TheFinance.sg » Mandy Ong

Risk of the unknown

Mandy Ong — Thu, 17 Sep 2009 11:00:36 +0000

Photo by Opo Terser

The stock market is the most commonly traded investment and is known to give the best returns over time. It is easy to trade and investors just have to buy and hold, for capital appreciation or for dividends.

Yet, two recent events have shown that it is not as simple. One, the decision by the major shareholders of CK Tang to privatise the company. And two, ATIC’s ( Advanced Technology Investment Co, the technology investment company of the Abu Dhabi government) purchase of Chartered Semiconductor with plans to delist the stock from SGX and Nasdaq. Read more…

Watch out for volatility ahead!

Mandy Ong — Mon, 13 Jul 2009 12:19:56 +0000

E-mini S&P daily chart

Since the long red candle last tuesday, market has been hovering around the support / resistance 878 level. Technically it looks weak due to the formation of the head and shoulders, therefore we are comfortable to hold on to our 878 shorts from last week, with stop at 905. Lots of earnings from major companies this week, so watch out for the swings!

Source: TheMidnightStar

Pure greed or plain ignorance?

Mandy Ong — Sun, 12 Jul 2009 04:00:54 +0000

Photo by HikingArtist.com

2 prominent cases came to a close recently. In Singapore, MAS, after much investigation, banned several financial institutions from selling structure products. And in the US, Bernard Madoff was sentenced to 150 years jail for fraud involving a ponzi scheme.

The actions taken may be stiff but it did nothing to relief the pain of the thousands of investors who lost their savings in the 2 cases.

Yet for others who were not affected, are they wiser from the experience of the unfortunate ones? Each day, investors continued to be offered opportunities of better returns. It can be the property agent who offers you the chance to buy a property to ‘flip’, the friend who offers you the hot tip about a certain stock or the guru who has a trading formula to share. Read more…

Did we miss the sell?

Mandy Ong — Thu, 09 Jul 2009 13:25:15 +0000

E-mini S&P daily chart

Last night, the ES made a feeble attempt to rally and traded to a high of 898.25 before giving way. With the formation of the long down candle last thursday, and another one last night, is the market too low to sell and have we missed the selling action? Read more…

Its too late when the pain becomes unbearable

Mandy Ong — Wed, 20 May 2009 11:00:07 +0000

Photo by kwerfeldein

It was reported last week that Temasek Holdings had divested all of its holding in Bank of America (BoA) in the first quater of this year and could have lost at least US$2.3 billion. Perhaps it is due to the change in Temasek’s investment objectives from developed markets to emerging markets. Or perhaps due to the different business stucture of BoA from Merill Lynch which Temasek had originally invested in.

I am not an economist or analyst, so I shall reserve my speculation. However, what we do know is that Temasek first invested into Merrill Lynch in late 2007, which was when the crisis was just unfolding and markets were still trading at the highs (as compared to current levels). And when they liquidated their holdings the last quater, March 2009 was the lows we have seen so far in the crisis. This brings to mind the trading pattern of many retail investors.

Of course it is difficult to predict where the market will be, and only after the highs or lows have been formed, then we can look back and say a top or bottom has been formed. Therefore, we cannot fault one for his entry level as high can go higher, and low can go lower. However, one do have control over how much he can lose. Investors often, for the fear of losses, hold on to their bad positions longer than they should. And when the pain becomes unbearable that they have to cut, its at the worst levels before market reverse like when Temasek sold BoA just before the market rallied sharply in the 2nd quarter. A successful trader should have in mind how much losses he is willing to take when he initiates his position so that he will not be unprepared when market turn against him. Only when you know your potential losses, then you can act to preserve your capital and fine-tune your trading to grow your account.

