purchase USD10k of Bitcoin per week.
Final thoughts If you have any questions, please don't hesitate to shoot my way. I might not have been clear or comprehensive. The payment processing chart I linked at the start might be new, for example. I don't have a price target for you. But there are clear catalysts coming up in H2 2018. Verifone/Ingenico will roll out their new POS platforms, which merchant acquirers such as First Data and Worldpay will take up. Unless these are major flops (it's possible), the roll outs will be negative for Square. I am not short Square but might initiate a position in the coming days. Price movements can be large on this name, so I stayed away, but the stock really is getting expensive now in my view. Short appendix: quotes from conference/earnings calls transcripts
“One of the best things that ever happened to Verifone was those competitors [ie Square ...] What they've done is they've created a fair amount of anxiety [... Acquirers] need a strategic partner to help them be more and more competitive and capture a bigger amount of revenue stream than what has been traditionally basic payment acquiring, an area that is not growing particularly well" - Verifone CEO, Q1 2018 results conf call
“Increasingly, [SMBs are] about the total end-to-end solution for that business, not just to accept the payment but also to help them run their business. Square has done a really good job in that [...] For us that is a massive opportunity. It's why we got well ahead of the curve [and] created Carbon. [...] it's a way that these acquirers and banks can compete against what Square has” – Verifone CEO, Barclays Emerging Payments Forum 2017
“The first thing that you'll see happen will be inside the bank branch where our JV partners are moving to largely eliminate physical sign-up forms and converting to digital sign-up within the branch. And the credit decision process, which for some customers can take a few days, will be significantly accelerated; in many cases, shortened to just seconds. That's Part 1 of the digitization process. The next component, the ultimate self-service solution, will be to allow merchants to log on to the bank's website, apply for a merchant account online and receive a credit decision. I'm happy to say that each of our partners has committed to these initiatives and that they're in various stages of implementation.” – First Data CEO, Q4 17 conf call
Systemic liquidity resistance. Many people who buy bitcoin aren't professional investors who set a "sell corridor", always sell at 90% or 110%, for example. the "HODL" meme that flies around here is a good example. some of these bitcoin investors are dreamers that want exponential payoffs and will hold onto the bitcoin despite the fact that they bought it at around 4.9k and it dropped to 3.2k (in September, 2017). some of these coin investors are people who bought or mined 10~50 bitcoins when they were cheap/easy to mine back then, when they were in their teens, and never looked at its price until they heard about it in the news again. some of these people probably have lost access to these bitcoins to be honest. some are people who went all in with their investment. these people have always wanted to buy stocks or derivatives but any exchange would require quite a bit of paper work so they never got around to it. you can imagine if they haven't even bothered to go through the exchange paperwork, they probably never bothered to get a lot of "financial expertise" through reading "professional investment guides". now bitcoin comes along and anyone can buy, they go all in, they simply can't afford to realize their loss when bitcoin dives, but when bitcoin rises, they are being rewarded for their "irrational behavior", they are gamblers. these people have a common characteristic: an unsymmetric risk profile, they don't care if the price drops to 0, but they believe the price will go to something like 10,000, so any new historical high reaffirms their belief and any dip is just a temporary setback in their opinion and some of these irrational investors would simply purchase more during the dip if they have the money. this isn't the case in the financial world where a lot of trades are automatically executed because unlike these bitcoin investors, computers aren't biased, AI and seasoned investment managers are almost completely unbiased and they are the product of "traditional financial theory", they don't believe in sustainable exponential growth. These people and their bitcoins provide a minimum liquidity threshold that not a single other investment instrument has: a healthy company can default for attracting too many short sellers, a bond can default, an exchange can default, a bank can default from a bank run, even a country can default. bitcoin will always retain some value, as a "systemic bank run" is simply impossible to achieve in the bitcoin world.
"The People / Anti-establishment" movement. the success of bitcoin is closely resembled by a recent event: the election of Donald Trump. you know what would people say to you if you said "I think the POTUS will be Trump in 2017" at the end of 2014? people will laugh at you and call you a lunatic. well, the same would happen if you said "i think bitcoin will be over $6000 in 2017" at the end of 2014 (when bitcoin dropped like a rock to 300ish from almost 1k). Trump's success is a direct result of him tapping into "the people", i.e., people who are sick and tired of being governed by political figures who they perceived as crooks. Trump comes along and says things that no other politician dare to say, guess what, people wanted a change and voted for him over the establishment that Hillary represented (if Bernie had won the Democratic nomination, Trump would have lost in a landslide). You see how far people would go simply for "a change"? they would even vote Trump! (don't get me wrong, I support Trump myself but I am trying to illustrate a point). Bitcoin is a currency that is not regulated by any government, but simply by an algorithm. And to use the Trump example again, the exponential climb of bitcoin to its supporters is equivalent to, "Trump gets elected, and every person that elected Trump suddenly finds themselves richer by $10,000", guess who would easily get elected again in that scenario? Trump! Elections happen once every four years, but bitcoin is traded/used every single second, and people vote by buying/using bitcoin.
Money laundering. The sad truth is, every bitcoin investor is indirectly helping out a criminal (e.g, terrorism, drug lord, hacking group) or an exile (e.g., Julian Assange) in some way. but rest assured, some anti-money laundering rules will be set soon i think. even though i think anti-money laundering rules will be set, i also realize that some academic opinions on this issue is interesting, for example, Dr.Rahn says that "In a world largely without “money,” the notion of money laundering as a crime becomes absurd."
