Using US portfolio to hedge against SG portfolio was a mistake. Because they are not perfectly correlated, both in their direction and magnitude.
Over the last couple of months, US stocks have been on the run up like crazy and I have lost about USD500+ on VXX which bet against the rise of index. It was opened with the intention of hedging against a general market downturn (which happened around this time last year) but didn't happen - given the trade war fatigue (though no confirmed deal signed), no shocking world news and relatively stable economic condition in the US (relatively low unemployment and low interest rate). So people have been parking their cash in stocks and the stock market has been on a steady climb.
I entered too late a position in Mastercard Inc so only have peanut gains so far (a good buy point was at $270). Lesson learnt is to wait for uncertainty in the market and certainty in price action before trying to "hedge". We can never catch the bottom-most nor the top-most price but worse is the middle - trying to bet in which direction it will go.
Biggest gainers are OCBC, Capitaland Mall Trust and ST Eng.
Crypto seems to be in the limelight again. Here's what I understand - blockchain is a form of technology, it enables the existence of cryptocurrency. What made me skeptical about doing crypto investment is mainly counter-party risk. The whatever so-called high return platforms for crypto are offering the so-called derivative products and I am not sure how they are being regulated or what they are being backed up by.
If we reverse the coin and deem crypto as the "real money" of tomorrow, then what would be the truly secure way to procure and store them without counter-party risks? Until there's a widespread utility for these by-products of the great technology and there are some means to determine each of their worth, I think trading in them is highly speculative and I will steer clear for now. Amidst all that price volatility, I am not sure what's driving their demand and supply. From what I see, crypto's "spot value" is just pegged to the currencies that the particular crypto is being traded in (is USD the standard?), not pegged to gold, assets, nor businesses. Maybe someone with better knowledge could enlighten? An advantage of cryptocurrency is, like gold, it cannot be easily minted nor manipulated by monetary policies. How it correlates to the various real currencies will require further observations.
Video TED talk: How the block chain is changing money and business ***
1. "Because they are not perfectly correlated, both in their direction and magnitude."
I suspect you are missing the point when it comes to hedging or correlation. I'll leave you to figure it out on your own so as not to spoil your learning.
2. Eh... Trading volatility is not meant for Buy-and-Hold:
The "good news" is -USD$500 is a small price to figure it out by crash got sound.
And yes, I've traded volatility before. Made quite a bit, then lost quite a bit too! LOL!
Now I steer clear of them as I've discovered plain vanilla futures suit me better.
Its good to explore all sorts of different vehicles. If not how to know which ones fit your feet better?
3. One hedge fund manager said it best when he said he believes cryptos are a SCAM. But he has no problem speculating in them just as long he is confident he can find other idiots fools to sell to ;)
Its the same with stocks, properties, or any other speculative assets isn't it?
We have an edge if we know more about the vehicle than the next fool.
Remember, we don't have to outrun the bear, we just have to outrun the idiot standing next to us ;)
1. Actually I was using VXX as a short term hedge to my SG portfolio as I have emptied out my US portfolio then. Hedging needs to use instrument that are not correlated or are inversely correlated. However this inversely correlated instrument moved too furiously such that my SG portfolio's rise can't keep up with the magnitude of fall.
What's your veteran take on hedging?
2. What do you find attractive in futures? Just curious.
3. All derivatives are speculative.
If nobody wants stocks, the stock market would not exist. If nobody wants crypto, crypto market would not exist. So you are right, we always hope we are not the idiots buying and when we sell, we are selling to idiots. Lol
My point is more of concern to the counter-party risk of crypto trading because there's no so-called CDP, it is not a dealing on an exchange, spread can varies quite a bit depending on where you look... It's like the market marker's field. I have heard about hardware wallets, maybe that is a different story. Like buying gold etf is same same but different from buying physical gold.
1. I've learnt through crash got sound that the volatility ETFs/ETNs are not suitable for hedging purposes (to me).
Its more for retail speculators looking to hit the jackpot while most of the time, most just lose money... (Just look at the 5 years chart of VXX)
That's how I found out the VXX is used by professional traders holding at best for a few hours. Pros don't hold it overnight. (Your short term is the long term for pros)
If we want to hedge using volatility, it maybe better to trade the VIX options directly instead. Its like your Gold ETF and physical gold example ;)
By the way, when it comes to hedging, I don't think there'such a thing as "perfect" correlation or "perfect" inverse correlation...
Hedging does not mean we will not lose money. Its for us to try and mitigate our losses.
