Page 1



between the trading floor and the final score...

Kit guide Trade for 10 hours straight David Buik EU, get your hands off our banks

watch ahoy! the world’s best nautical timepieces Mine! Mine! Private jets for £500

Great Trades How Georgie and Stan did Norman Celebrity Trader Ben Cohen causes mayhem at City Index

issue 1 oct 2010 £7


Spread betting forex Sport betting CFds

the exchange | welcome


editor’s letter


Editor Matt Guarente Deputy Editor Fred Palley

Those are words I’ve been planning to write for three months now, which is the time it has taken to get the publication you’re holding off the ground and into your hands. In terms of a magazine launch, I can tell you that’s lightning-fast. It’s testament to the reception the idea has received in the financial, sports, and gambling worlds that it has happened so quickly. It’s also testament to the hard work that everyone involved has put in; thank you to them all. But before I start coming over all Gwyneth Paltrow at the Oscars, you probably deserve an explanation. A journalist I used to work with commenced every interview with a simple, and disarming, question: ‘What’s this all about, then?’ And I think it’s germane to answer that here and now. The Exchange is where sports and finance meets, on the trading floor. It’s got the same drivers that make Betfair a £1.3bn business. The same reason that there are 100,000 financial spread betting and CFD accounts in the UK, and many millions more sports spread bettors. It’s because long-only is a dangerous place to be in an uncertain world. It’s because you get taxed to the hilt on pretty much every financial gain you make. So The Exchange is a place where we can inform, and educate a little, and hopefully entertain a little too. We think there’s no point in dividing poker and trading and sports betting into little silos – most people who do one, also do one or more of the others. You’re an omnivorous creature when it comes to risk and reward. And this is reflected in the bookies, poker sites, and spread bet companies all crossing the street to attract clients from the other ‘disciplines’. When it comes right down to it, it’s capitalism on a personal scale. No-one is going to look after your interests better than you are, as long as you take appropriate risks and understand what there is to lose, and gain. Which is why private banks are telling us that self-directed or advisory services are growing faster than discretionary. Why there is a retail rush into gold as a ‘safe’ asset, and why more and more people are realising that at least some part of their personal wealth has to be sectioned off and used as active, directly traded, alpha money. It’s about taking a bit more control. On that subject, The Exchange will be at the London Investor Show which is a great forum for self-directed investors and traders, on 5 November. Please do drop by and say hello. Also, we’re online at, and I can be reached by email; I’d be delighted to hear what you think about our first issue. 4 | THE EXCHANGE | October 2010


Welcome to The Exchange... Beginners start here I spend an alarming amount of my time telling people what spread betting is. Imagine you’re down the pub with a friend, waiting for another friend to turn up. She says ‘I bet he’ll be ten minutes late.’ You say ‘No, he told me he’d left the office, he’ll be here in less than that.’ Now, you’re both stubborn types, so you decide to put your money where your mouth is – but rather than a straight late-or-not bet, you decide that every minute after 10 minutes late your friend is, you’ll pay her a pound. For every minute ‘early’ he is up to ten minutes, she’ll pay you a pound. If he’s 20 minutes late, she gets £10. If he rocks up on time, she pays you the same amount. That’s it – except that the spread bet companies have a little margin for themselves, the actual ‘spread’. So they’ll offer ABC stock at a spread of 123p-124p; their ‘rake’ is the penny in the middle. We really have to give a health warning, too. In the example above, the downside of the person betting against you is £10. Your downside is, theoretically, limitless; the friend you are waiting for could have been hit by a bus and will never, ever show up. Financial spread betting, as well as some other forms of financial trading are leveraged products and you can lose more than you put on deposit. You need to make sure you can afford to lose this money – it’s not a punt to generate the monthly mortgage. Talk to the traders and customer service people at your spread bet account – they are there to help you and they genuinely want you to do well. There’s no business for them if you go broke in five trades. Spread betting is a regulated product, but there are some signs that the same addiction that hits gamblers also affects spread traders. If you’re not in control, stop, and seek help; there’s plenty of it around. And one final word; if you open a trial account with ‘virtual’ money, treat it as seriously as you would your own cash, or there’s no point.

Matt Guarente Editor

Contributors toby anderson nick beecroft aaron brown david buik ken fisher shai heffetz jeff mills christian price researcher gail hepburn Art Director Nick Brown Production isabel ferrer Subscription@ Commercial Director Natalie Kenneally Commercial Manager Gerard Logan Publishing Director alex soro Printed by Stones Published by the exchange 102-103 Harbour Yard Chelsea Harbour London SW10 0XD T: +44 (0) 20 7351 1818 F: +44 (0) 20 7352 7182

© 2010. The Magazine is published by The Exchange. All rights reserved. The publishers declare that any publication of any advertisement does not carry their endorsement or sponsorship of the advertiser or their products or services unless so indicated. Contributions are invited and, whether or not accepted, submissions will be returned only if accompanied by a stamped addressed envelope. No responsibility can be taken for drawings, photographs or literary contributions during transmission or while in the Managing Editor’s hands. Proof of receipt is no guarantee of appearance. In the absence of an agreement, the copyright of all contributions, literary, photographic or artistic belongs to the The Exchange. This publication (or any part thereof) may not be reproduced, transmitted or stored in print or electronic format (including, but not limited to, any online service, database or part of the internet), or in any other format in any media whatsoever, without the prior written permission of The Exchange. The Exchange accept no liability for the accuracy of the contents or any other opinions expressed herein.