Source: TheMidnightStar

The who’s who list of the stress test due tonight

Mandy Ong — Thu, 07 May 2009 13:12:29 +0000

Photo by The Consumerist

Bank of America - Judged to need roughly $34.0 Billion in additional capital
Wells Fargo – Judged to need roughly $15.0 Billion in additional capital
GMAC - Judged to need roughly $11.5 Billion in additional capital
Citigroup - Judged to need roughly $5.0 Billion in additional capital
Morgan Stanley - May need to raise between $1 to $2 Bln in additional capital
Goldman - Judged not to need to raise additional capital
MetLife - Judged not to need to raise additional capital
JPMorgan Chase - Judged not to need to raise additional capital
Bank of NY Mellon - Judged not to need to raise additional capital
American Express - Judged not to need to raise additional capital

TOTAL 65.5 billion required. (And the market rallied last night on the good news that its not as much as expected?!)

Source: TheMidnightStar

Overwhelmed at ATIC – so many things to trade!

Mandy Ong — Tue, 21 Apr 2009 11:00:41 +0000

Photo by Eneas

I was at the ATIC (Asia Trader & Investor Convention) today. There were about 33 exhibitors promoting their various products and systems. Then I realised, there are so many products available for the investor! You have never invested or traded, I guess you would be overwhelmed at the fair.

Although I am an advocate of futures trading, I shall give a brief summary of what products you can trade to grow your wealth. It is important to choose a product that is liquid and transparent to trade in, therefore I shall not touch on non-regulated products like wine and land investments.

Stocks – the most commonly traded financial product, also known as shares, you are buying a share of the listed company. When you buy a share, you become a part owner of the company and will have voting rights. Other than capital appreciation (which is when the price goes up) you can also gain dividends and bonus issues if the company do well. For shares, you can only buy and need to settle (ie pay up) within 3-5 working days, if you sell your shares within this period, you do not have to put up any cash upfront and only need to settle the difference (known as contra).

Forex – forex are traded in pairs, say, if u buy Eur/Usd, you are effectively buying Eur & selling Usd. Factors like economic conditions, news, data and interest rates differences will affect the movement of currencies. Other than the price fluctuations, investors also have to consider the ’swaps’ which is the difference in interest rates of the 2 currencies, as u are long one & short the other, you will receive or pay the difference on a daily basis. The market is highly liquid and traded 24 hours Monday to Friday. Read more…

Leverage is not a bad word

Mandy Ong — Thu, 09 Apr 2009 11:00:36 +0000

Photo by Robert Couse-Baker

The scientific defination of leverage is the use of a smaller energy force to move an object of a greater energy force. Since the age of cavemen, the use of leverage in the form of simple tools has made the lives of mankind much easier.

Yet, in the financial markets, leverage is associated with high risk and investors often shunned leveraged products. The recent volatility in the markets also had many investors pointing their fingers at leveraged traders cutting losses to meet margin calls.

Indeed it is true that leverage trading carries a certain level of risk. With the investor only putting up a percentage of the total contract value, he runs the risk of losing his entire investment and more. For example, to trade 1 lot of Emini S&P at price 800, the contract value is Usd40,000 (usd50 x800pts), but the investor only has to have Usd 5000 to initiate a position. If the contracts falls by 100pts, the contract value drops by 12.5%, but the investors loses 100% of the amount he invested. Read more…

Higher margin requirements – is the bitter pill good for you?

Mandy Ong — Thu, 02 Apr 2009 01:00:41 +0000

Photo by baronsquirrel

Throughout my broking career, I often have clients lamenting that the increase in margins have made it very difficult for them to trade. The local broking firms, under the regulations of MAS, require clients to put up the required margins before they can initiate a position. When I joined the futures broking industry in year 2000, the margins required for 1 lot of SiMSCI is abt 5% or S$2000, but due to the current market volatility it has tripled to almost 15% or the current S$6000 despite the falling contract value.

Increases in margins are often viewed as a hindrance to futures traders seeking to maximise their profits through the use of leverage. The higher the margin requirements, the lesser the leverage.

However, traders must take a step back and look at it at a different light. Margins serve as a check for clients so that they do not over-leverage and lose their entire investment. Say, a trader has S$12,000 in his account, if margins are at 5% of the contract value which is about S$2000 and he choose to maximise his leverage by trading 6 lots of SiMSCI, his account would be wiped out if he had shorted at 2000 and the market rallied to 2100. At 15% margins, he can only trade 2 lots, and had market rallied to 2100, he loses S$4000 and preserves his capital for another trade to be able to recover his losses. Therefore, higher margin requirements is indeed a bitter pill, yet it is for your benefit.