2. You may want to read up on futures 101. Futures are created precisely for the purpose of hedging ;)
You hold a portfolio of SG stocks, you hedge it with the Simsci. Simple and clean. Althought not "perfect", its close enough for hedging purpose.
3. If you worry about counter-party risks, then you should not trade OTC (over-the-counter) instruments - like spot forex or CFDs.
Yes, there's a push by the regulators for more trading vehicles to be exchange traded.
I do prefer to trade forex futures for the greater transparency. But its more a personal preference than anything.
Can make money, who cares whether its OTC or exchange traded?
I read somewhere that futures have a centralized pricing, whereas OTC instruments do not. Futures also typically have lower costs. However, not many bloggers talked bout trading futures. It's even more elusive than crypto.
Young explore and experiment. How else to know which poisons would suit you best?
Its just like school. Primary and lower secondary we study as many subjects as possible. Then we start to specialise according to what subjects we like as we move up the academic ladder.
Wait.
Bad example.
There are those who choose subjects they think they can make the most money in the future... Not based on their interests or what suits them best.
Just like how most bei kambings approach investing and trading.
I have been watching the bearish market unfold on the sideline, one that whacked almost every single asset class except for oil. Gold was not spared either as its price is sensitive to the Fed's rate hike. (Since it is mostly used as an inflation hedge in an investment portfolio, the non-yielding asset will have continued selling pressure if Fed continues its interest rate hike.) The worst of the bear-beaten lot must be cryptocurrency. Summer seems officially over and I don't know how long will this winter lasts. The massacre just got worse these few days. I was too confident and complacent last year to not harvest a fair share of profits while the sun shines. At the beginning of this year, I still DCA-ed into a few of them and thought maybe the sky was just... cloudy.. Until the hail storm comes, I have finally awoken to the fact that it is really winter now and how one catastrophe can trigger huge ripple effects. Some of my holdings with biggest price percentage decline: List
Among many great crypto articles I have read last year, I have curated three of which I felt are still relevant to date and very insightful. If you are looking to read more brain-stimulating articles, you could also check out my recommendations in the Weekend Brain Food series (mostly are non-crypto related). So here we go. Trading the metagame "Watching the winners & locating the problems in crypto can be a way of identifying potential metagames in advance." "Sometimes you can simply see that you missed the current meta and use that info to exit positions that are out of meta to preserve value , or just take a break and restore mental energy. As the meta and attention shifts to new things, capital bleeds out of previous metas. People sell the last meta they fomo’d for the next one. It’s a video game. Players want to play, they don’t want to be idle. Traders use the meta to exit/rebalance longer-term positions. If you had a big position in some token, which sudden
Richard Coffin @ The Plain Bagel Quoting - "Often I ll see someone promoting FIRE as something that comes down more to mindset than your circumstance as though it's something available to everyone." Quoting - "Whether it's worth taking the risks and downsides associated with FIRE comes down to your own VALUE ." My takeaway on whether FIRE is for one or not is very simple - Can FIRE bring you what you desire and enjoy in life? Related posts: Retirement planning 3 ways (NOT) to be a post-retirement sluggard Thoughts about Financial Freedom part III Thoughts about Financial Freedom part II Thoughts about Financial Freedom part I Like what you read? Follow me on Facebook or Twitter for updates and news I dig. Check out my referrals for fantastic sign up bonuses on SAXO, Moomoo, Gemini, Celsius, Blockfi and more. 🤗 Thanks for reading!
What is Curve Finance? Before we dive into the tokenomic, I would recommend reading this article as a primer if you are not familiar yet with the Curve Protocol - Three minutes to take you to understand Curve Finance, the king of stablecoin trading platforms . (The article took me about 13 minutes to read instead of 3!) [I have purposely coloured the texts of various tokens such that it is easier to differentiate them as you read.] CRV is the native token of Curve Finance and distributed as reward for providing liquidity to the protocol. Now let's take a look at the brother protocol of Curve which serves a different purpose - Convex Finance. What is Convex Finance? It is a protocol that allows liquidity providers to earn trading fees and claim boosted CRV without locking up CRV themselves. Liquidity providers can receive boosted CRV and liquidity mining rewards (on Sushi) This means that one can stake their Curve LP token with ConvexFinance to get Convex LP tokens and then stake
Time bombs Everything's a time bomb when you think about it. Our life's inherently a time bomb. Stock market, crypto market are time bombs too. When we spend too much time worrying about time bombs, especially those that we have no control over, we are subjecting ourselves to unhealthy and stressful thoughts. You can make plans for the explosion time, if it makes embracing uncertainties easier. Don't live in jitters. Living the present When we don't waste time mauling the past and worrying about the future, we are present in mind for the present. We tackle the problems at hand with our best effort, then just let them roll. If something's solvable, try our hands at it again. But know when to move on. Don't go trying to lift a boulder out of the way when you can walk around it. Sometimes we delude ourselves into thinking there are no choices out there. Like you look at a tree and think it is the forest. You haven't probably haven't seen enough trees. The
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Rainbow girl,
ReplyDelete1. "Because they are not perfectly correlated, both in their direction and magnitude."