the exchange | contents

contents the open 09 very appealing? 10 Ups & Downs 12 Aaron brown 14 wall street ii 16 trading places 17 film corner 18 celeb trader 20 david buik



the long 23 yellow peril 24 commodities 30 strategy 34 economics 40 Chart wonk

the spread


43 monte carlo rally 44 city guide 48 weekender 50 city life 52 objects of desire 59 trading up 64 fashion 72 blue chip files 76 the top ten

the close

52 64

79 best advice ever 80 great trades 82 who’s who 86 glossary 88 geoff norcott

October 2010 | THE EXCHANGE | 7


let’s get going

open THE

very appealing?

in the OPEN... UPS and downs aaron brown: POKER FACE wall street ii preview Chart Wonk Trading Places Film Corner Celebrity Trader david buik

SO JEROME Kerviel awaits his appeal outcome before heading off for a three-year stint after being found guilty of massive fraud and forgery. A lot can happen in three years; the World Cup will be hoving into view again, so JK might get out in time to see Les Bleus fail to qualify with a 0-0 draw against the Faroes. At home. Vince Cable will have returned to the back benches, the coalition having fallen apart, and the Spanish and Irish will have started heading to Romania in search of work. But those who have done any FSA training will have seen all the dire warnings about millions of pounds in fines and decades spent in chokey should they even daydream about financial impropriety, so you might argue that Kerviel got off a bit light. The kicker was that he has to pay back the £4bn he lost; he’d better get weaving, and would obviously be better off in a British prison, given Ken Clarke’s ideas about getting cons to work for pay. But look at the lad; he’s got ‘player’ written all over him. So how long can it be before some Hollywood bottomfeeder rocks up to Miramax with the story of how some French kid blew the financial system apart with his steely determination and cavalier disregard for stupid rules? And adding, no doubt, that Zac Ephron is on board. Maybe SocGen could finance it.

October 2010 | THE EXCHANGE | 9

the open | ups and downs


From new bars to trading catastrophies, a round-up of the things that have caught our eye this month


Send us your news, views, and unprintable gossip at: editor@

High frequency trading


The fifth horseman of the Armageddon, if you read the Daily Mail. Provider of liquidity and legit trading gains for investors, says the specialist press. Who is right? Certainly, the eternal battle of very smart people at prop trading desks and hedge fund managers vs. the regulator has thrown up few thornier issues in the last few years than high-speed algo trading. Unfortunately it’s unlikely, however fast you press that ‘buy’ or ‘sell’ button on your screen, that you’ll be able to participate as a punter. You need a serious amount of kit to generate super-fast buy and sell orders that exploit price diffs of the same, or fungible, instruments at different exchanges. A report in the FT, which approached the subject with the distaste that maiden aunts reserve for nipple rings, stated that 60% of New York equity volumes were down to HFT, and 25% in London, prompting the government to launch an enquiry. The first question they might like to ask? How about, Is it OK for exchanges to charge traders to colocate – in other words install comms centres next to their own files servers in order to gain precious milliseconds of market advantage?

I expect you to trade, Mr Bond

When you’re done laying waste to the financial markets, online poker opponents and counterparts on the fixed-odds exchanges, you can relax and contemplate world domination with Billionaire Tycoon. There’s a regular cheap version, or for high rollers the £5,000 luxury one with, I don’t know, dice made from woolly mammoth tusks or somesuch. Anyway it’s a board game in which you have been recently bankrupted in the recession (plenty can relate to that) and with a $100k loan you have to build up a trading empire. You start with fruit stalls in China and work your way up to multinational trading conglomerates, making sneaky bilateral agreements on the way that make Basle III look like the rules for a playground game of marbles. So who will you be? The software guru in the loafers and nerdy glasses? Or the evil genius with the bald head, scar tissue, and fluffy pussycat? All together now, MMMWAAHHH hah hah hah haaah….

10 | THE EXCHANGE | October 2010

Cabin fever

How long before airlines’ lounges become destinations in themselves? Cathay Pacific is in the process of overhauling its Hong Kong lounges and the interim stage is the new Cabin. It’s decidedly hi-tech with a wall of PCs and iMacs to use, and rather than those dirty and scruffy newspapers there’s a pile of iPads they give out for your use. But we like the Solus chair best – like a first-class seat on the ground, with its own dining/ working platform and a nice kind of leave me alone curl-around architecture. The lounge expereience, especially for short-haul, is often the best bit of the trip so we’re also loving the new service from No. 1 Traveller, which has a ‘doorstep to runway’ service for Gatwick and Stansted travellers. Whisk to the airport in an E or S class Merc, then scoot into the dedicated and very sleek No. 1 Traveller lounges, all for a reasonable all-in price, or just use the lounges for as little as £14 if you buy a Traveller Card.

the open | ups and downs

Three of a kind

Erik Seidel, meanwhile, used to trade Ginnie Maes and stock options at Paine Webber and makes his views on trading and poker, and where the two mesh, pretty well known. He thinks the former is easier than the latter, but took up poker for a better lifestyle. “I wanted to work not so much,” he says. “I think there’s a lot of overlap. Having a good sense of risk-reward is very helpful in poker.” But Seidel, one of the most successful players

on the tour, has a more salient message. “Pass up the pitches that aren’t perfect. Wait for the perfect one, in trading or poker.” Andy Bloch, with engineering and law degrees to his name, traded on behalf of a quant ‘black box’ hedge fund run by a friend for a year. “I didn’t stop because I got bored, I stopped because he scaled it up and got in other traders. But I made more money that the other guys did – I’m not sure if it was the model, or that I was a better trader…”