Resistance to hyperinflation, weak GDP growth and war. guess who buy bitcoins in addition to first world country "geeks"? people from war-torn countries or countries that are struggling/collapsing. before bitcoin, people from those places would buy gold but it is hard to purchase in bulk. bitcoin appears to be the equivalent of gold in terms of the "limited quantity" feature, however, bitcoin can be bought in a much easier / more discrete fashion.
Resistance to negative news due to its value being proportional to the number of people know about it. Because even negative news means someone somewhere is talking about bitcoin. contrary to other investments in the market where any regulation restriction or "negative news" would bring down the price. But for bitcoin, it will be the opposite, because for example, if an authority(e.g., IMF or the US government) comes up with an anti-money laundering regulation against bitcoin, many bitcoin investors will not see it as a restriction, but the exact opposite: they will see it as an affirmative message that says "bitcoin is a real currency, and it will be huge, which is why governments are starting to set up rules around it, this means more and more regulated companies will have no choice but to accept it". a classic example is when China banned bitcoin, for any other public company that has operations in China, this would have been a huge blow that would have required monthly, if not years to recover from, but for bitcoin, it did drop for a bit, but it quickly recovered and made some more exponential jumps shortly afterwards. the bottom line is, the more people know about bitcoin, the more potential value it carries. But of course, once its popularity passes a certain threshold, negative news such as "Country XYZ bans bitcoin" would cause a dip that is a lot harder to recover from.
Precious-metal-and-liquid-currency 2-in-1. look at any precious metal, or diamond, the resale opportunity is extremely limited for average investors, the bid-ask spread, and the limited ways to carry them around make them illiquid. but the upside is, precious metal will always carry a value so they have inherent resistance to inflation, sure the value can drop, sometimes significantly, but there will never be a time when people say a 2 carat diamond is worth nothing, because it is nice looking piece of object that is worth at least something. next, let's look at any currency, they don't last forever like precious metal, but the government behind any currency can simply print more money whenever they feel the need to, to not only cope with inflation, but also replace existing bills that can no longer physically circulate due to various reasons. with that being said, any currency would have an inherent insolvency risk associated with it, because countries, like companies, can just say "f*** it, we declare bankrupt". sure the chance of the USA or Japan does that is extremely slim, but there is still a chance that a $100 country XYZ bill will be worth nothing some day (to a non-collector of course) because country XYZ is no longer in existence due to natural disaster, war, debt, or some other reason. bitcoin has the best of both worlds: it doesn't have inflation, it will always be worth something and you can spend it easily.
Digital circulation, i.e., smart. with more and more people carrying digital devices / smart phones, bitcoin taps into the digital revolution wave with its unique "no transaction cost" feature. once bitcoin's price stabilizes and becomes better regulated, all stores will welcome it. if you think the growth you have seen so far is unbelievable, imagine what would happen when bitcoin finally becomes a wide accepted currency, well, i mean, during the months that lead up to it. because maybe its price would have stabilized by the time walmart starts accepting bitcoin.
Bitcoin is a company that is 100% owner's equity with 100% operating efficiency. no asset, no liability, no overhead cost, no pension plan, no retiree health plan. it is a company that doesn't have any accounting/administration/consulting expenses. it generates revenue through non-traditional means, such as forks and inherent deflation, it will also generate revenue through fees after all 21 million bitcoins have been mined. right now it is a startup that is going through high volatility, but once its price is stabilized, it will be the new Apple/google/microsoft, i.e., a large-cap company with steady income stream.
In addition: there are some other minor reasons behind bitcoin's rapid rise, such as security, flexible denomination (you can't get 0.005 dollar), natural resources based wealth redistribution, and lastly, it is somewhat decentralized due to being boarderless, but i would imagine a small group of people has the majority of bitcoin, some may have lost access to their bitcoins however. Edit: I wrote this in a rush and I know I incorrectly combined liquidity risk and credit risk, but I think you get my point. TLDR, i encourage you to read it but here is a good picture from the FAQ, the picture is nice but bitcoin may not be fungible: https://i.imgur.com/wkTyyaV.png
USD (DXY) up 0.08%, EUR down 0.04%, GBP down 0.50%, JPY down 0.12%, CNY Onshore up 0.12%, CNH Offshore up 0.02%, AUD down 0.23%
VIX up 0.65% to 9.25
Gold up 0.13% to $1,269.01
Silver down 0.11% to $16.62
Copper up 0.25% to $305.40
WTI Crude down 0.79% to $50.39
Brent Crude down 0.18% to $56.90
Natural Gas down 0.44% to $2.91
Corn down 0.07% to $3.49/bu
Wheat up 0.06% to $4.41/bu
Bitcoin up 1.55% to $4,414.56
Treasuries 2yr yields are up ~1.3bps at 1.500%, 10yr yields are up ~1.6bps at 2.364% and 30yr yields are up ~0.9bps at 2.899%
Japan 10yr yields 0.045%, up ~1.0bps on the day
France 10yr yields 0.750%, up ~1.9bps on the day
Italy 10yr yields 2.156%, up ~1.8bps on the day
Spain 10yr yields 1.704%, up ~1.8bps on the day
Germany 10yr yields 0.474%, up ~2.2bps on the day
What’s happening this morning? It was another slow evening of news other than the German Aug factory order numbers (which were very strong although the euro and Eurozone stocks are both in the red), a few US earnings reports (COST and YUMC), andsome M&A (GIMO, HON, JWN, PENN/PNK, SNCR, and more). The overall macro narrativeremains the same as it was at the Thurs close (see below for an update on the macro narrative as well as potential upcoming risks). The major Asian indices generally saw gains – TPX +0.28%, NKY +0.3%, Hang Seng +0.28%, HSCEI +0.54%, Taiwan +0.14%, Australia +1.04%, and India +0.5-7% (mainland China and Korea were both closed). There weren’t any huge themes in Asia although Macau casino stocks were weak in HK on back of underwhelming Golden Week visitor numbers (autos and financials led HK on the upside). Australia’s 1% rally was led by banks, miners, and telecoms. The major Eurozone indices are trading off small (~10-20bp); autos are outperforming while banks, retail, energy, and utilities lag. The GBP is extending its losses from Thurs amid more uncertainty around UK PM May (the DXY spiked ~50bp Thurs and is up small so far Fri morning). US S&P futures are trading down 1-2 points.