Having said that, clients should not base their trading size according to margin requirements. Successful traders have a strategy and trade according to what their risk level allows them and will not max out their account to maximise their profits.

Source: TheMidnightStar

Cutting loss is the hardest thing to do

Mandy Ong — Tue, 03 Mar 2009 11:00:25 +0000

In my many years of broking, clients never had much trouble taking profits, afterall, ‘a bird in hand is better than 2 in the bushes’. It is never too difficult to decide how much to take off the table.

However, when it comes to losses, it is a totally different story. Traders, retail or institutional, often find it very difficult to cut losses, holding on to a false sense of belief that it is a retracement and market will move back in their favour again. Why? It can be due to ego as cutting a loss means that the trader had picked the wrong trade, a losing one. Or it can be due to money, with the pain of losing x amount could be so great that the trader choose not to realise the loss and instead hold on to hope for a smaller loss. Whatever the reason, traders who have lost money very often regretted their lack of disclipline in trading, for holding on to a losing position longer than they should have.

Sadly, this does not just affect traders. When the US crisis escalated, the US governemt proposed for a vehicle to be set up to soak up toxic assets from the banks, but the banks refused. The assets will be sold at marked-to-market prices which were drastically lower than their book values and the banks did not want to realise the loss. Recently, as valuations continued to spiral downwards, talks emerged that the banks should be nationalised but the government did not want to do that. Nationalising the banks will result in shareholders, especially the Sovereign Wealth Funds who invested billions, losing their investments. But with the current market capitalisation of Citigroup and BoA combined at less than 30 billion, there is really very little left of the investments.

So, if you have not been very disciplined, you are not the only one. But its not too late to start now!

Source: TheMidnightStar

Stocks vs Futures

Mandy Ong — Tue, 17 Feb 2009 11:21:42 +0000

Photo by Petrick2008

Although trading stock index futures are considered higher risk and more sophisticated than trading individual shares, and will require more time & effort to master, there are many advantages to trading futures compared to shares.

No need to cherry pick – How many times have you bought Share A, but Share B went up or the share price fell even when the STI or Dow Jones rallied. With stock index futures, you are trading on the performance of the index as a whole. Your trade is based solely on your view of the market, unlike for shares which are affected by company performance, big boys play or insider information.
buy or SELL – As futures contracts are obligations, not ownership, you can sell short the stock index legitimately, without have to borrow scripts or buy back within the same day. Unlike trading shares where you are not able to participate in a bear market as you can only buy.

Low commission charges – commission for futures trades are generally abt Usd10-15 per lot. Shares trading commissions are about 0.25% subject to a minimum of Sgd25 for online trades and sgd40 for call-in, not including clearing & trading fees. Say if you bot 1 lot of SiMSCI at 2028, the contract size is Sgd40560 (Sgd20 x 2028) and you pay a commission of Sgd15 plus GST. For the same amount of sgd40560 in trading shares, you pay Sgd101.40 plus clearing fee, trading fee and GST.
Access to global markets – Most global stock indices can be traded as stock index futures (ie Dow Jones futures, S&P futures, FTSE futures, HangSeng futures). The futures trading account you open based in Sinagpore will allow you access to global stock markets at the same low commission rates compared to shares.
No cost of margining – When you hold a open futures position, you need only to put up the required margins as specified by the exchange. There are no interest charges on the amount that is leveraged, unlike in share margining where you are considered to have borrowed the amount of actual contract size and is charged interest.
Stop loss orders – Most futures contracts allow you to place ’stop loss’ orders to limit your losses or protect your profits so you do not have to watch the screens all the time in case of big market movements.
No default risk – Every futures trade executed through a futures exchange is guaranteed by the exchange, and the clearing house acts as the counterparty of each trade. In picking stocks, especially in the current market conditions, many companies do not do well and close down causing shareholders to lose their investments.

*Investors are advised to do their homework before plunging into the futures markets. Pls explore our website to learn more.

Source: TheMidnightStar