Good game, good game

Cantor Gaming & Wagering, a sister company to Cantor Index is to supply a fixed-odds financial betting service to the PartyGaming stable, which includes serious sports betting outfit Intertrader (see Intertrader’s Shai Heffetz on open positions on page 33). The fixed-odds bets will be available through the PartyBets and GameBookers web sites. So, if you want to bet on whether EUR/USD, gold or the FTSE will be up or down in the next couple of minutes, hour, or day, this is the place. Bet it works. We’ll have a tenner on it, in fact.

Hard core prawn

Jonathan Downey, our favourite serial bar entrepreneur (we know thousands), has finally convinced his accountant to open a restaurant. Previously, the owner of Match, the Player, Milk & Honey and a clutch of others would see a new venue, size it up for an eatery, then get shown the figures by the bean counters and agree it’s best to open a bar. So his steaks ‘n’ seafood emporium in the City, Redhook, had better make some dough. With its on-trend, Madmen atmos, it’s a decent bet. Also new this month is Tiny Robot, a bar with a members-only drinking den downstairs, opened in the Wild Westbourne Grove, W11, on the site of defunct fake-New York diner Harlem.


We were lucky enough to catch up with three poker superstars before they got down to business at the recent Wold Series of Poker Europe in London. We had a bunch of questions, but the main one was: How is poker like trading? Howard Lederer says he’s seen a lot of traders come onto the Full Tilt Poker site when the exchange closes at 4.30pm, and added that he sees a lot of similarities between those who play the cards and those who play the quotes. “We look at inefficiencies, and we leverage them, and trade them – that’s what we do, we find that inefficiency, every day, and that’s what makes it fun.” Fun that has earned him $7m in tournament money.

fat finger OF THE MONTH This month’s Order of the Big Digit goes to the Chicago Mercantile Exchange. Now, as iPhone trading at £100 a point on the Dow as you ride between tunnels on the 7.17am from Orpington becomes normal, we are sympathetic to a bit of FF action. Where we sit back and shake our head in amazement with the CME is that they let a six-minute order flow gush out of their account on live crude futures while undertaking… a quality control exercise. The CME was quick to point out that the trades did not move prices and that the trades would stand. Trader gossip, however, was that prices had behaved oddly in the period in question. Let’s hope no-one got caught in the Chicago bull stampede.

October 2010 | THE EXCHANGE | 11

open | poker face

Get 12 months for free to predict some financial price movement better than the random-walk model used to set the payouts. Consistent success requires more than an edge, however, it requires an accurate estimate of how big your edge is. That allows proper bet sizing. Suppose, for example, you make even money bets on whether the S&P500 will go up or down from close today to close tomorrow. You are lucky enough to have a hint; every day before the close your fairy godmother will tell you tomorrow’s opening price. If the price goes up between tonight’s close and tomorrow’s opening, it’s likely that tomorrow’s close will be above today’s close. Similarly if the price is down on tomorrow’s opening, it’s a smart bet that tomorrow’s close will be down from today’s close. Know your edge However, you have no information on how big your edge is. Suppose you assume you will win 80% of the time. In that case you do best in the long-run by betting 60% of your bankroll each day. If you did that bet over the last year (ending August 13, 2010, as I’m writing this), you would have turned €1,000 into €11,456. However, it would have been a wild ride. You would have had a loss on 59% of the days and been down to as little as €0.60 at one point. At the end of July you would have been down to €104 before ten straight wins to end the year multiplied your bankroll by over 100. The problem was not your

edge – you won a healthy 67% of the time. The problem is you were overconfident, and thus over-bet. Had you instead been under-confident, things would have been smoother, but you also would not have extracted full value from your edge. It you had thought you would win 52% of the time you would have bet 4% of your bankroll each day and ended up with €23,609. Now suppose instead your fairy godmother gave you only the information that the S&P500 would be up 142 days over the year, no information about tomorrow’s opening price. That seems like almost no information by comparison. If you always bet the market will go up you do get an edge, 57%, but smaller than the 67% you get from the opening price information. However the key is that you know exactly what your edge is. That allows you to bet an average of 12% of your bankroll and be up to €199,815 by the end of the year, without ever being below your initial stake. To be a successful gambler, it’s not what you know, or who you know. It’s what you know about what you know.

• A aron Brown is the author of

The Poker Face of Wall Street (left). He has been involved in trading, risk management, and portfolio management for Morgan Stanley, Prudential Insurance, JPMorgan, Rabobank, and Citigroup. He is also a serious lifelong poker player who has played with Wall Street tycoons and world champion poker pros.

Get 12 months of The Exchange for free, with online access to extra content, offers and competitions There’s also a surprise gift for the first 100 subscribers to Sign up email subscription@ October 2010 | THE EXCHANGE | 13

the open | where do you trade?

