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Send Message Writers are: Scott Matusow; Team Leader, owner and founder of Scott is an independent investor/writer/trader and team leader of He has have about fifteen years of stock market experience which include trading, investing, and managing his... More
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  • Explanations on how modern markets trade, buying on margin. and investing smartly

    Wondering why the markets lately are just all over the place? Does it frustrate you? Most people would be frustrated with triple digit moves one way and the other.. For the typical investor, it is hard to see one day, a nice gain and green, then the very next day RED.. Can people be this fickle when investing and trading the markets? Are people scared the EU issues? Knee Jerk reactions? Well, not really, because it really is not people setting the market direction trading the futures before the bell.. It is COMPUTERS, Bots, advanced algorithms that are determining the direction to trade mainly for large hedge funds based on news headlines. Because of the uptick rule being removed in 2007, it has added a ton of volatility when the market goes down. Why more down then up?

    Well, it is much easier to make money on the short side when massive computer programs can hammer the bid in microseconds without an uptick rule to slow that down.. it is easier to get a human to sell something before buying something.. People get scared, and want to protect their equity.. Many people sadly over use margin to buy stocks.. When those people are in the green, they feel good, and margin gives them extra leverage and more equity.. But when their stocks go down under their average price, and when over margin, Fear kicks in harder of loss, and receiving a margin call, losing as much as double their original cash position. Therefore, the human investors/traders will sell off as fast as they can to avoid losing too much and to lock in profits, if they still have any.. They simply cannot afford to hold a stock long when they risk losses on margin. Now with the so called “panic selling” coupled with fast hitting high frequency computer systems, the market makes faster and more volatile moves to the down side over moves up. People are not really panicking over the EU issues per say, or reacting to news headlines, COMPUTER SYSTEMS are, and programmed to do so.. This is turn, as everything stated above, causes the panic selling with acceleration.

    Myself, I am long in $AIS 100 percent cash; Therefore, I can tolerate violent pps moves down without worry of receiving a margin call. Never margin more than 15 percent of your total target shares. This will avoid you having to sell shares to avoid margin calls and avoid realized losses and super small gains. Let’s say you want to buy 100,000 shares of a stock.. you have enough cash to buy 85,000. You then add 15,000 shares on margin, I.E, you borrow from your broker 15,000 shares.. Let’s say the stock is 1 dollar when you buy it… you have paid 85k and you have borrowed 15 k = 100k.. Lets say the price drops in half to 50 cents.., the stock is now worth 50k, you are still on the hook for 15k borrowed from your broker, so you have 35k in equity in the stock.. No margin call.. However, if the stock drops under 30 cents a share, you will receive a margin call because your equity is now under 15k in the stock, but you owe your broker 15k, follow? you do not have the equity to cover than 15k, you will have to add cash to your brokerage account if u do not own any other stocks, thus having more equity… the odds of a stock dropping that far are remote, so this is why no more than 15 percent of your target shares long should ever be on margin.. Sadly again, most people risk too much, gamble too much and those hedge funds who just about always win, will get your over risked money taken out.. This is mainly why you hear people bitch how the markets stole from them.. BULLSHIT mainly.. These people were stupid and took too much risk with borrowed money.. Sound familiar?

    Greedy Hedge funds will steal from you if you allow them to do so because you think you can get rich fast, over risk, over buy, over gamble.. Poker players out there should know exactly what I am talking about!! Do not be greedy and look for the quick and easy buck.. People who gamble have this problem.. The Stock Markets can and will be cruel to those who do, and create a whole new bunch of whiners screaming about the markets ripping them off!!. Trade and invest smart, if not, you can expect to be “ripped off” in today’s modern markets where high frequency short sales can take you out of an over margin position.

    Another way to play the market is to day trade as a pattern day trader per NYSE rule T, using “DTBP” Day trading buying power, a very risk prop, and you had BEST KNOW WHAT YOU ARE DOING before ever using it!

    Disclosure: I am long AIS.
    Tags: ATRS
    Jan 09 4:31 AM | Link | Comment!
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