What is the difference between traders and investors? There are many people who do what traders do but call themselves investors, and the boundaries between the two are blurred.
Investors spend money on things and then wait patiently, believing that one day they will rise in value. Notice, they are buying real things, they are buying real time. For example, Buffett, a typical investor, buys a company, not shares. Stocks represent a company, but shares are empty, and he wants to buy the company itself, its management team, all its products, its market image.
Traders don't buy physical things. They don't buy companies, they don't buy grain, they don't buy crude oil or gold. They buy stocks, futures or options. They don't care about the ability to manage teams, they don't care about trends in oil consumption, they don't care about world production of coffee. They only care about price.
The history of the market is the history of risk control; the financial market was born for risk, and it still plays the role of risk control today.
In the modern market, a company often contracts with foreign suppliers for futures or long-term contracts to resist the effects of exchange rate fluctuations on the business. Of course, they also enter into similar contracts with upstream companies in case of large fluctuations in the prices of raw materials such as crude oil, copper and aluminum. Fluctuations in the price of raw materials, or exchange rate fluctuations, are a huge risk in the operation of the business.
The airline industry, for example, is extremely sensitive to fuel prices and is heavily influenced by the crude oil market. When oil prices rise, profits fall, unless the price of airline tickets increases. When the price of airline tickets increases, passengers decrease and profits fall.
It is no coincidence that Southwest Airlines has been so profitable for so many years. Its general manager has long realized that the airline is focused on passenger flights, not worrying about rising oil prices all day long. They have taken advantage of the financial markets to build a firewall of the crude oil market outside their company's doors.
So, who sold the futures contract to Southwest Airlines, who gave Southwest Airlines this firewall?
Traders, trading is about risk. There are many types of risk in the world, and each type of risk corresponds to a type of trader. For the sake of simplicity, we've broken down and divided the many types of risk into two main categories: liquidity risk and price risk.
大部分交易员都跟流动性风险打交道，他们是短线操盘手。流动性风险是什么？当你想卖的时候，没人买；当你想买的时候，没人卖。就像“流动资产”中那个“流动”一样，只有随时能兑现的资产，才是流动资产.现金，可以；股票，差不多；土地，就不行。这种随时脱手、随时兑现的流动性，与流动性风险内涵一样。如果我们很好地规避了流动性风险，那想买就能买到，想卖就卖出。
For example, if you want to buy XYZ shares, the final trading price of the stock is 30 dollars. If you go to look at the quotes of XYZ, you will find two prices: one is the price at which the buyer wants to buy, called the bid price, and the other is the price at which the seller wants to sell, called the ask price. For example, if you want to buy XYZ shares, the final trading price of the stock is 30 dollars. If you want to buy XYZ shares, you have to at least take out 35 dollars; if you want to sell XYZ shares, you can only make 30 dollars.
Case: The story of Ahung in the cinema
This is also very understandable, for example XYZ is the price of the movie tickets for tonight's movie ticket price of 30 yuan, eight o'clock begins to play, Mr. Little Busy suddenly did not want to see, at seven and a half ran to the door of the cinema, said, is there anyone who wants?
The cinema door is a market, all in the market are Ahung, they say the same thing want to make me buy, the maximum for you is 30, buy price ((bid) is 30; want to make me sell, get me 35, sell price ((ask) is 35.
This is also known as leveraged buyout. A leveraged buyout is the use of liquidity in one market in exchange for liquidity in another market. The leveraged buyer may buy a large amount of crude oil in London and sell it in New York; or buy a bunch of stocks and sell them as stock futures.
Back to the main topic, another risk, the price risk. The price may plummet, and many people can not bear this risk. A farmer may not tolerate the price of crude oil plummet, because the fertilizer may follow the lead, the diesel in the tractor may also follow the lead, and then he can not afford the fertilizer and the tractor. This farmer is also afraid of the fall of agricultural products, wheat, corn, soybeans, if they fall to the loss, they will not save money.
Southwest Airlines' cost hedger, or hedger, is keen to avoid the risk of a fall in prices. Farmers are also like that. At this time, if they are smart enough, they will go to traders and transfer the risk. Such traders, called hedge fund traders, are known as hedge fund speculators.
Case: The story of King Pu'er Chao
For example, Wang Longhan, his family is in Yunnan, has a tea garden, planting Pu-Pin tea; he has a brother named Wang Di-Pin, home in Beijing, Cape Town tea shop. In 2008, taking advantage of the Olympic east wind, drinking tea is also fashionable, more people buy tea, more people plant tea. Wang Longhan is more timid, he sees his Huang Han neighbors have started planting tea, he can sell cheaper than me, the price of Pu-Pin has fallen.