Trading Places #1. The Archipod

having a ball in your garden

It could be a plush office or a hand held device on the latest smart phone, but this issue we’re trading from the backyard

For those who have to make a physical break between work and home, these garden pods are a brilliant alternative to hiring a desk or office space somewhere. As well as space-age-meets-tree-hugging design, the Archipod is classed as an outbuilding and in the majority of cases will not need planning permission. Once through the decidedly Jetsons top-hinged door there’s a cool, pared-down interior 3m wide – but if you want it to be mahogany and plush carpeting, no problem. It’s noise and heat insulated. All you need is a power supply and probably a dedicated line to hook up your wi-fi and phone. And maybe a fridge. And a coffee maker. There’s a porthole and a ceiling window to let in light, but designer and company founder Chris Sneesby tells clients who want a nice view out of a picture window that they are there to work. “And if you want to look at the scenery, finish early, grab a beer, relax and enjoy it properly – in the garden.” From £12,000. 16 | THE EXCHANGE | October 2010

the open | film corner

Each issue, The Exchange dips into its film vaults, gets the popcorn out, and thinks how Hollywood can help hone your trading skills


image : Entertainment Pictures

The Film Trading Places, the classic identity-switch comedy starring Dan Ackroyd and Eddie Murphy, who get their revenge against scheming brokers Randolph and Mortimer Duke on the floor of the New York Mercantile Exchange. Mortimer It’s hit rock bottom. Come on, let’s buy. Billy Ray That’s a big mistake, man. You’re going to get reamed on this one. Randolph Why shouldn’t we buy now, William? Billy Ray Price is going to keep going down. Mortimer Randolph, this isn’t Monopoly money we’re playing with. Randolph This is Randolph Duke. Hold that belly over a moment. Tell me why you think the price of pork bellies is going down. Billy Ray It’s Christmas time. Everybody’s uptight. Mortimer Could we please buy now? Billy Ray If you want to lose money go ahead. Randolph What are you trying to say? Billy Ray OK, pork belly prices have been

The Scene Street hustler Billy Ray Valentine (Murphy) has been given a crash course in commodities broking by the unscrupulous Duke brothers; but he’s about to hand them a lesson in trusting your instincts.

dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, “Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my

wife won’t f… make love to me ‘cos I ain’t got no money.” They’re panicking, screaming, “Sell, sell.” They don’t want to lose all their money. They are panicking right now. I can feel it. Look at them. Randolph He’s right, Mortimer, my God, look at it. Billy Ray I’d wait till you get to 71 then buy. You’ll have cleared out all the suckers by then. Randolph Do you realise how much money he just saved us? Mortimer Money isn’t everything, Randolph. Randolph Advise our clients interested in bellies to buy at 71. Mr Valentine has set the price. Well done, William. Very well done.

Moral of the story In-depth knowledge of your counterparty is a key asset.

What would Gekko do?

This month: Career development

Darius L, from Chelsea, writes: Mr Gekko, it’s always been my dream to be a hedge fund manager but my maths teacher said I was congenitally stupid. I have loads of friends who have these amazing City type jobs and loads of money, but my dad

won’t let me touch the family trust fund. What should I do?

in the Caymans. From where you can trade, uh, shells… OK?

Gordon responds: Listen sport, you should come see me. If it was a couple of years ago I woulda introduced you to my good buddy Bernie M, who is great at linking people up and would have been very interested in becoming your friend and a friend to your family too. But you don’t need smarts. All you need is a thing called a Power of Attorney, which you sign over to me, and then we’ll make you president of a shell company called GG702, which is domiciled

Nick L, from Ireland, writes: Gekko. How do you rehabilitate your public persona? As you know, I had a little local difficulty in Singapore and as a result spent some years being careful with the shower soap and having a small cockroach as my best friend. Since then, I do a few after dinner speeches and the like, but there’s always some trout-faced old bastard at the back of the room moaning that I buggered it up for everyone. Ideas?

Gordon responds: Nicky, buddy, you need to get a new schtick. Look at me – I turned from corporate raider to author and now I’m hugging trees and rebuilding relationships with my estranged little girl. What’s not to like with GG II? You gotta get a stylist pal, everyone thinks of you in an orange jumpsuit with ‘CHANGI PRISON’ on the back, or wearing a rugby shirt with those little round goddamn Lennon glasses on. Which is worse. Find some little kids, help ‘em out, I don’t care if they need help or not, get the press in, cry a little, write a book.

Each month we pick up the phone to GG and seek his advice on matters near to our hearts. Write to him at October 2010 | THE EXCHANGE | 17

the long | commodities

heads emerging-economy buyers, but worldwide the governmental sector owns one ounce in six ever mined throughout history. Because gold is “the ultimate form of is always accepted,” as former US Fed chief Alan Greenspan said in 1999. And even without Armageddon, gold offers “unparalleled security, liquidity and diversification,” in the words of a French central banker. While western fund managers are only just catching on, Indian housewives have long understood gold to be a great investment hedge. Hoarding perhaps 16,000 tonnes of jewellery between them, they’ve seen gold beat the rupee in 28 of the last 40 years, trebling in price in the last half-decade alone. India remains the world’s No.1 consumer market, but mainland China is now close behind. Private Chinese spending on physical gold has soared since de-regulation a decade ago, more than doubling to 2% of its huge household savings each year and far outweighing Beijing’s central-bank hoard. For British and US investors, in fact, gold has offered a neat play on China, showing a stronger correlation with the Shenzhen stock market than with copper, crude oil or platinum since 2005, according to the World Gold Council (a great source of free research and data, by the way. Go to

Unlike a stock, bond or bank account, gold can never default – not if you own it 26 | THE EXCHANGE | October 2010

