An hour of FX Trading

Few days back I had the opportunity to participate in a spot FX trading simulation program. It was quite interesting to find out how a day for a FX trader looks like. FX trading runs almost 24X7 and is the most widely traded across all the asset classes.

It started with a small training which was followed by trading simulation. The training guided us on the jargons used and how to place order, do some speculative trading and how to entertain client requests. There was no need of a phone call as the simulation program intelligently enabled all the scenarios on the user interface.  There were marks for the net realised profit and loss, how you handled the client requests, whether you crossed the limits or not etc. There was no negative marking.

I started good but lost the pace soon as there were so many dealer and client request in parallel. On the sides, I was trying to cut my losses and book profits on the open positions.  At a time, I was making a profit of USD 10 million but then the markets suddenly got volatile and I was negative with USD 3 million. In the end, my realised profit and loss was negative.

Though, it was only for an hour the key takeaway was that the FX market is quite volatile to the news specifically international news. A single wrong trade can wipe you out and why the trading floor people keep yelling.

The core objective of this program is to make people in the technology step into trader shoes and understand how a system breakdown can impact the traders and overall the organisation. A good trading dashboard is very helpful and the flow of information has to be really quick and reliable. I strongly think the program met its objective.

Accepting the loss

Tata motors didn’t show high volatile movements after the results. Overall, the results were positive however forex losses spoiled the party. There is much dependence on the international markets and they are lacking volumes in the domestic markets.

The stock corrected for two consecutive days however, yesterday there was a reversal.  PE 230 had shown some positive momentum earlier for two days, but now it has lost significant value due to the reversal in trend. There is some buying happening in TM, however CE 260 seems to be far a target. Therefore, the positions should be closed. The p/l stands at INR -2600.

Strangle strategy has a high range barrier to cross to yield profits and if the stock stuck in the range, it is better to exit. Don’t forget you are long on options and out of the money options have no intrinsic value, just the time value which one is losing every day.

Playing Tata Motors before results

Tata motors results are expected today and if you look at the options volume and to the implied volatility for PE 230 and CE 260 expiring 30 Aug 2012 which is around 44% respectively.

Tata motors have been quite volatile during results, and though the company is showing significant improvements in terms of Jaguar volumes, there are always concerns around margins.

There is a clear opportunity to play a long strangle or long straddle. However, the long straddle trade 240 PE and 240 CE is quite expensive and given that there could be a significant volatility, out of the money options 230 PE and 260 CE can be bought at premium of 4.50 and 4.60 respectively. There will be an outgo of around INR 9K (1 Tata Motors lot at NSE=1000 shares) with a profit potential of around INR 10k+. Maximum loss is limited to the amount equal to premium paid to buy these options.

I am back

After long absence, I am planning to write again. I didn't do much over the last few quarters in trading and investing. My office obligations kept me very busy, and to be honest there was no time to focus on this.

Checked my portfolio and it's still red primarily due Suzlon, Punj and Reliance. Reliance is the new entrant to the red club. Only Gold ETF and Tata motors are showing gains of above 30%, so thinking if this is the time to book some profits. May not be Gold ETF, but Tata motors sounds like a good idea, and there is a little chance that things may get better with the India sluggish GDP. It is perhaps the right time to invest in Debt securities rather equities as interest rates may come down sometime soon. As growth is slowing down, the stocks may be available at a cheaper price over next few quarters.

Sometimes, I tried searching for a mantra that helps making only profits. Unfortunately, there is none. I recently read a blog from a very prominent trader, and he acknowledged that even a good trader can’t predict market moves, and he has to flow with the market trend.

Last few days I spent some time on the tips given by ICICI Click'n'Gain link based on pivoting, and was really impressed with that. Most of them were profitable, with few in losses. Though, there original idea is to create more brokerage opportunities for the broker but there is no harm in paying if you are making profits. And they can do it better with the knowledge and tools they have for this.