Apiary Fund Traders Manage Risk on the Markets Darkest Day

August 24th will go down as a dark day in market history as the Dow Jones Industrials dropped over 1000 points in early trading.  Days like this bring an ominous air to the hive.

The first profit and loss report was run early Monday morning.  The Dow was just recovering from a 1000-point opening plunge and tensions were tighter than the e-string on a violin.   The seconds seemed like hours while the server churned out the calculation that would give the bottom line for the fund – how many losses, how many gains, and is the fund up or down…

The first number to show up was profits: $33,638.

Next, the losses:  $5,196.

Winners were beating losers by a 5:1 ratio; the early read on profits was nearly 3%.   Tension turned to pure exhilaration as we started going through the detailed report.

The traders here at Apiary Fund are amazing.

I always tell people that the risk management system is for safety and learning.  Yes, it’s true, Apiary Funds money is kept safe by the program that constantly monitors accounts and makes the call many of us are too timid to make – cut the losing trade.   But performance on days like this cannot be attributed to the fail stop of the risk management system, but to the skill our traders have developed as they work toward funding.

The Apiary Fund risk management system keeps the fund safe, but it’s more than that. It’s teaching traders how to manage risk in the tsunami of market disasters.

As good as the numbers were in that first report of the day, what was an even greater accomplishment was the fact that not a single funded trader had been stopped out by the risk management system.

Again, I repeat.  The Apiary Fund Traders are amazing!

Keep up the good work, and happy trading!

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20 Pips Equals Your Success

Ever dream of being that one investor? The one who predicts market events before anybody else knows they’re coming, and gets away with millions of dollars fitting nicely in your pocket? Well, it might be hard to stuff that much money your pockets… but I’m sure you would have no trouble finding a nice safe place to store your millions. Wouldn’t it feel great to make it on the list of legendary traders known for their cunning and incredible returns?

1929: Jesse Livermore shorted the stock market (predicting the crash) and made $100 million.

1987: Paul Tudor Jones shorted the stock market (predicting Black Monday), making an estimated $100 million.

The 1980s (after Black Monday): Andy Krieger shorted the Kiwi (predicting it was highly overvalued) and made $300 million.

1992: George Soros shorted the British pound, making $1 billion dollars (meanwhile Stanley Druckenmiller invested in the german mark and made an additional $1 billion for Soro’s Quantum fund)

2000: John Templeton made $80 million in a week shorting the Dot-Com bubble.

2003: Andrew Hall went long (like, 5 years long) on oil and made enough to land a $100 million dollar bonus.

2007: John Paulson and Kyle Bass both made $3-4 billion shorting subprime mortgages and mortgage-backed securities.

2009: David Tepper went long on banks (predicting they would recover from the financial crisis) and made $7 billion.

Of course, while some take opportunities in the market to make millions, you have to realize the enormous risk behind these trades. As investor Spidey-man would say, ‘With great returns comes risk of great losses.’ For example: Yasuo Hamanaka lost $2.5 billion shorting copper, Brian Hunter lost $6.5 billion in natural gas futures, and Jerome Kerviel lost an incredible $7.1 billion in European futures. Just this last May, China’s richest man lost $15 billion when his company shares plummeted. Ouch – somebody didn’t have their stops on!

The difference between us and them is as simple as a couple of zero’s. Say you make 20 pips with one lot, while somebody else makes 20 pips with 100 lots. You both made 20 pips, but the one with 100 lots made a lot more money. Honestly, it all depends on how much money you put into the trade. The more you practice hitting your 20 pips a day, the more comfortable you’ll become trading in the market. The more comfortable you become in the market, the more money you’ll invest in it. The more money you invest, the more money you’ll make (as long as you’re smart about it). Then, you’ll be hitting your daily 20 pips with 100 lots and making a lot more zeros.

Happy Trading!

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What About Benjamins?

Born in Boston on January 17, 1706 was the tenth son of a soap maker. He was known as Benjamin Franklin, and not only did he contribute to the shaping of science and history but his face graces every $100 bill that’s been printed since 1914. How does our dear friend Ben measure up to his treasured namesake, the $100?