Calendar for Fri 10/6 – the focus will be on the US jobs report for Sept (8:30amET), US wholesale inventories/trade sales for Aug (10amET), US consumer credit for Aug (3pmET), and Fed speakers (Kaplan 8:30amET on CNBC, Bostic 9:15amET, Dudley 12:15pmET, Kaplan 12:45pmET, and Bullard 1pmET). o US jobs preview – there is very little anticipation or focus on the Sept jobs report (Fri morning 8/6 8:30amET) as 1) most are anticipating large storm-related distortions and 2) at this point in the cycle it only requires ~75K monthly adds to keep the UR steady (as was discussed in this JPMorgan report http://bit.ly/2fbT6cE). The St is in print at +80K for adds (vs. ADP for Sept at +135K and Aug BLS +156K) w/a 4.4% UR (unchanged w/Aug) and wages +0.3% M/M and +2.5% Y/Y (vs. Aug +0.1% M/M and +2.5% Y/Y). It’s very difficult to see the Sept BLS report changing the near-term US monetary policy trajectory (w/ongoing normalization and a FF hike on 12/13). The potential for a hike on 11/1 is very low and if anything the Sept CPI on Fri 10/13 may be a more important data point than jobs on Fri 10/6. Instead, the bigger Fed uncertainty has nothing to do w/data or policy but instead concerns staffing (i.e. who will be the next chair? A Trump announcement could come as soon as next week – Powell and Warsh are the frontrunners according to media reports w/the former appearing to have a slight edge).
Top Headlines for Friday
Eco data recap for Fri morning 10/6 – the big data came out of Germany where factory orders for Aug beat expectations by a wide margin (orders +3.6% M/M vs. the St +0.7% and +7.8% Y/Y vs. the St +4.7%). See JPMorgan’s comments on the German data (http://bit.ly/2y42sh4). Japan’s wage inflation figures for Aug were soft, as expected (http://bit.ly/2kuygr0). o Fed chair – markets would be comfortable w/any of the main candidates (including Powell, Warsh, Cohn, Yellen, etc.) w/the exception of one person: John Taylor. Bloomberg. o Fed update – Kansas City Fed President George spoke Thurs night and said the US economy needed further rates hikes (http://cnb.cx/2kqTiqj). JPMorgan’s Mike Feroli published an updated FOMC hawk/dove chart following the confirmation of Quarles (http://bit.ly/2z1jSti). o Japan’s “Party of Hope” unveils an economic agenda that pledges to rely less on aggressive fiscal and monetary stimulus – Reuters http://reut.rs/2ghahXu o AUD hit as RBA’s Harper doesn’t rule out a rate cut in a WSJ article. http://on.wsj.com/2xW3nkD
UK PM May the subject of more speculation amid disclosure of plot to topple her; former party chairman, Grant Shapps, said May’s leadership should now be challenged. Reuters http://reut.rs/2yMrmzB
Spain/Catalonia – Spain’s Constitutional Court ordered the suspension of the Catalan parliament’s regional session scheduled for Mon; Catalonia had planned on declaring independence at the session. Reuters http://reut.rs/2xlDfjC o Spain’s gov’t will change rules and make it easier for firms to move their legal base out of Catalonia – Reuters http://reut.rs/2z1WQCF
Tax update - there is a lot of focus on taxes in the US as the Senate Budget Committee (right at the Thurs close) and the full House (at ~1pmET Thurs afternoon) advance budget resolutions (the full Senate will presumably vote within the next two weeks). This is a necessary step in the tax process (as these resolutions contain the reconciliation instructions allowing tax to pass via a simple majority in the Senate) but also a relatively minor one. Far more complicated will be agreeing on rates, deduction schedules, deficits, etc., and if anything all the press in the last few days and weeks point to divisions within the GOP on these matters being larger than anticipated. o Schumer warns that the proposal to eliminate the SALT deduction will kill the GOP tax plan – Bloomberg. https://bloom.bg/2xXX8KL o GOP desire to repeal the estate tax runs into resistance - from Republicans. As a result this piece of the 9/27 tax blueprint (among others) may wind up being scrapped - WSJ. http://on.wsj.com/2gf9G8E o Fed officials express concern over tax plans – Fed officials warned the tax plan may only provide a temporary boost to growth while fueling inflation and driving debt to unsustainable levels – Reuters http://reut.rs/2xWMrdG
Republican headaches keep growing as donors withhold money, a tax consensus fails to materialize, and “establishment” figures depart the scene (Strange losing to Moore, Corker retiring, etc.). Republican leaders are increasingly concerned about the party’s grip on the House and Senate should it fail to pass a tax bill. Leaders “fear that the inchoate populism that Mr. Trump personifies, and which Mr. Bannon is attempting to weaponize against incumbents, is on the march” – NYT http://nyti.ms/2y3lUKT
Trump looks to jolt NAFTA – the White House is considering a proposal that would represent a radical shift to the principles underlying NAFTA. According to rule changes being considered, automobiles would need to have a specific level of US-made content in order to qualify for tariff breaks (right now autos only need to have a specific level of content from within the NAFTA region). WSJ. http://on.wsj.com/2y4LXlo
