Tag Archives | risk

Positions, Risk, and Buffets

You don’t want to have too many active positions open; it’s like eating too much food at your favorite buffet. Buffets can be good. Buffets can be very good. However, you almost always–or at least I do–walk (if you still can) away from a buffet in pain–sometimes in a great deal of pain. I like the illusion that I have control over myself around food, but that disappears as soon as I see a soft serve ice cream machine paired with caramel and hot fudge pumps. There’s this mode that I enter when I’m in a buffet. I become this mindless food eating machine that inhales plate after plate of mediocre greasy food just because I can. Forget the fact that I’ve been working on not eating carbs for the past three weeks, I’m have four or five rolls with honey butter.

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Did you know that Apiary limits the number of open or pending trades you can have? This isn’t an all-you-can-position buffet, and for good reason! Apiary limits the number of open trades or pending orders in an account for risk management purposes. Mainly because during extreme market conditions, slippage is of serious concern; a lack of liquidity on either the buy or sell side means orders may not be filled before slipping far beyond any stops. By limiting the number of pending or open positions, Apiary can better manage risk across the entire portfolio. Mitigating risk is beneficial for us as a company, and for you as a client.

In addition to Apiary’s risk management model, limiting the number of open positions is a good practice at the personal level. One argument for multiple positions is the benefit of diversification.  However, after about 8-12 open positions, the benefit can become incrementally smaller and can actually turn negative.  For example, a trader actively managing 100 open positions is far less effective than a person managing 10. In fact, this is one of the ideas that helped found Apiary! It’s far better to have a group of ten traders individually managing ten positions than to have one person managing 100. In the end, the same number of active positions are being managed, but with far less risk.

Happy Trading!

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Trading During Scheduled News Events

Last week, The U.S. Department of Labor presented the monthly update on nonfarm payrolls. This would be an example of a scheduled news event. This may come as a surprise to some of you, but did you know that Apiary usually discourages trading during scheduled news events? It’s not necessarily bad to trade during these events, but here is a couple of reasons behind our thinking:

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  1.     Spreads widen:  The cost of trading in the form of spreads increase during scheduled news events due to the expectation of volatility and risk; liquidity providers will widen the spread to mitigate risk.
  2.     Slippage increases:  It takes time for a quote to be sent from the liquidity provider, received by Alveo, and then have a trade sent back to the liquidity provider. The chances of slippage increase even more with the volatility of a news event.
  3.     Frequent whipsaws:  The initial reaction to a news announcement is not always right–we’ve all been warned about the consequences of first impressions– and markets can change direction many times before the full meaning of the news is digested.
  4.     Lack of liquidity:  Sometimes trades may not trigger due to a lack of liquidity during scheduled news events.
  5.     Hardware issues:  The volatility, along with the pace of data, during news events can put extra strain on your hardware–leading to a slowdown in performance or even malfunctions during a news event.

If you choose to trade during scheduled news events, it’s important for you to recognize the challenges associated with this type of trading and be willing to adjust for the probability of increased risk. Keep these points in mind, and as always…
Happy Trading!

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Warning: This Post May Cause…

Disneyland Prop 65 WarningCAUTION

We all know everything in California is known to cause cancer, right? How could you miss it when there are warning signs posted on your grocery bags, in your hotel room, a restaurant, and even as you enter the Disneyland Resort. If simply entering the state is known to ‘cause cancer and birth defects,’ then why do 38.8 million people live there?

And we all know trading forex is dangerous. The warning that a bunch of power hungry wall street suits are scrambling around just to steal your money. You might as well be gambling, right? Then why are millions of trading transactions taking place every day?

Trading Forex is about as dangerous as going to California for vacation. Sure,  California has the potential to be harmful…if you go around licking signposts, eating wrappers, and sunbathing without sunscreen. Trading Forex might not be as relaxing as a nice trip to California, but it’s not a dangerous slot machine either. As long as you follow some common trading sense rules, you’ll avoid the substantial losses that instill hefty doses of fear in each of us.

Take time to learn how to trade safely, and you don’t need to fear the market. The Apiary Fund teaches and funds traders in the currency market, so you’re covered as you start the learning curve that comes with a new skill. Learn more at apiaryfund.com

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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Fear of Failure

A 2014 study conducted by Babson College revealed how fear of failure stops some people from engaging in activities where failure is a possible outcome – including the activity of learning. The study concluded that the fear of failure negatively influences a person’s motivation to learn and their attitude toward learning.A mature business man giving a presentation to some colleagues.

This study has direct implications on the mission and purpose of the Apiary Fund. At its core, the Apiary Fund teaches a person how to manage an investment portfolio – an activity where risk of failure is very real. We accomplish the goal through a progression of classes, simulation, and the eventual management of a small portfolio in live market conditions.

At every step, Apiary works to mitigate the elements of risk and teach a person how to properly analyze and make decisions that include risk. We strive in every possible way to give a person the greatest chance of success in learning how to manage an investment portfolio.

The irony of this study is that when fear of failure prevents a person from engaging in an activity that will make them better, it almost assures their failure in that activity. And when that activity is learning how to manage our finances and investments, the cost of failure can be high! Imagine living your life and avoiding all investment decisions – it is likely to leave you broke for retirement. Imagine giving all those decisions to someone else – it leaves you vulnerable to fraud, mismanagement, and high costs.

We know that many of you join Apiary Fund for the opportunity of trading our money. It is a wonderful incentive – one I wish I had when I was first starting! However, what you really gain through your Apiary experience is a skill and an ability to make intelligent decisions that involve the risk. That is a skill and an ability that has far a greater reach and value in your life than any amount of money you could trade for Apiary Fund!

Happy Trading,
Shawn

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