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Benjamin (Franklin) Benjamin ($100)
-Born on January 17, 1706 in Boston, MA -The version we know (with Ben’s face) was born in 1914, when Reserve Banks were established in 12 locations through the U.S.
-Alias: “silence dogood” -Alias: “c-note”
-Spent time abroad as an ambassador in both England and Paris -About 2/3 are in circulation outside the U.S.
-Invented a type of oven, swimfins, and bifocals -It costs 12.5 cents to produce
-Apprenticed at, worked at, ran, and owned a print shop -Printed in Washington D.C. and Fort Worth, Texas
-In 2009, one of the only 1733 original printed copies known to exist of his ‘Poor Richard’ Almanac was sold to an anonymous bidder for $556,500 -When the new version of the bill came out in 2013, the bill with serial number ‘1’ is estimated to be worth somewhere between $10,000 to $20,000
-Lived for 84 years (died April 17, 1790) -Avg lifespan is 90 months (~7.5 year)

 

One more thing you might not have known about Benjamin Franklin. His scientific and financial savvy (along with his good advice) inspired Apiary Fund’s Benjamin Formula. A formula that can help you determine whether or not to take a trade as well as how risky your trade will be. Pretty neat, huh? So follow the example of Benjamin Franklin while you’re trying to make your benjamins today!

“Well done is better than well said.” -Benjamin Franklin

Happy Trading!

For more information on the Benjamin Formula (not the Benjamin Graham formula) click here.

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Why Are Commodity Prices Falling?

Commodity prices are falling. Fast. But why are commodity prices falling if they’re already at five year lows?

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It’s not unusual to see seasonal downswings in commodity prices during the summer months, but the magnitude of this past week’s move is so broad that it’s not seasonal but macroeconomic factors leading the charge.

The movement clearly illustrates the relationship between the dollar, interest rates, and commodity prices. Interest rates are increasing.  Dollar is strengthening. Commodity prices are dropping.

The theory behind the movement is that when the Fed “prints money,” the money flows into commodities and pushes prices up – and alternatively prices fall when money becomes scarce.  But what, exactly, is the mechanism that causes this relationship to exist?

Increasing interest rates decreases the price of commodities in four ways:

  1. It increases the pace at which commodities are produced by increasing the incentive for extraction today rather than tomorrow.
  2. It decreases the producer’s desire to carry inventories.  Storage costs increase.
  3. Institutional investors shift investment out of commodities (high risk) and into treasury bills (low risk).
  4. Strengthens the domestic currency, which, in effect, reduces the cost of globally traded commodities.

Right now, monetary tightening is widely anticipated in the US, with the FOMC signaling that they will likely raise short-term interest rates sometime this year – most likely September. It’s not seasonality or an actual change, but the expectation of a rate increase that’s pushing commodity prices lower.

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Currency and Your Wealth

Eastern Europe and the old Soviet bloc during the early 90’s is a perfect example of what happens with extreme fluctuation in currency valuation.

Hungarian ForintDuring that time, there was a great interest in the value of currency.  Everyone, from the butcher to the beggar, was talking about money. I recall walking down the streets of Budapest when a beggar asked for some money to buy bread.  Having been taught by a mom who insisted I help a person in need, I reached in my pocket, pulled out some Hungarian forint, and placed them it in her hand.

I will always remember what happened next.

She looked at the coins, and in complete disgust, spat in her hand and tossed the coins in the street while she murmured some vulgarity about the “worthless” government.

At the time, Hungary was suffering from hyperinflation – a condition where the price of goods and service steadily increased while the value of the Hungarian forint dropped. Nobody wanted Forint because the longer you held it the less it was worth!

There is a great lesson in this…  Storing wealth in currency is a risk.  Yes, you’re parents always taught you to open a bank account and save your money.  While most of the time that is a good practice, there are times when a currency’s value changes.

Wealth is something we’d all like to build.  It is something that we’d like to save once we acquire it.  Wealth is stored in different ways, such as a savings account at the bank, but how you store wealth is just as important as acquiring it because contrary to popular belief, money is not free from risk.

In Hungary, the value of the currency dropped – nobody wanted forint – and so any wealth stored in the form of savings in a bank account was destroyed.

There was an alternative, however; German marks.  While the Hungarian Forint was dropping the German Mark was going up!  Anyone who stored their wealth in German Marks, not only preserved their wealth but expanded it!