Trump makes cryptic comment ahead of a dinner with US military leaders. Trump said the dinner might represent “the calm before the storm”. Asked repeatedly by reporters to clarify his comments, Trump said, “You’ll find out” – Bloomberg https://bloom.bg/2xXI2r6
Trump was “furious” over NBC’s Tillerson “moron” article; John Kelly was forced to rearrange his schedule and stayed in Washington in order to try and calm tensions – NBC. http://nbcnews.to/2fOGx3B
Iran/Trump – Trump will “decertify” the Iran nuclear accord next week (speech on 10/12) and declare the agreement as not being in the US national interest according to the Washington Post (article out at ~2:40pmET Thurs afternoon). This is consistent w/what the AP and Politico reported earlier in the week. Note that Trump’s 10/12 declarations won’t end the Iranian nuclear pact as it will be up to Congress whether re-impose sanctions on Tehran (and Trump will hold off on recommending such a step). Washington Post http://wapo.st/2z1zeOw o Decertifying the Iran Deal Wouldn’t Have to Kill It – WSJ http://on.wsj.com/2y40dKY
North Korea – US lawmakers are pressuring the Trump White House to toughen sanctions against North Korea – WSJ. http://on.wsj.com/2xlKdVQ
The Economist's lead article this week speaks to sentiment at the moment and this is one of the big reasons why stocks are proving to be so resilient. "Asset prices are high across the board. Is it time to worry?" (http://econ.st/2xVXOjv). o The WSJ notes that a key European junk-bond index is now yielding less than 10yr US TSYs although it offers a reasonable explanation for this ostensibly irrational price level – WSJ. http://on.wsj.com/2xkwYVb
Company-specific news update from Thurs night. There were a few earnings reports out Thurs AMC but for the most part it was another slow evening. COST EPS beats thanks to better SG&A and favorable tax while GMs were light; Sept same-store-sales beat w/upside in the US (the stock ended down 3% during the Thurs after-hours trading session). YUMC’s results came in ahead of expectations (EPS/same-store-sales) and it increased capital return. SNCR reentered M&A talks w/Siris Capital (Siris is looking to buy SNCR’s Intralinks and may take a ~20% equity stake in SNCR); SNCR ended up ~27% during the Thurs after-hours trading session. According to the WSJ, HON is pursuing an acquisition of Evoqua Water Tech in a deal that could be worth $3B (http://on.wsj.com/2yseCSp). The WSJ reported (during trading on Thurs http://on.wsj.com/2xjE24p) on merger talks between PENN and PNK (the firms have been unable to agree to terms but PENN is still interested in buying PNK).
JWN buyout not completely dead – the Nordstrom family is exploring a new deal structure w/Leonard Green that would involve less debt. The family is trying to raise more equity (although it isn’t clear where the money will come from). WSJ. http://on.wsj.com/2ggTvbh
GIMO – Elliot’s takeover talks w/the company have ground to a halt according to Reuters over price disagreements – Reuters http://reut.rs/2fNCepo
SUM, ASHG – SUM has made a rival bid for ASHG as it looks to scuttle the existing Ash Grove-CRH PLC transaction. Ash Grove’s board said the offer could result in a superior proposal and that it would engage in talks with the third party. Bloomberg.
AMZN: the one market where Amazon is failing to dominate: Hollywood. The WSJ discusses AMZN’s failure to become a force in content. WSJ. http://on.wsj.com/2xZcJtr
Macau casino stocks slump during Fri trading as Golden Week visitor numbers disappoint expectations – Bloomberg https://bloom.bg/2fOuGmd
Identifying risks – what could go wrong?
Reflation enthusiasm is undercut by less aggressive CB normalization, dramatic curve flattening, and/or a softening in nominal growth. Of all the reflation pieces (monetary policy normalization, expansionary fiscal policy, firming inflation, and ongoing real growth strength), the last piece (real growth) is increasingly being taken for granted.
Bank investors wind up focusing too much on reflation/yields (which are tailwinds) but miss weakening credit (higher provisions) and tepid loan growth.
The first speech by the next Fed chair unsettles sentiment (assuming the chair isn’t Yellen).
The tax process slows in Washington as Republicans prove incapable of reaching a consensus on rates, deductions, and deficits.
Paul Ryan decides to “pull a Boehner”, stepping down as Speaker out of frustration with his inability to pass legislation.
The final tax bill results in materially higher rates for upper-income Americans.
May winds up stepping down as UK PM, sowing ongoing Brexit uncertainty.
Abe does much worse than anticipated during the upcoming Japan election (10/22).
North Korea conducts an above-ground nuclear bomb test (or even worse, an atmospheric test).
Iran decides to resume its nuclear weapons program, sparking an immediate escalation of Middle East geopolitical tensions (Trump’s Iran speech is coming up on 10/12).
Washington introduces (or threatens to introduce) tough new regulations aimed at internet/social media companies following the Russia election investigations (note that US internet giants will be testifying before Congress on 11/1).