Bullish on Gold? Buyer Beware

Like any bull market, the flood of new start-up in gold includes poor deals and outright frauds to catch the unwary. Here’s three to watch out for... “Rare” Gold Coins Gold in your hand is the ultimate hard money asset. But even the commonest “bullion coins” (such as the Krugerrand, Maple Leaf and Philharmonic) start at 5% mark-ups, with most dealers charging similar fees again when you sell. Because they’re deemed to be coin of the realm, British Sovereigns don’t attract Capital Gains Tax (CGT), but dealers often take back most of that saving in higher mark-ups. US authorities then warn against buying “rare” or “collectible” coins if you’re given the hard-sell by phone. One firm in Long Island made $25m by charging 5-10 times market prices; a New York-based company confessed to charging 8 times true value. Fox News-endorsed Goldline (a different company to the UK dealer) now stands accused of over-charging its clients by 47% to 102% in a high-profile national campaign. If you’re buying gold, just buy gold. Don’t confuse bullion with the collectibles’ market. Free Gold Storage Only one innovation hit gold during the City’s Big Bang deregulation of the mid1980s: “unallocated” gold programmes. Keeping hold of your gold, and so cutting your dealing costs, they charge you nothing for storage, but only because you don’t actually own any metal. Unallocated gold buyers are in fact owed their investment,

putting them on risk for the firm’s financial survival, but without the banking sector’s £50,000 deposit insurance. Your off-risk alternative is “allocated” gold, physically held in secure vaults and belonging to you outright. Monthly storage fees run as low as 0.01% at market-leader BullionVault. (Its live online gold market also gives you direct access to the trading spread.) Look for regular, verifiable, third-party audits and statements to prove your gold is where it should be. Because empty vaults are another common scandal in gold. Mining Stocks & Funds It’s a popular myth that if gold is rising, then those miners digging it out of the ground should be soaring in price. Since the financial crisis began in mid-2007, gold has beaten both the major US mining-stock indexes (the Philadelphia Gold & Silver XAU, and Amex Gold Bugs HUI), plus the top managed funds, including the UK’s No.1, Blackrock Gold & General, and with lower volatility to boot. In fact, gold is much less volatile than most people think. It’s true that a handful of individual stocks have performed well (Randgold’s Nasdaq listing has quintupled in price since ‘05) and risk-loving investors will always find explorers and junior mining stocks alluring. But mining shares carry management, credit, political and inputcost risks which gold itself doesn’t suffer.

the long | strategy

Intertrader chart showing GBP/usd Caution reconsider position

This might be the right time to sell 110 pips of profit

Exit here with additional 130 pips of profit

This could be the right time to increase your position Potential entry point, long

one market in an attempt to offset exposure to price fluctuations in some opposite position in another market, with the goal of minimising your exposure to unwanted risk. Therefore, if you want to use hedging, which is an advanced method of managing risk on your open positions, you need to do it on a different market. Let’s assume your medium term perspective (3-6 months) on the EUR/ USD cross is bearish, therefore it would make sense to sell the December futures contract. It might be that while this position is running a shorter term analysis is indicating a bullish correction. At this point you can either use the October or the spot contract to hedge your position; it can be a perfect, partial or even an over-hedge. Another more advanced technique for hedging would be to use OTM (Out Of Money) options, but this requires a much more detailed analysis as a whole new level of complexity is introduced when trading options. Another consideration that one should take into account is the trading session. In the UK

This can be an opportunity for a second quick round

we have three major trading sessions in the day: Asian, European and American, though some overlap with the others. Some traders prefer to close their position when the underlying market session is over, while others are happy to keep their positions open overnight.

Money never sleeps If you decide you wish to keep position open after market hours or just let them run while you sleep it is highly recommended to take protective measures before signing off. A lot can happen while you sleep, therefore revaluate your stop-loss order and consider adding a limit if you don’t already have one. As I hope I’ve outlined, managing your positions is a serious and complex craft which can have a significant impact on your trading results. It all starts by making a well-informed decision and documenting relevant information, followed by a building a rigorous regime with a central message: stick to your plan.

Glossary STOP LOSS A pre-set limit to prevent unacceptable losses. SUPPORT Level at which the asset price may find a floor RESISTANCE Level at which the asset price may find a ceiling STOCHASTIC Movement towards, or away from, periodic highs or lows BREAKOUT Clear price movement through resistance or support

• I is a leading spread betting and CFDs broker, providing traders with more them just a trading platform, supporting traders and helping to make better and more informed decision. The views and comments in this article are not the views of or London Capital Group Ltd. The provision of this information should not be construed in any circumstances as a recommendation or solicitation to buy or sell any security or financial instrument mentioned, or as investment advice. assumes no responsibility for your trading results.