I suspect you are missing the point when it comes to hedging or correlation. I'll leave you to figure it out on your own so as not to spoil your learning.
2. Eh... Trading volatility is not meant for Buy-and-Hold:
https://www.benzinga.com/general/education/18/02/11151739/one-of-the-creators-of-the-vxx-explains-the-problem-with-many-volat
The "good news" is -USD$500 is a small price to figure it out by crash got sound.
And yes, I've traded volatility before. Made quite a bit, then lost quite a bit too! LOL!
Now I steer clear of them as I've discovered plain vanilla futures suit me better.
Its good to explore all sorts of different vehicles. If not how to know which ones fit your feet better?
3. One hedge fund manager said it best when he said he believes cryptos are a SCAM. But he has no problem speculating in them just as long he is confident he can find other idiots fools to sell to ;)
Its the same with stocks, properties, or any other speculative assets isn't it?
We have an edge if we know more about the vehicle than the next fool.
Remember, we don't have to outrun the bear, we just have to outrun the idiot standing next to us ;)
Hi SMOL,
ReplyDelete1. Actually I was using VXX as a short term hedge to my SG portfolio as I have emptied out my US portfolio then. Hedging needs to use instrument that are not correlated or are inversely correlated. However this inversely correlated instrument moved too furiously such that my SG portfolio's rise can't keep up with the magnitude of fall.
What's your veteran take on hedging?
2. What do you find attractive in futures? Just curious.
3. All derivatives are speculative.
If nobody wants stocks, the stock market would not exist. If nobody wants crypto, crypto market would not exist. So you are right, we always hope we are not the idiots buying and when we sell, we are selling to idiots. Lol
My point is more of concern to the counter-party risk of crypto trading because there's no so-called CDP, it is not a dealing on an exchange, spread can varies quite a bit depending on where you look... It's like the market marker's field. I have heard about hardware wallets, maybe that is a different story. Like buying gold etf is same same but different from buying physical gold.
Rainbow girl,
Delete1. I've learnt through crash got sound that the volatility ETFs/ETNs are not suitable for hedging purposes (to me).
Its more for retail speculators looking to hit the jackpot while most of the time, most just lose money... (Just look at the 5 years chart of VXX)
That's how I found out the VXX is used by professional traders holding at best for a few hours. Pros don't hold it overnight. (Your short term is the long term for pros)
If we want to hedge using volatility, it maybe better to trade the VIX options directly instead. Its like your Gold ETF and physical gold example ;)
By the way, when it comes to hedging, I don't think there'such a thing as "perfect" correlation or "perfect" inverse correlation...
Hedging does not mean we will not lose money. Its for us to try and mitigate our losses.
2. You may want to read up on futures 101. Futures are created precisely for the purpose of hedging ;)
You hold a portfolio of SG stocks, you hedge it with the Simsci. Simple and clean. Althought not "perfect", its close enough for hedging purpose.
3. If you worry about counter-party risks, then you should not trade OTC (over-the-counter) instruments - like spot forex or CFDs.
Yes, there's a push by the regulators for more trading vehicles to be exchange traded.
I do prefer to trade forex futures for the greater transparency. But its more a personal preference than anything.
Can make money, who cares whether its OTC or exchange traded?
Hi SMOL,
DeleteThank you for your insights.
I read somewhere that futures have a centralized pricing, whereas OTC instruments do not. Futures also typically have lower costs. However, not many bloggers talked bout trading futures. It's even more elusive than crypto.
Did some reading https://www.investopedia.com/ask/answers/031015/how-risky-are-futures.asp
DeleteRainbow girl,
DeleteYoung explore and experiment. How else to know which poisons would suit you best?
Its just like school. Primary and lower secondary we study as many subjects as possible. Then we start to specialise according to what subjects we like as we move up the academic ladder.
Wait.
Bad example.
There are those who choose subjects they think they can make the most money in the future... Not based on their interests or what suits them best.
Just like how most bei kambings approach investing and trading.
Cryptos can make money?
OK, I follow you!
If you can do it, so can I!
Even though I've no clue what I'm doing :)