Prominent members of the Trump team decide to leave the gov’t (the market would be particularly sensitive to Tillerson, Mattis, Kelly, and/or Cohn departing; recent media reports suggest the Tillerson-Trump relationship is particularly strained).
The pro-reflation bias commenced back on 9/11 and has been propelled ever since by ongoing real growth strength, firming inflation, normalizing monetary policy/rhetoric, and expansionary fiscal policy (in particular in the US w/the 9/27 tax blueprint but also in Germany following that country’s election outcome and fin min change).
This enthusiasm can extend for a few more weeks but the ECB/BOE decisions (on 10/26 and 11/2, respectively) will mark the culmination of a series of pro-reflation catalysts/developments and thus the trade may enter a period of extended consolidation around those central bank events.
Meanwhile the nuances of this present reflation process aren’t being appreciated – growth and corporate earnings are late-cycle (not early), multiples are already rich (although not necessarily ridiculous), inflation is only very gradually firming to target, the economy faces enormous structural headwinds in the form of labor supply and productivity growth, and while central banks are normalizing policy will stay extremely accommodative for years to come (the structural headwinds and slow tightening pace will prevent yields from materially rising and curves from significantly steepening).
The tenor of sentiment is beginning to evolve and there is definitely greater frustration w/people being forced to participate in a tape many don’t particularly love at present levels – this helps fuel runs such has occurred over the last few weeks (the SPX hasn’t closed in the red since Mon 9/25) but it also makes for a precarious setup w/a lot of weak “renters” who will be quick to sell the minute momentum pauses.
Bottom Line: the lack of major catalysts is helping the rally propagate and the calendar is relatively clear until earnings (which kick off w/banks on Thurs 10/12). The reflation impetus will likely stay in place into the ECB/BOE (10/26 and 11/2, respectively) after which a consolidation (at least) is likely (note that a lot of the “easy” tax steps are occurring now – the blueprint on 9/27, the budget resolutions, etc. However, reaching a consensus on rates, deductions, and deficits will be extremely difficult and this will become more apparent later in Oct and into Nov, around the same time as the ECB/BOE decisions).
Calendar of events to watch for the week of Mon Oct 9
Calendar for the week of 10/9 – overall it should be a relatively slow week although a few items are in focus. The current reflation emphasis makes the US CPI on Fri 10/13 prob. the single most important eco data point of the week but there are other numbers in focus (German trade/IP for Aug and China imports/exports for Sept). The CQ3 earnings season kicks off in earnest with the banks on Thurs and Friday. Away from scheduled events, media reports suggest Catalonia could formally declare independence on Mon (although this could easily be delayed following court challenges and as the region’s leaders seek a settlement w/Madrid) while the White House may unveil its infrastructure spending blueprint during the week of 10/9 (http://bit.ly/2wwiop9). South Korean security officials have warned that North Korea may fire additional missiles between 10/10 and 10/18 while Trump’s Fed chair selection could come soon (media reports suggest Powell and Warsh are the two frontrunners). Trump is expected to deliver an Iranian policy speech on/around Thurs 10/12 during which he will declare the nuclear deal as no longer being in the US national interest. HON has said it will announce its formal portfolio review decision prior to earnings (media reports, including on CNBC, suggest it will retain its aerospace unit).
Calendar for Mon 10/9 – the day should be pretty quiet owing to the US Columbus Day holiday (equities will be open but fixed income is closed). The focus will be on the China FX reserve numbers for Sept (Fri night/Sat morning 10/7), the China Caixin services PMI for Sept (Sun night/Mon morning), Germany’s industrial production for Aug (2amET), and earnings (LVMH reports results after the European close).
Calendar for Tues 10/10 – the focus will be on the German trade figures for Aug (2amET), a bunch of analyst meetings (including TECD, Santander, WDAY, and WMT), the PG shareholder meeting (at which the Trian/Peltz board seat request will be voted on), and earnings (CUDA after the close).
Calendar for Wed 10/11 – the focus will be on the US JOLTs report for Aug (10amET), Fed minutes from the 9/20 meeting (2pmET), analyst meetings (KR), and earnings (DAL, BLK, FAST, and OZRK before the open).
Calendar for Thurs 10/12 – the focus will be on Eurozone IP for Aug (5amET), the US PPI for Sept (8:30amET), Trump’s Iran speech, analyst meetings (BOX, HPQ, LSCC, and WDC), and earnings (C, DPZ, JPM, LNN, Sky PLC, and Tata Consultancy pre-open).
Calendar for Fri 10/13 – the focus will be on China’s imports/exports for Sept (Thurs night/Fri morning), the US CPI for Sept (8:30amET), US retail sales for Sept (8:30amET), the Michigan Confidence numbers for Oct (10amET), US business inventories for Aug (10amET), analyst meetings (SAFM), and earnings (BAC, DRFG, FHN, FRC, JBHT, Man Group, PNC, and WFC pre-open).
Catalysts – big events to watch over the coming months
China mainland markets closed Mon 10/2-Fri 10/6 for the National Day holiday.
US jobs report for Sept – Fri 10/6.
US infrastructure spending - the Trump White House may unveil its long-anticipated infrastructure plan during the week of 10/9 according to House Transport chairman Rep. Bill Shuster.
North Korea - South Korea’s national security adviser Chung Eui-yong said he expected Pyongyang to act around Oct. 10 and 18 (Reuters).