October 2010 | THE EXCHANGE | 31

the long | economics

built in 1779 the iconic iron bridge in shropshire was a symbol of the industrial revolution which sparked global deflation, with growth

Defeating deflation Don’t fret falling prices, says legendary investor Ken Fisher. Instead, learn the lessons of the past and keep an eye on what the data tells us about today Brits believe inflation will tick higher, while the rest of the world mostly frets deflation. Who’s right? Neither, really. Deflationary risks dwindle fast globally, and materially higher inflation likely isn’t a major risk for some time. Perhaps more than hyperinflation, investors fear a deflationary death spiral. Everywhere, headlines warn an extended bout of deflation will stall the global economy, returning it to recession – the much talked about (but rarely seen in history) “double-dip”. What’s more, they warn central bankers are out of deflation-fighting tools. The problem may stem from a simple misunderstanding

32 | THE EXCHANGE | October 2010

of what exactly “deflation” is. Milton Friedman famously said inflation is, “always and everywhere,” a monetary phenomenon. Hence, deflation is when prices overall and on average persistently fall, usually triggered by a decrease in money supply – for whatever reason. Deflation is not a “low” rate of inflation, as the US has had overall for the last decade or so. That is “disinflation” – a slowing rate of inflation. And deflation is not, always and everywhere, bad. Some items regularly deflate – think what a 50-inch flat screen TV cost just five years ago. That kind of deflation you don’t fear and actually quite

like. And that deflation is usually offset by inflation elsewhere. Rather, today’s fears are of the dreaded “deflation spiral” – when prices broadly drop and consumers delay spending waiting for lower prices later. That slows economic activity, leading to still lower prices, and more spending delays. A true deflationary spiral can become almost self-perpetuating and debilitating.

That was then… Fortunately, true deflationary spirals have been very rare. It’s normal to have short spurts of deflation now and then – typically in recessions as we recently saw. But prolonged



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Book your ticket to the London Investor Show today. Tickets cost £25 each and include your VIP pass and entry to all free seminars and the investment exhibition, plus your complimentary copy of the London Investor Show Event Guide AND a Delegate Welcome Pack containing special offers and free magazines and tipsheets.

REGISTRATION HOTLINE: 0870 974 1995 or Register Online at The London Investor Show is organised by Investor Conferences (UK) Ltd. Registered in Scotland No 386077. Registered Office: 3/2 Guardianswood, Edinburgh EH12 6PG.Tel: 020 7099 6930 Fax: 020 7900 6310.

the spread | objects of desire

Panerai Panerai is steeped in maritime history, from its origins as watchmaker and supplier of precision instruments to the Royal Italian Navy. In 1934 Guiseppe Panerai, son of founder Guido, created the Radiomir and Luminor collections which were the foundations for the company as we know it today. The Radiomir Regatta 1/8th Second Titanio is a new special edition to coincide with the Panerai Classic Yachts Challenge 2010. The Regatta is a split second foudroyante chronograph – meaning it has a dial at nine

54 | THE EXCHANGE | October 2010

o’clock whose hand makes one full rotation every second. The watch is accurate to 1/8th of a second and is indicated by the relative fraction of a second marker that the hand is pointing at when the chronograph is stopped. The watch also features a scale for calculating boat speed in knots. The balance ticks 28,800 times an hour at 4 hertz, ensuring it’s 1/8th of a second accuracy, and the watch has a power reserve of 42 hours. The brushed titanium 47mm case is watertight to 10 bars (approx 100m) which is uncommon, yet typical of the expertise you expect from a Panerai timepiece. The movement is visible through the sapphire crystal back plate and the winding crown also houses the control button for the split second chronograph hand. The Radiomir Regatta 1/8th Second Titanio has been produced in a single edition of 500 watches with a leather strap and brushed titanium buckle. £10,600

the spread | trading up

let’s jet set

A private jet for cashpoint money? Possible, says Matt Guarente, but it’s serious green if you want to it all to yourself

LIKE many things in life, having something tailor-made costs money. Add in a time factor and the price rises commensurately. So, if you want to rent any small car, and you don’t really care which one, and you don’t need it until December, you can take your pick and get a good deal. If you want a delivery-mileage Bugatti Veyron in pink candy-apple paint with a champagne fridge and you want it this Tuesday, you might as well just sign a blank cheque.

It’s the same with private jets. The whole point is to have the ultimate in privacy, flexibility, and efficiency. To do this, and to have exactly what you want when you want it, you’ll need to own your own plane and hire your own full-time crew. Or, at the very least, own access to a fleet of planes – but even then you might be required to give four hours’ notice to climb on board. The very notion. At the other end of the scale, there’s the bargain basement option of a seat on a plane going at a

Ooctober 2010 | THE EXCHANGE | 59

the spread | fashion

A tale of two cities...

This season, London goes for sharp, lean- cut suits and a clean-shaven look. New York, by contrast, looks a lit tle mean and moody and the Gillet tes are nowhere in sight...

main pic: he Wears Navy Shadow shawl jacket £450; Wool Mohair trousers £150; Shirt £65. She Wears: Blouse, Velvet Trouser, Clutch all £250. Satin Gold heel shoe boot £199. this page: Wool Mohair suit £600, bag £299, stripe tie £50. stockists on

.............................Jaeger London: London Eye, 8.15am...................................................................... 64 | THE EXCHANGE | October 2010

the spread | fashion

right: jacket £200, tousers £99, V-neck knit £50. below: jacket £220, trousers £99, shirt £65, tie £35. available exclusively at house of fraser.

.............................Kenneth Cole Ne w York: Bat tery Park , 3.45pm..................................................... 70 | THE EXCHANGE | October 2010

the spread | top ten

In for the long haul?