Hopefully with this example, you can see how important an understanding of currency is to your wealth.  If you want to be wealthy, you have a couple of hurdles you have to overcome…  First is how to create it, and second is how to store it.  Both are easy to overcome if you understand how currency works and the Apiary Fund is here to help you get over those hurdles!

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Bunnies and Money Management

It is essential to understand money management before you enter the market. In fact, learning the essentials is important before you try anything. I learned this lesson years ago while caring for my neighbors animals.

babybunnyLast summer, my neighbors went on their annual camping trip to Beaver, Utah. Every year they ask me to take care of their pets while they’re away. The number of pets they have is always growing, and that year consisted of 12 chickens, 2 fish, 1 cat, and 4 bunnies. I never have, and am doubtful that I ever will, own a pet, but I agreed to help them out. I received 3 pages of typed instruction, and training on how to place the labeled chicken food into the labeled chicken pen using the labeled chicken scoop (I may have accidently mixed up the cat and chicken food the year before). I even practiced feeding the chickens with their daughter two days in advance. They left feeling reassured that not even I could mess up their detailed instructions, and I watched them go feeling confident in my ability to keep their animals alive for five days (one year the cat jumped into the fish tank, resulting in a decrease in the fish population).

The next day: I fed the fish, I fed the cat (not the fish), I fed the chickens, gathered the chicken eggs, and opened the door to the bunny cage. Unfortunately, the bunny in there ran out as soon as the door was opened, and I spent the next hour chasing it around the backyard. Finally, with the bunny safely in my arms, I returned it to the cage with the other bunnies. I replaced the food and water, and left feeling like a champ.

The next five days passed uneventfully, and I was delighted with my success. My neighbors returned, and immediately checked to see if their dear pets were still alive. I happily informed them that they were all alive and well. Their daughter, inspecting the bunnies, turned around and said, “Mom? Why is the boy bunny in with the girl bunnies?” One month later, they had 34 baby bunnies.

Truthfully, I’m uncomfortable with animals. They sound easy to take care of, and I had the instructions and means to take care of them, but I had no experience or any idea on how to actually handle them. Now, relate this to money management. I know it can feel like a stretch comparing caring for animals to your money (though I wish my money could reproduce as fast as those rabbits), but the similarity isn’t between animals and money. It’s between knowing how to handle and care for them.

Proper care and handling of money in the markets is key to successful trading.  In the same way improper handling of the neighbors farm resulted in unintended consequences, improper handling of money can have unintended effects – loss of capital, longer hold periods, lost opportunities.  However, with some basic knowledge, a good set of instructions, close attention to details and discipline you’ll discover that you can manage your results with much greater control…  And who knows, maybe your monies can grow like bunnies.

Happy Trading!

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The Traffic Laws of Trading

 Awww yeah, that would be life. Cruising down the highway in your sleek new ferrari… or maybe not.

ferrari-458_lA few years ago, a driver of a candy red Ferrari Testarossa managed to nail a $290,000 speeding fine while driving 85 mph through a village in Switzerland. In Switzerland, they base their speeding fines off of income, and since this was a repeat offense they were not messing around. After reviewing the case, the court said, “the accused ignored elementary traffic rules with a powerful vehicle out of a pure desire for speed.” That’s a high price to pay because you forgot one of the most basic traffic laws. speed_limit_25_sign

We can all relate to the pit that drops to your stomach when you look in the mirror and see those blue lights flashing. And while most traffic fines aren’t that hefty, just in the United States they generate between $3.8 billion to $5.4 billion a year in revenue.  Now, relate this to your trading. How many times do we let our emotions, or our pure desire to make the trade work, cause us to forget one of the most elementary trading rules-get out of a losing trade. When we get emotionally involved in a losing trade, we get caught-and you’ll end up with a ‘ticket.’ Just like the driver of that candy red Ferrari let his desire to go fast cloud out the danger (and high price) of speeding, we can forget that taking a small loss is better than big one. So just slow down, follow the traffic rules of trading, and have a good day in the market!

Happy Trading!