When the king and the king were both worried, the far-away relatives of the king killed him. He felt that in August the price would rise to the top, and then the price would fall. In April, he first went to the king and said to sell me the tea, I will give you the last year's price, 50 bucks a kilo, guaranteeing you do not lose money, if it falls, I carry.
At that time, Wang Hao went to Wang Di, and said that if you look at the price of tea, the price has gone up like this, then you will definitely have to pay, I will go and find you some cheap goods, at the current price, 100 kilograms, over half a year to send you to your door, if it's all right, I'm afraid.
In this film, Wang is a long-line trader, a speculative businessman, taking a long-term price risk to make money. In the film's story, Ahung is a short-line trader, a liquidity risk to make money. They are all traders, they sell, not tickets, not tea, but risk.
A few groups of people who want to trade come together, buy a little, sell a little, and there is a market. One group of people are short-line traders, like the Yellow Bull Party Ahung in front, they only take the little spread in the buy and sell, repeat the operation over and over again, making money is not easy. Another group of people are long-line traders, like the speculator Wang Shui in front, they price the price change, take considerable risk, big losses.
A long time ago, in the United States there was a Chinese street, the owner of which was a smuggled immigrant from the past, opened a restaurant, and by the way, sold handmade oil paper towels. His father's family in the rural areas of Suzhou, the whole village people would make oil paper towels, cut bones, make frames, dressings, knot paper, painting towels... The owner of the house returned to the village priest every year, by the way, bought 100 tons, each 100 yuan, originally at a rate of 1: 8, with $ 12.5, and returned to the Chinese street to sell to the American towels, each asking for $ 20.
Later, the renminbi appreciated, and the trend of appreciation became more and more rapid, originally 8 bucks worth 1 dollar, looking at it, it was going to become 6 shillings 1. The owner was in a hurry, thinking that year, a shill sold for 20 dollars, the cost was 12.5 dollars, almost net shillings 8 dollars, give my son zero flowers, the child can not be happy.
However, the owner has a good son, named Dai Shushu, the older he gets, the more he pays. He said, "Don't worry, we'll go to the Chicago Mercantile Exchange and buy yuan futures contracts, you buy 100 yuan, that's 10,000 yuan a year, we'll buy that much futures, we'll buy it at this rate of 1:8 now, wait until next year 1:6, we'll sell it again, you say how much you can earn, this year spend $1,250 and you can buy 10,000 yuan, next year spend these yuan in one hand, you can have $1,667, net $4,500.
The owner was so pleased, he sent DeShushu to Chicago to drum up the sale. DeShushu was the one who hedged, and what he did was called hedging. DeShushu found Uncle Sam in Chicago, who was a short-line trader, also known as Yellow Bull.
Here, a few sentences are inserted, futures contracts have a fixed format, standardized, it specifies the specific quantity, type, or even the quality of the product. The futures contract is whole, you can not have 1.5 contracts, you can only buy and sell the whole contract, the number must be an integer. The contract also specifies the minimum price change.
Uncle Sam is sitting in the exchange, with a face of a yellow bull, and a sign is in front of him: buy and sell yuan at the same time, buy price is 1: 8, my 1 dollar to exchange for you 8 yuan; sell price is 1: 7, your 1 dollar can exchange my 7 yuan Uncle I am not easy, just make a yuan.
Uncle Sam is selling people's money, where to buy it? from a Japanese, called Tenryu, Tenryu likes Chinese cabbage culture, longing to be in China, thinking he knows the Chinese situation. Last week, Tenryu ate insects for three days in a row, he had a strong premonition, that the quality of Chinese food is too unreliable, the country is too unreliable, the yuan is to be devalued, he will sell the yuan in exchange for a large amount of dollars, etc.
If he gets it wrong, he may have to wait a lifetime. If he gets it wrong, he may have to wait a lifetime.
So, so far, there are three types of people here:
The first category is the hedge fund hedge fund. He is the head of the risk management department of the owner. He has to deal with the risk of exchange rate fluctuations.
The second category: Uncle Sam, a yellow-bull who trades short lines. He helps DeSouza transfer liquidity risk, so that once DeSouza gets to Chicago, he can get things done in half a day and come back in the evening, not staying in a hotel. Uncle Sam works every day, trying to raise the difference.