WMT analyst meeting – Tues 10/10 (note that KR has an analyst meeting the next day, Wed 10/11).
PG shareholder meeting – Tues 10/10 (decision to be made on Peltz’s board seat request).
Fed minutes – minutes from the 9/20 meeting will be released Wed 10/11. 2pmET.
HON – the co will announce its portfolio review decision before earnings in Oct.
Iran - Trump is planning to deliver an Iran policy speech on 10/12 and he is expected to say that the landmark 2015 nuclear deal is no longer in the U.S. national security interest (AP)
Bank earnings – the CQ3 earnings season kicks off w/Citigroup and JPM Thurs morning 10/12 while BAC, PNC, and WFC all report Fri 10/13.
US inflation – the Sept CPI will hit Fri 10/13.
IMF/World Bank - 2017 Annual Meetings of the World Bank Group and the International Monetary Fund. Oct 13-15 in Washington.
CQ3 earnings – the week of Mon 10/16 is the first busy week of the CQ3 reporting season.
Fed chair decision during the week of 10/16? Based on Trump’s “two to three” weeks comment (on Fri 9/29), his decision on a Fed chair could come as soon as the week of 10/16 (this week is also the first busy period of the CQ3 earnings season, the deadline for Trump to rule on the Iran nuclear deal, and the beginning of the China National Congress on 10/18). Media reports suggest the Fed chair frontrunners are Warsh and Powell followed by Yellen and Cohn.
China - the National Congress of the Communist Party of China starts Oct 18.
China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning) – Thurs morning 10/19.
EU leaders hold summit in Brussels. Oct 19-20. Brussels.
Japan – the country will hold snap elections on Sun 10/22.
Flash PMIs for Oct – Tues 10/24
ECB meeting/press conf. Thurs Oct 26. The ECB is expected to provide guidance on LSAP tapering at this meeting (St assumes LSAP drops from EU60B now to EU40B w/6 month extension).
1949: The Year That Set the Course of Chinese-American Relations – NYT http://nyti.ms/2z2hGSv M&A/Strategic Actions
Brooklyn Nets – multiple suitors are in talks to buy a 49% stake in the NBA deal. Mikhail Prokhorov is seeking a valuation of >$2B for the entire team. NY Post. http://nyp.st/2y3KFY0 o Brooklyn Nets – BABA denied that its vice chairman, Joseph Tsai, was in talks to buy a stake in the Nets – Reuters http://reut.rs/2yuCBRa
GIMO – Elliot’s takeover talks w/the company have ground to a halt according to Reuters over price disagreements – Reuters http://reut.rs/2fNCepo
HON - according to the WSJ, HON is pursuing an acquisition of Evoqua Water Tech in a deal that could be worth $3B (http://on.wsj.com/2yseCSp).
HPQ, Samsung – China said it will approve HPQ’s purchase of Samsung’s printer business – Reuters http://reut.rs/2y06khP
JWN buyout not completely dead – the Nordstrom family is exploring a new deal structure w/Leonard Green that would involve less debt. The family is trying to raise more equity (although it isn’t clear where the money will come from). WSJ. http://on.wsj.com/2ggTvbh
PENN, PNK - the WSJ reported (during trading on Thurs http://on.wsj.com/2xjE24p) on merger talks between PENN and PNK (the firms have been unable to agree to terms but PENN is still interested in buying PNK).
Retailers helped through bankruptcy process – Reuters notes that many retailers are obtaining help during the bankruptcy process w/many being allowed to stay in business w/their store bases largely intact – Reuters http://reut.rs/2y3NcAN
SNCR - On October 4, 2017, SNCR and Siris determined to restart discussions regarding a potential transaction. Specifically, Siris is offering to buy Intralinks for $915MM cash, invest $185MM for a convert worth ~20% of SNCR’s common shares, and cancel the ~6MM SNCR common shares it now owns.
SUM, ASHG – SUM has made a rival bid for ASHG as it looks to scuttle the existing Ash Grove-CRH PLC transaction. Ash Grove’s board said the offer could result in a superior proposal and that it would engage in talks with the third party. Bloomberg.
Unilever – the co is seeking PE bids for its spreads business by 10/19; a sale could be worth $8B – Reuters http://reut.rs/2fNDYPe
Full catalyst list
Fri Oct 6 – German factory orders for Aug. 2amET.
Fri Oct 6 – US jobs report for Sept. 8:30amET.
Fri Oct 6 – US wholesale inventories/trade sales for Aug. 10amET.
Fri Oct 6 – US consumer credit for Aug. 3pmET.
Fri Oct 6 – Fed speakers: Bostic, Kaplan, Bullard
Sat Oct 7 – China FX reserves for Sept (Fri night/Sat morning)
Mon Oct 9 – China Caixin services PMI for Sept (Sun night/Mon morning)
Mon Oct 9 – German industrial production for Aug. 2amET.
Mon Oct 9 – earnings after the European close: LVMH.
Mon Oct 9 – Columbus Day holiday in the US (equities will be open while fixed income is closed).
Tues Oct 10 – German trade balance for Aug. 2amET.
Tues Oct 10 – analyst meetings: TECD, Santander, WDAY, WMT
Tues Oct 10 – PG shareholder meeting
Tues Oct 10 – earnings after the close: CUDA
Wed Oct 11 – US JOLTs report for Aug. 10amET.
Wed Oct 11 – Fed minutes from the Sept 20 meeting (2pmET).
Wed Oct 11 – analyst meetings: KR
Wed Oct 11 – earnings before the open: BLK, DAL, FAST, OZRK.