One way to not get caught in a losing trade is to have  trading plan or a set of rules you follow when you trade. Here’s the link to a couple of our blog posts about having a trading plan.

http://www.apiaryfundblog.com/how-to-form-a-trading-strategy/

http://www.apiaryfundblog.com/take-market-come-top/

http://www.apiaryfundblog.com/our-philosophy-on-success/

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Good “Luck” Trading

If good trading is all about luck, then Apiary has sown the seeds for success…  quite literally!  About a year ago, Shawn had a vision of turning an ordinary fescue lawn into a factory of four leaf clovers!  While most gardeners might balk at the idea of purposefully growing clover, (clover is considered a weed in most places) at the Apiary Fund we find it quite delicious. With thousands of hungry bees working at the office (mostly real bees, and a couple of human bee-ings) nobody balks at a fresh batch of clover honey – or a fresh batch of clover juice – to keep the trading session lively!

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cloverjuice

 

We got a new juicer for the office Monday and tested it out with a frothy glass of  “Luck O’ the Irish”  clover juice – straight from the lawn!  Disclaimer. We don’t actually know if drinking freshly juiced four leaf clovers will give you luck in the market but we figured, hey, it couldn’t hurt!

Obviously, there are other great ways to find success in trading that don’t depend on ‘good luck’ charms.  Trading forex isn’t about magic tricks or superstitious rituals and it’s definitely not based on luck like the slot machines in Vegas.  Instead it’s honest, consistent effort and discipline that will bring home the green in the currency market!

Here’s some links to a couple blog posts about being a successful trader.

http://www.apiaryfundblog.com/our-philosophy-on-success/

www.apiaryfundblog.com/8-expectations/

Happy Trading!

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Trading the Summer Doldrums

I am sitting here remembering how much I loathe trading the summer doldrums.  A few minutes ago I received a text from the Apiary Fund development team asking me to place a few live execution trades through one of our new liquidity providers.  It is about 4:46pm Mountain Time and there is nothing happening.  The chart is so flat it makes the Utah Bonneville Salt Flats look like mountains!  And trading is so slow that I’ve started keeping track of which comes first; a new tic or a new minute.  So far the minutes are in the lead!

Welcome to trading the summer doldrums.  The doldrums are the period of time between close of the US market and the open of the Asian market when even sleep takes a nap and nothing happens in the currency markets.  And if you thought the doldrums were bad, then the summer doldrums take it a notch slower!  Summer is notoriously slow as traders take a break from trading and head out on vacation!

While most internet company’s in the world look at midnight to perform maintenance on servers and so forth, in the currency markets we use the doldrums.  Its a time when many brokers perform some of the mundane tasks such as calculating your carry interest.

When you trade currencies you borrow money in one currency to buy a different currency.   You have to pay interest on the money that you borrow.  Fortunately, you get paid interest on the currency that you buy.

If the interest rate of currency you borrow is greater than the interest rate of the currency you bought, then you’ll end up paying the broker a little bit of interest.  If the opposite is true and the interest rate of the currency you bought is greater than the interest rate of the currency that you borrowed, then instead of paying the broker, the broker will pay you!  Which is good, because sometimes that’s the only money you’ll make during the summer doldrums!

As for me right now, I suppose I’ll just have to wait for Aussie’s to stir things up a bit!

Happy Trading,

-Shawn

 

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What Are The Costs To Trading Forex?

While there are many costs to trading forex, most costs are categorized in three ways:

Explicit Costs, Implicit Costs and Optional Costs

choices opportunity cost decision

Explicit costs: are the fees your broker charges. Examples of explicit costs include commission, spread, margin costs, account and management fees, software fees, and data fees.

Implicit costs: are costs that are not charged by the broker, but by the market. For example, a losing trade could be considered an implicit cost. Other implicit costs include slippage, gaps, opportunity costs, etc.

Optional costs: are just that – they’re optional – they are services that may help you make better trading decisions. Optional trading costs include education, better technology, newsletters, trading systems, or advisory services.

As with anything, trading costs can get expensive. However, it’s not necessary to pay high costs while trading.

For example, to beat the high explicit costs of trading, take time selecting a good broker: be selective and do your homework. Brokers can be tricky at masking fees, so there is no better way to understand the true cost than by opening a small account and testing them out.

Implicit costs are kept in check by improving your knowledge and trading skills. Take time to develop your skills: observe, practice, and learn.  Companies like the Apiary Fund provide excellent education and skill development training to mitigate your risk and costs while you’re developing your skills.

It’s important to know that there will always be costs to trading forex. These costs should not discourage you from trading, but encourage you to be a better trader. The benefits can far out-weigh the expense if you’re willing to be careful, and understand the costs before you dive in!

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