10 Got a long session coming up? Can’t leave your desk? Don’t let anything get in the way, but also make sure you can perform properly. Starting the trading day with a Mars bar slumped in front of your screen is going to do nothing to bring your A-game to the markets. By our organisation guru Gail Hepburn


top ten









74 | THE EXCHANGE | October 2010


saving the best ’til last

close THE

in the close... best advice ever great trades: soros breaks the bank who’s who: the best spread cos glossary: terms of engagement column: geoff norcott

The Best Advice I Ever Got Gigi Levy CEO, 888

It’s a tough one. The one piece of advice which somebody gave me once many, many years ago when I had just started my business career having come out of the air force, was that every person that you meet knows a few things that you don’t know. I was young and cocky and thought I knew everything when I knew nothing, and he told me this. And if you can learn it then it will be good for you. The last employee in the office, the cleaner for example, probably knows who stays late. He probably knows if somebody’s stealing things, he probably knows who is sneaking out with whom as he’s out walking the corridors. He knows who the guy is who’s spilling coffee across the floor. And he’s the cleaner. The guy in the warehouse probably knows if things are missing and he knows who isn’t managing inventory properly. The installer in the field probably knows where the processes suck and probably knows where customers get upset. And it could well be that all these people know all these great things but nobody ever asks them. You can think you’re a big manager who knows everything and it took me a while to understand. But today I try to listen to everybody and I always assume that everybody knows a few things that I don’t

which would be in my benefit to know. One of the critical things to learn is that you need the lows to grow because it’s very difficult to learn from the highs, the successes. In most cases when you do something well it’s very difficult to know what the one or two things were that made you successful. On the other hand when you fail it’s a lot easier to find out the failure points and learn from them. I think one of the highest points would have been the turnaround the company achieved after the closing of the United States market. We lost 60% of revenues with a 30% margin, so losing 60% revenues took us to minus 30 margin. And in a year’s time we not only got the company back into profit but grew it by 35% which was a great achievement, people worked around the clock and were really committed. There’s a lot of character in the company so there’s a lot of willingness to help. It wasn’t my doing but was definitely a high point as a manger.

Turn it around Low points there are many. I think the way we ended up losing the poker battle is definitely a low point and I’m very unhappy with that. I’m not sure we’ve done a much worse job than everyone else but we definitely didn’t do a phenomenal job and for all those that say unreasonable advantage and unfair advantage, well, business is not fair. We had something to play with, they (Full Tilt and PokerStars) had something to play with and they played their hand a lot better. So I see that as a failure, I don’t need to but everybody else does. So I’m trying to turn that around.

October 2010 | THE EXCHANGE | 79

the close | glossary

Trading Glossary

Welcome to The Exchange financial glossary. We’ll be updating every month and we welcome additions (decent and clean, please) – bottle of champagne for each issue’s best suggestion.


ABS Asset-backed securities; ie. securities backed by mortgage loans or suchlike which are obtainable if the creditor defaults. Actuals The physical assets behind commodity securities. ADR American Depositary Receipt. These are shares of foreign companies listed on exchanges in the US. Alexander's Filter A method that measures the rise or fall of a share price in percentage terms over a given period. A fast rate of increase suggests a buy; the reverse, a sell. American Option Can be exercised at any time during the life of the contract. European options, by contrast must be exercised on the expiry date. Arbitrage The action of profiting from the difference in price for similar securities in different markets.


Back Month The traded future or option that is due to expire latest.

Backwardation A situation within futures markets where the cash price is greater than the price for future delivery. Such a scenario often occurs when supply of a particular commodity is short but the futures price remains low because the expectation remains that further supply will come online in the near future. See Contango. Bear An investor who is essentially pessimistic about the fundamentals of a given market. So called because a bear fights on its hind legs, moving its paws in a downward motion.

Bear Raid The attempt to push down the price of a security, most often by SHORT SELLING. Bear Trap The belief that the market will start to fall having risen significantly, thereby leaving short sellers trapped by increasing prices, forcing them to cover their positions by buying stock at higher prices. Bed and Breakfast deal A transaction whereby stock is sold and subsequently bought back after the end of the tax year, allowing shareholders to register either or a loss or a profit for tax purposes. Bells and Whistles Features added to a security put up for sale to attract investors or reduce the costs assumed by the issuer. Bid/Ask Spread The difference between the price at which a dealer is prepared to buy and the price at which they will sell. The spread between the best bid and the best ask (or offer) is sometimes known as the touch. Blue Chip Company A long-established company with a long and strong record of profitability and endurance. The term is taken from the most expensive chip on a poker table. Bottom Fishing The practice of buying shares when they lie at a level the investor believes is unlikely to decline further. The same term is also used with respect to companies buying competitors that are cheap or failing. Bottom Up An investment strategy whereby investors pick stocks, rather than rely upon achieving a balanced weighting in each sector. Such a strategy is based upon the management of individual companies rather than market or economic trends. The opposite of Top Down.

86 | THE EXCHANGE | October 2010

Bucket Shop A brokerage, often from overseas, that sells shares with little underlying value at, by definition, elevated prices. Buffer stock A stock of commodities held by an international entity, which seeks to buy and sell from its stockpile as a means of maintaining price stability. Bull An investor who believes that the market will rise. So called because the raising of the head (denoting a command to buy a security) is redolent of the action of a bull raising its horns before attacking. Bull Market A market where prices have risen significantly over a prolonged period of time.


Call An option giving the holder the right to buy an instrument for a particular price within a set time.