Thurs Oct 12 – Eurozone industrial production for Aug. 5amET.
Thurs Oct 12 – US PPI for Sept. 8:30amET.
Thurs Oct 12 – analyst meetings: BOX, HPQ, LSCC, WDC.
Thurs Oct 12 – earnings before the open: C, DPZ, JPM, LNN, Sky PLC, Tata Consultancy.
Thurs Oct 12 – earnings after the close: EXFO
Fri Oct 13 – China imports/exports for Sept (Thurs night/Fri morning)
Fri Oct 13 – US CPI for Sept. 8:30amET.
Fri Oct 13 – US retail sales for Sept. 8:30amET.
Fri Oct 13 – US Michigan Sentiment for Oct. 10amET.
Fri Oct 13 – US business inventories for Aug. 10amET.
Fri Oct 13 – analyst meetings: SAFM
Fri Oct 13 – earnings before the open: BAC, DRFG, FHN, FRC, JBHT, Man Group, PNC, WFC.
Mon Oct 16 – China CPI/PPI for Sept (Sun night/Mon morning)
Mon Oct 16 – Eurozone trade balance for Aug. 5amET.
Mon Oct 16 – earnings before the open: SCHW
Mon Oct 16 – earnings after the close: BRO, IEX, NFLX, Rio Tinto
Tues Oct 17 – Eurozone Sept auto registrations. 2amET.
Tues Oct 17 – German ZEW survey results for Oct. 5amET.
Tues Oct 17 – US import prices for Sept. 8:30amET.
Tues Oct 17 – US industrial production for Sept. 9:15amET.
Tues Oct 17 – US NAHB housing index for Oct. 10amET.
Tues Oct 17 – earnings before the open: BMI, CMA, CSX, GS, GWW, HOG, JNJ, MS, Pearson, PLD, Remy Cointreau, UNH
Tues Oct 17 – earnings after the close: ADTN, BHP, CP, CREE, IBM, LRCX, NAVI.
Wed Oct 18 – US housing starts for Sept. 8:30amET.
Wed Oct 18 – US building permits fro Sept. 8:30amET.
Wed Oct 18 – US Beige Book. 2pmET.
Wed Oct 18 – earnings before the open: ABT, Akzo Nobel, MTB, NTRS, USB
Wed Oct 18 – earnings after the close: AA, AXP, BHE, CCI, CCK, EBAY, LLNW, SLG, TCBI
Thurs Oct 19 – China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning)
Tues Oct 24 – earnings after the close: AKAM, AMP, CMG, COF, DFS, ESRX, IRBT, T, TSS, TXN.
Wed Oct 25 – US durable goods for Sept. 8:30amET.
Wed Oct 25 – US FHFA home price index for Aug. 9amET.
Wed Oct 25 – US new home sales for Sept. 10amET.
Wed Oct 25 – earnings before the open: ALK, ALLY, ANTM, Antofagasta, AOS, BA, BAX, Dassault Systemes, DPS, FCX, FLIR, Fresnillo, HBAN, Heineken, IP, IR, KO, LEA, LH, Lloyds Banking Group, NDAQ, NSC, NYCB, Peugeot, TMO, TUP, V, WBA, WEC.
Wed Oct 25 – earnings after the close: ABX, ACGL, AFL, AMGN, CLGX, DLR, FFIV, FTI, KIM, LSTR, NOW, ORLY, PKG, PLXS, RJF, TSCO, UNM, VAR, XLNX.
Thurs Oct 26 – US wholesale inventories for Sept. 8:30amET.
Thurs Oct 26 – US advance goods trade balance for Sept. 8:30amET.
Thurs Oct 26 – US pending home sales for Sept. 10amET.
Thurs Oct 26 – earnings before the open: Aixtron, ALLE, ALV, Anheuser Busch, APD, Bayer, BMY, BSX, BWA, CCMP, CELG, CHTR, CMCSA, CME, Deutsche Bank, ENTG, EQT, F, HLT, MMC, NEM, Nokia, ODFL, Santander, Schneider Electric, UNP, UPS, WM, XEL.
Thurs Oct 26 – earnings after the close: AIV, ATEN, CB, CDNS, EXPE, FLEX, FTNT, GILD, GOOG, HIG, INTC, LPLA, MSFT, NATI, PFG, SYK, VDSI, VRSN.
Fri Oct 27 – China Sept industrial profits (Thurs night/Fri morning).
Fri Oct 27 – US Q3 GDP, personal consumption, and core PCE for Q3. 8:30amET.
Fri Oct 27 – US Michigan Confidence numbers for Oct. 10amET.
Fri Oct 27 – earnings before the open: B, MRK, PSX, SC, TRU, Volkswagen, WY, XOM.
Mon Oct 30 – US personal income/spending and PCE for Sept. 8:30amET.
Mon Oct 30 – US Dallas Fed index for Oct. 10:30amET.
Mon Oct 30 – analyst meetings: CSX
Mon Oct 30 – earnings before the open: HSBC
Mon Oct 30 – earnings after the close: AVB, CGNX, RE, RTEC, VNO
Tues Oct 31 – US Employment Cost Index for Q3. 8:30amET.
Tues Oct 31 – US Case-Shiller home price index for Aug. 9amET.
Tues Oct 31 – US Chicago PMI for Oct. 9:45amET.
Tues Oct 31 – US Conference Board Sentiment readings for Oct. 10amET.
