How traders lose money?

When you do not know something, there is risk. Many people who buy and sell regularly think they are traders. Well most of them are not. For being a trader you need trading skills, tremendous discipline, fantastic connectivity to the world markets – I know people who see the markets at 9pm, then 1am, then 5am before hitting the Indian markets at 9am.

One of them is a trader in gold – and makes fab money in gold movements while sometimes leaving the currency without a hedge. This is not easy, but he has an office and a room in the house which has one big board, a soft board, a cable connectivity, a net connect card, 1 desktop, 2-3 laptops, charts and strategy books. This room looks like a workshop of a scientist rather than a ‘trading’ room. I think he is online 20 hours a day – sleeps in bits and pieces.

If you buy and sell because your broker tells you, well you are not a trader, but you believe you are a trader.
I know another trader who has a delivery taking ability of Rs. 10 crores – which he can WRITE OFF in a worst case scenario. He takes delivery and sells more as an interest arbitrage. One of his strategies is to go against the market. Let me explain. For those who know (which means all people in the equity markets except ….you know who!!) there is an unorganised funding mechanism which allows you to buy on Monday, but HAVE TO sell on Friday. This comes at a low cost of funding – say 13-14% p.a. interest, but if you take delivery on Friday, the interest rates go up to 30%p.a. So this whole army of ‘aam aadmi’ traders / investors (to me they are neither) WILL SELL on Friday evening and buy back on Monday. This guy ties up with the same broker, same scrips and takes what is called a ‘ulta position’ and reverses it on Monday morning. When we exchanged notes about 3-4 months back he was talking of 3-4% p.m kind of return – even though there were many weeks of zero trades.

Then of course there is the stag – who makes money in IPOs by tying up with the promoter, merchant banker, broker,….etc. the yields here are in the region of 4-5% p.m. Again not bad considering that the money may not go out of your account for too long, no risk of application rejection, no chance of refund being delayed….amazing deals come to you when you want such deals! You need the ability to write cheques in the region of Rs. 10 crores per issue – it could even by a consortium….but there has to be ONE decision maker.

And then there are the ones who do not read, do not study, do not think….but consider themselves traders. They lose money. Sadly for them, they are in a majority.
Source:Subramoney.com

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