Callable Callable bonds give an investor the right to redemption at a set price on a set date. Circuit Breakers When an exchange imposes the closure of trading after prices have fallen by a certain percentage - a move designed to restrict so-called panic selling. Cocktail Swap A mixture of different kinds of swaps. Often used to spread risk on large deals. Contango A situation in which futures prices rise progressively as the maturity date moves further away from spot. The increase reflects the added cost of storage and insurance for commodities. Contango is the opposite of backwardation and is the normal relationship between spot and future prices. Credit Rating The assumed

creditworthiness of a company or sovereign nation issuing debt securities and their ability to repay the investor. Credit ratings affect the ability of a government or company to secure financing from banks and also inform the price their securities might command on the open market.


Dead Cat Bounce A rise in a security or broader market following a sustained drop, followed by another precipitous drop due to a lack of change in the fundamentals of said financial instrument or market. Discount A derivative that is trading below the current market price it is said to be trading at a discount. Double Dip A second drop in a market or economy after significantly dropping for first time. Dutch Auction An auction in which the price is gradually lowered until a bid is secured. That bid then becomes the price at which the offering - such as US Treasury Bills - is then sold. The term is often synonymous with tenders.


Exchangeable Bonds Not to be confused with convertible bonds. Exchangeable bonds can be swapped for shares in another company that the issuer may own already. Expiry Date The date at which a security matures. It can no longer be traded thereafter.


Fair Value The price at which a security can be expected to trade.

Fallen Angels Bonds that have fallen below a previously held investment grade, becoming junk.

the close | funny money



i’m a gilty man

he doesn’t know much about financial markets, but he knows what he likes Ever since the credit crunch I’ve been bang in to the world of high finance. For a while back in the autumn of 2008, toxic debt was almost as interesting to me as Spurs. The business pages always used to hang about in the centre of the paper, after the gardening and before the ads for escorted cruises, like it was ashamed to be there at all. But of all of a sudden it was mobbing out the whole rag, and I was more interested in Robert Peston’s opinion than Alan Hansen’s. I found it hard to get my head around it at first; how all this carve-up with the Yanks mattered to the dear old UK? They said that if America sneezed Britain would catch a cold. Well, it appeared that America had pretty much projectile vomited and Britain had been walking past the open window, eating an ice-cream. I was all over Pesto’s blog after that, relaying his gospel down The Swan over a game of darts. I kept telling the boys, ‘You want to get amongst it with the old tracker mortgages lads. Long term interest rates are a bit like West Ham; you can only see them going down.’ But, to most of the lads, the ‘base rate’ was the standard cost of an ounce of speed and most of them got properly mugged off on five-year fixed rates. I was like the Vince Cable of South East London; no-one was listening. My mate, Plastic Barry, he came in to a few quid because of (*deleted after legal advice*) and I said: ‘Gold is the only thing you can bank on in a financial crisis…that and brokers making shit loads of money.’

88 | THE EXCHANGE | October 2010

Barry did end up putting it into gold – sadly it was in the form of jewellery for some Ukrainian glamour model who rinsed him out good and proper. Things have of course got a lot better since the dark days of late 2008. And even then, there was a point where my mortgage

andrew sentence, we like our rates where they are, so jog on repayments had fallen off a cliff and the price of a litre of petrol had slumped, that I was forced to concede it was turning out to be one of my top three favourite recessions of all time. I’d never seen so many people suddenly interested in CDOs and Vix and yapping about sub primes in the financial press. But once everyone got wedged up they stopped reading. Not me, mind: I’m still all over it like KPMG at a fire sale. Still, despite the growing threat of inflation, only one geezer on the MPC is currently bothered enough to suggest raising interest rates; dear old Andrew Sentence. I’ve got a Sentence for you Andrew old boy: ‘Get in line son, we’re all enjoying the low mortgage rates, so jog on.’ The MPC either don’t think hyper-inflation is a risk, or they don’t give a toss if it does end up happening.

Recently, I’ve been looking at the old gilts again. You’ve got to love some of the names in this game, very appropriate. I’d feel guilty too if I was inventing £200bn every other day. I tried my own version of quantitative easing once, ‘printing’ my own currency in a particularly vicious game of Monopoly, but it only provoked a wild bout of hyper inflation. My mum built a run of low rent B&Bs in Mayfair and my old man sold the gas and water utilities to the Russians. Anyway, I’m gonna end each of my little articles with a bit of advice for you. Listen to Joe Kennedy, and ignore any little tips from shoe shiners. Everyone knows that shoe shining is an entry level graduate position these days, and I wouldn’t trust a graduate to reverse park, let alone invest a hundred large. And you can forget about Robert Peston too, the geezer’s got drunk on the power. He’s the financial equivalent of Robbie Williams, post ‘Let Me Entertain You’. Me, it’s never gone away. When you’re permanently skint, you can’t afford to lose money, so I’m saying this; stick with gilts. Firstly, the Europeans are still nowhere near getting their villas in order. As long as the Spanish keep eating yoghurt for breakfast and going back to bed a couple of hours later, their economy is going to lack a bit of punch. And there’s actually nothing wrong with a bit of gilt. Gilt can be productive and drive a man to do good things. Or is that guilt? Either way, same difference. Until next time. • Stand-up comedian and writer Geoff Norcott is a top draw in comedy clubs throughout the UK. He’s passionate about cricket and football and presents various TV and radio shows, including a weekly sports show on Virgin 1 as well as a regular slot on 888 TV.

The Exchange Digital Sample October 2010  

The Exchange Digital Sample October 2010

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