The third category is the long-line speculator Liu Xiaobo. He knows that the Chinese market is worried about the appreciation of the yuan, but he bets that the appreciation is just a dream, that the yuan will not rise for half an hour, and may even be devalued in a financial crisis. So, with the expectation of devaluation, he throws away the yuan in his hand, exchanges it for dollars, etc. The yuan is devalued, and then buys back a lot of yuan with these dollars, earning a penny.
If the story goes well, it's not a story anymore. You know, futures contracts often don't require physical delivery, Uncle Sam sold the futures contract to Deishu, not necessarily giving him yuan cash, just giving him a promise and now selling at 1:7, what price to buy next year if it falls, as long as the Chicago Exchange doesn't fall, the promise is valid.
So, after Uncle Sam sells the promise to Daisuke, there's time to go shopping before Uncle Sam buys the real stuff from the Cabbage Patch.
So he killed it. Unlike Toku, who had never eaten insects, he felt that China was especially reliable, and he felt that the Chinese were right, that the yuan should be appreciated, not devalued. Toku sold the yuan, and Toku bought the yuan.
Kuro came in with bubbles, dressed as Uncle Sam, looking for people everywhere to buy yuan, but couldn't buy it, so raise the price. Kuro was drinking wine, slowly and repeatedly said: other people take the yuan, is at 1: 8 take, you give him 8 bucks, so that you can get 1 dollar; I am 1: 7.6 ah, not the same, I don't need to give me 8 bucks, I will give you 1 dollar, sell it to my father! 1: 7.6 This price is collected, Kuro said, now I have earned 1: 7.3, and the people's money in my hand, spit it out! 1: 7.3 After receiving a lot, Kuro has to speak again, now: 61 let's see, how much is collected...
So, from the moment Kuro opened his mouth, Sam's uncles were panicked, and they were asking everywhere, how much is Kuro buying? How much is he going to raise the purchase price? Why is this high-net-worth person running out and robbing the business?
The market is like that, it changes in an instant. Maybe yesterday's Kuroko is the same as what Kuroko thought, maybe today's Kuroko is either drowning, or staring at the top, or getting inside information, and one day he changes his face, his expectations change, he changes the value of the yuan.
And, if the guy is very charming, the guy, the guy, or even the original guy, might change their minds and go with the wind to buy the yuan, and the price of the yuan in the market will skyrocket during the festival.
However, Uncle Sam also has two types, one is a real uncle and the other is a small Sam. The real uncle immediately realized that he had to run, the market wind was about to change, the Kuros were out of business, the yuan would immediately rise in price, I don't care where I am now, hurry up and buy a little yuan, it will be higher for a while, then sell it, and there is money left.
So, old Sam also went to buy yuan, without counting the cost, buy as much as he can and collect as much. At this time, little Sam was still looking to the left and right and asked, who is Kuroko, how much is he going to buy, will the price of the purchase still rise?
Little Sam bought the yuan with tears in his eyes. Old Sam nodded his head with a beard, my mother was an old lady, and I was a loser in Daeshusha, and I came back in Little Sam's house.
In this story, old Sam, for example, is short position after he sells to Deishu, before buying the yuan; he is long position after he buys the yuan, before selling to young Sam. In the empty position, old Sam buys after selling, and makes money by leveraging; in the multi-head, old Sam buys after selling, and makes money by leveraging. Old Sam has experience, can quickly identify upward and downward trends, immediately change his short position, and always has money.
1 The starting point of the whole transaction is that the expectations of the owner and the tenant are different, one expected to appreciate, wants to buy, one expected to depreciate, wants to sell.
2 They are both busy and it is difficult to make an appointment. So Uncle Sam comes to work, as the contact, and pays a little difference.
However, Uncle Sam doesn't necessarily buy first and sell first, staying stable at the spread; it can also be bought first and sell first, possibly at the spread, but also take the risk.
4 It is true, Buble Kuro killed out, he is different from the expectations of Kuro Kuro, believing that the yuan will not devalue and will rise. Turo does not like the yuan, to sell; Kuro likes the yuan, to buy.
5 When the difference is threatened, the Sams panic. Old Sam reacts quickly, since the market is unstable, regardless of the difference, quickly changes the buying and selling strategy, to make money with the wind. The buyer buys, old Sam also buys, and then the price continues to rise.
This article was originally published by The Wall Street Journal. Translated from the Managed Home Forum