Market forces Part.III

Also note that different strategies are possible. If the market is vibrant, there will be a scalper, who will try to buy and sell at 51 to 52 immediately, therefore, be presenting as much as possible on the bid / ask spreads. The scalp is an advocate of short-term, which provides liquidity to the market: this is very useful speculator. We also find longer-term investors, who hold a position and come forth once their target price achieved. Management of losing positions is also very important how each participant will he set his stop loss, that is to say, the maximum loss that agrees to bear. Each trader, according to his temperament, and its market position, establish its own strategy. Some will hold out long large positions, others will have their paper that burns your fingers and come out very soon as a small gain is recorded. The game is an excellent education, to understand how the market works, and learn to negotiate and manage its positions.
To make the game as realistic as possible, we give a number to each participant, so note in front of which is treated. In this way, we can make a real market clearing, and fire at the end the gain or loss each. Ultimate refinement, each point is worth 10 cents (or 1 Euro), and trade for real.
If you dine one evening toward the stock market, and there in the restaurant 10 excited in a circle, screaming: I pay for 10 or 52: I have 10 to 53, you now know what its acts: the Market!

Market forces Part.II

Now look what happens to the market opening, where one side to the top 49 to 51. Each participant takes its trading book, where he notes the quantities bought and sold, and courses. If two participants are large buyers, this means that for each market is 55, as they scored 10 of their paper and if it's reality, the market is actually 60. Unless there is immediately a big seller, who then entered a small figure, and is ready to bring down the market. If the seller is an observer, he can let up the market with buyers and sell them on what he considers to be the high point. Within seconds, the market can be very animated, change direction, experience significant estimated that each is of the opinion of others, etc. ... 10 people, 10 figures on pieces of paper, and it's like in Chicago, on the floor of the CME.
Put some rules to govern the listing. For example, processing a maximum of 10 contracts by negotiation set a maximum open position of 100 contracts, purchase or sale. It is also fun to publish a regular figure, as if that came out was 2:30 p.m. ET in the U.S. CPI or the trade balance. To do this, simply draw a paper hat and announce the number.

 Almost instantaneously, the market will adjust to the new value: If 10 was published, the market must rate 55; if it's 3, it is 47, according to the same principle. Once the information is public, it is immediately incorporated into lesson: it is the principle of market efficiency.

Market forces Part.I

For the uninitiated, the financial market often resembles a black box which we do not understand much, and especially what makes it go up or down. Hence the temptation erroneous to equate to a casino, which is statistically a negative sum game since the state, takes on each win. And yet it is simple to create a game market, where it likes to quote a fictitious contract for, while playing, better understanding how the market works, evaluate the strategies used, and feel the stress of holding a position.

I also used this game as educational courses in finance schools. In this context, the challenge is to create a market rather lively, with many transactions. The wise course students have a little more trouble letting go as traders in the evening, somewhat watered it is true.
How to play? Very simple! Take 10 people, each note on a paper a number between 0 and 10, without showing it to others. We put all the papers in a hat, we form a circle to recreate a floor trading, and we score the sum of 10 numbers. It sounds stupid, but I assure you playing for hours with it, in an atmosphere worthy of the notional floor in the heyday.
Some statistical explanations:  If everyone wrote a number between 0 and 10, the mathematical expectation of the sum is 50, an outside observer. But each participant in his own opinion on the market: if I wrote the number 10, the market is for me 55: my 10 plus the expected value of the remaining 9 digits or 45. I'm ready to buy up to 55. Conversely, for those who put 0, its estimated market value is 45, so he agreed to sell up to 45.

Sell ​​in May and go away

 

I am a big fan of stock sayings, and Sell in May and go away talk to me particularly. I started working on the Exchange since May 1990, and I would have been better advised to sell or to abstain rather than buying at all is to celebrate my arrival. The period May to October was not the most flamboyant for shareholders.
According to this dictum, the semester from May to October is unfavorable, in contrast to the period from November to April. For a follower of the theory of efficient markets, the effect of seasons on the Bourse smile. Who thinks about behavioral finance, the question deserves to be dug.
A study by the U.S. broker SSB gives inconclusive results, economic growth over the period is a more important factor.
By cons, research conducted by Dutch researchers published in 2001 by the Social Science Research Network states that 36 of the 37 cases studied, the period from May to October has been worse than the other, and without an explanatory factor is set identified.
What prognosis for 2011? We just finished a semester beaming back interest rates, oil remains very expensive, geopolitics is hardly serene, and the effect may not have been very sensitive in the last 2 years. If we find good reasons to sell, no need to rack their brains for a long time. We will certainly have a chance to talk

China Shakes The World

I recently read a book recently published by James Kyng, former Financial Times correspondent in China, under the title "China Shakes the World, The Rise of a hungry nation."
Some ideas to be learned from this fascinating book:
- The Chinese labor force increases by 25 million people each year who must find work. This is without counting the internal population movements, with the influx from the countryside to the cities. The strong long-term growth of the economy is a vital necessity. To simplify, China said the jobs to us, the West said to us profits.
- The vastness of the Chinese domestic market is a dream, not only the West; the Chinese as well. In fact, the Chinese domestic competition in all segments of consumer products is intense, especially since the producers are on equal terms. The consequence is that the margins are very low, and profits are sought for export.
- At the cultural level, the numbers of very great importance. The official slogans are an illustration. This is a consequence of the permanent situation of overpopulation, and the difficulty to feed every mouth. China is a country that really hungry, in every sense of the word. We can better understand the speed with which China has integrated science and technology.

For the future, let us ask some questions about the future role of China in the world of finance. With 1.2 trillion dollars in foreign reserves, increasing rapidly, and a large domestic savings, the raw material does not fail! For now, the asset allocation is not optimal. But it is likely that major Chinese banks will quickly integrate the tools of modern finance. With the size of their balance sheets, they will become formidable competitors. Moreover, the government plans to create an investment agency, with $ 200 billion to begin with, history of investing a portion of foreign exchange reserves of more optimally, a little on the model of Singapore's Temasek. This will be an institutional investor interest. The time is not far distant when China initiated the takeover bid will win over European and U.S. exchanges.