Tag: margin trading

Does this crash make a case for variable Margin Lending rates?

There have been umpteen opinions on how margin trading can make or break people’s trading careers. While for some traders (typically with deep pockets), margin trading is a way of life, trading on margin has also been suicidal for many an amateur trader. The China stock market crash was the latest example of what over-leveraged margin trading can lead to – what with “grandmas, cab drivers, college kids using mobile apps for margin trading”!

As far as our US markets are concerned, a quick look through most brokers’ margin account rates reveals that everyone offers lending rate slabs basis the size of account you hold with them. No surprisingly, Continue Reading…

Mental Fitness Tips For Stock Traders

You guessed it right, this is a “Zen” piece. Good and bad trades don’t happen. The good¬†ones are found and cultivated. The Bad ones … well, you see success is nothing more than a few simple disciplines, practised every day; while failure is simply a few errors in judgement, repeated every day (Jim Rohn).

Up to 75-80% of traders are, generally, make more losses than profits. With such low success rates, stock trading might be among the more risky professions around. But, the 20%+ that do make money consistently, seem to follow the same mental chain of thoughts and we thought it might be interesting to illustrate some of those thoughts here for the benefits of our readers. So here goes:

Continue Reading…

Sentiments and the Chinese Crisis

China is obviously going through an unprecedented crisis and only time will tell when the stock markets will settle down. And where. But analyst speculators are not very bullish about the next year or so. As a team that’s working on analysis of unstructured data to understand stock trends, this is a very interesting time for us. Making sense of the current chatter and news and what analysts are saying is a significant step in getting our machine algorithms to refine themselves. Club this with everything around Greece and we are sitting on a potential Gold Mine of learned data.

But let’s concentrate on China for a now. How did we get here? What’s unique about the Chinese investing ecosystem? Are other markets going to see its impact? Are some of the questions on everyone’s mind. Well, Shenzhen and Shanghai have suspended 40% and 10% of their stocks, so one thing is for sure – this is not a short term crisis. This was a long time coming and will stay this way for some time.

Yes, it had been brewing for a while. The Shanghai stock market grew about 150% in 12 months. Investing activity went up like never before. All this at a time when the economic growth rate was continuously declining and reached half the levels of 2007. There was obviously more positive sentiment than there was room for. Unlike any other major global market, Chinese stock markets have 80% retail investors. Yes, 80%! And they were encouraged, more and more, to invest in stock markets over the last one year by easier availability of margin trading credit lines from brokers (encouraged by the government itself) by increasing difficulty in acquiring bank loans for real estate purchases. So, in essence, this environment was almost manufactured, one can say.

This was just bad timing. Given the market surge and overwhelming positive sentiment, a correction was always around the corner. This coupled with the realization that economy is not growing, after all. And got further amplified by the lack of institutional participation in the markets. Everything came together at the same time – and it looks like sentiment, actually, has turned dangerously negative now! So while our analysis will point to drastic changes in sentiments, a clearer picture emerges when one looks at the data which could have helped us “predict” this negative sentiment – fundamentals. Fundamentally, not much changed, really, when the markets grew. But the investors ignored this.

In the coming posts, we will talk about how one can deal with this situation has an individual investor.