Tues Oct 31 – earnings before the open: ADM, AET, Airbus, AMT, Barclays, BNP, CMI, ECL, GGP, K, MA, OSK, PFE, XYL.
Tues Oct 31 – earnings after the close: APC, CHRW, CXO, WFT, X
Wed Nov 1 – US ADP jobs report for Oct. 8:15amET.
Wed Nov 1 – US Markit Manufacturing PMI for Oct. 9:45amET.
Wed Nov 1 – US Manufacturing ISM for Oct. 10amET.
Wed Nov 1 – US construction spending report for Sept. 10amET.
Wed Nov 1 – US auto sales for Oct.
Wed Nov 1 – FOMC meeting decision. 2pmET.
Wed Nov 1 – earnings before the open: AGN, APO, CLX, EL, GRMN, HFC, Novo Nordisk, ORBK, Standard Chartered, TAP, TRI.
Wed Nov 1 – earnings after the close: ALL, BHF, BXP, CAVM, CSGS, FB, LNC, MANT, MET, MUSA, OXY, PRU, QCOM, ULTI, XPO.
Thurs Nov 2 – US nonfarm productivity and unit labor costs for Q3. 8:30amET.
Thurs Nov 2 – earnings before the open: ADP, AN, BCE, CI, Credit Suisse, DISCA, H, ICE, Royal Dutch Shell, Sanofi, Swiss Re, WRK.
Thurs Nov 2 – earnings after the close: AAPL, AIG, CBS, CRUS, FLR, HLF, RMAX, SBUX, UNIT.
Fri Nov 3 – US jobs report for Oct. 8:30amET.
Fri Nov 3 – US trade balance for Sept. 8:30amET.
Fri Nov 3 – US factory orders and durable goods orders for Sept. 10amET.
Fri Nov 3 – US non-manufacturing ISM for Oct. 10amET.
Tues Nov 7 – US JOLTs jobs report for Sept. 10amET.
Tues Nov 7 – US consumer credit for Sept. 3pmET.
Thurs Nov 9 – US wholesale trade sales/inventories for Sept. 10amET.
Fri Nov 10 – US Michigan Confidence preliminary numbers for Nov. 10amET.
Tues Nov 14 – US PPI for Oct. 8:30amET.
Wed Nov 15 – US CPI for Oct. 8:30amET.
Wed Nov 15 – US Empire Manufacturing for Nov. 8:30amET.
Wed Nov 15 – US retail sales for Oct. 8:30amET.
Wed Nov 15 – US business inventories for Sept. 10amET.
Thurs Nov 16 – US import prices for Oct. 8:30amET.
Thurs Nov 16 – US industrial production for Oct. 9:15amET.
Thurs Nov 16 – US NAHB housing index for Nov. 10amET.
Fri Nov 17 – US housing starts and building permits for Oct. 8:30amET.
Mon Nov 20 – US Leading Index for Oct. 10amET.
Tues Nov 21 – US existing home sales for Oct. 10amET.
Wed Nov 22 – US durable goods for Oct. 8:30amET.
Wed Nov 22 – US final Michigan Confidence numbers for Nov. 10amET.
Wed Nov 22 – FOMC 11/1 meeting minutes. 2pmET.
Fri Nov 24 – US flash PMIs for Nov. 9:45amET.
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Intraday bid /ask (in other words the order book is very huge a data set and is very costly and very rare to get in a downloaded format for free). Wrt to Historical data set , NSE has a option to buy historical data sets for india (but it is prohibitively costly for individuals). Not sure if US exchanges provide this for a reasonable cost. Brokers provide this if you are trading with them on ... With spread betting, you choose the bid price if you think the market for a given cryptocurrency will rise or opt for the ask price if you think that cryptocurrency’s market will fall. Spread betting also includes leverage, going short or long, and tax benefits. There are also numerous markets available for spread betting in addition to cryptocurrency and stocks. Bid-offer spread. The bid-offer spread, sometimes called the bid-ask spread, is simply the difference between the price at which you can buy a share and the price at which you can sell it. For example, let’s say that a stock is priced at $50 in the market. Its “bid” price is $49.90 and “offer” or “ask” price is $50.10. This means ... The bid/ask spread for this stock is $.12.OK, you say, that’s not a big deal right? Yes, it is! You see, this stock is trading at $.40-.52 per share! A difference of $.12 represents a spread of 30%! Some stocks don’t gain 30% in value in 1 year, let alone giving up that much in one trade! If you weren’t careful, the market makers would take you to the cleaners on this stock and you’d ... For example, you might be considering a stock in ABC Corporation, which has a bid price of $25 and an ask price of $26.75 per share. In that scenario, the bid-ask spread is $1.75.
What is Bid and Ask? Bid and Ask Explained for Stock ...
Bid and ask are explained as follows: Bid: The highest price buyer is willing to pay for a stock. Ask: The lowest price the seller is willing to take for a stock. What is the Bid and Ask price that you see when buying or selling a stock? This concept is extremely important for day traders to understand. In this video I... https://data.bitcoinity.org/ This video goes into the very helpful site, Bitcoinity. This site provides historical order book data in a similar fashion that ... http://optionalpha.com - What is the Stock Market Bid-Ask Spread? Click here to Subscribe - https://www.youtube.com/OptionAlpha?sub_confirmation=1 Are you fa... Watch this informative video to learn about Level II, Bid-Ask Spread, and a plethora of other valuable information. ----- (Swing/Earnings Traders) Try 30 Days of the Strategic Swing Trader ...