This blog used to be a haven for forex traders and online investors. It will now contain my political views and opinions about the current state of affairs in my country the Philippines from here on. Please feel free to comment on my posts.
Showing posts with label investing online. Show all posts
Showing posts with label investing online. Show all posts
This is a Sponsored post written by me on behalf of Born To Sell. All opinions are 100% mine.
There are times when the stock market hits the doldrums. Trading volume declines and share prices go sideways. These are times when investors become extremely edgy and impatient and start looking for other ways to beef up the earning potential of their investment portfolio. These are times when they are tempted to discard their buy-and-hold strategy! Times when they may even prematurely divest themselves of their under-performing stock holdings despite maintaining a neutral to moderately bullish outlook of the stock market. There is, however, a way of maximizing returns on investments when the market hits the doldrums! Known as 'covered calls', this option trading strategy allows investors to generate additional income from their buy-and-hold portfolio during those times when the market goes sideways! Covered call writing refers to either:
The simultaneous purchase of stock and the sale of a call option (also known as buy-write);
or, the sale of a call option against a stock currently held by an investor (also known as overwrite).
How It Works This may seem a little complicated to many, but the strategy is really simple and straightforward! At the same time that the investor buys or holds on to a particular stock, he writes a call option or an offer to sell these stocks at a price pre-determined price ( known as the 'strike price' which is usually above the current market price) with an expiration date set at sometime in the near future. Under this arrangement, the option seller will be obligated to sell his stocks to the option buyer when the current market price is above this strike price level. On the other hand, the option buyer agrees to pay the option seller a premium equivalent to the difference between the strike price and the market price of the stock when the call option was made. The option buyer, however, may or may not exercise his right to buy the shares of stocks when the market price is above the strike price. He (option buyer) is obligated to pay the option seller the premium during the duration of the call. In short, the investor is paid to agree to sell his stock at the strike price. He retains all benefits of underlying stock ownership, such as dividends and voting rights until such time when he is assigned an exercise notice on the written call and is obligated to sell his shares. Should the market continue to move sideways until expiry, there will be no exercise notice written on the call and the investor may offer a new call option. What this means is that if the investor had used the covered call strategy repeatedly over time, he'd have earned a lot more income in addition to the dividends you got along the way. Covered call is a conservative income-oriented stock investment strategy which you should seriously consider specially when the market stalls and moves sideways. It offers you an opportunity to earn more than what banks and bonds have to offer. Why settle for 1 to 3% APR as offered by traditional banking instruments when you can earn at least 1% per month on covered calls. Learn how to do it now. Because it is also not without some downside risks, you must learn from the experts on covered calls. Visit Born To Sell Covered Calls now and start earning extra from the stocks you already own! They offer a free covered call newsletter, free covered call tutorial, and free covered call blog.
Investing online is a matter of choice ...and, of course, of convenience too!
The lure of trying one's hands on investing is simply irresistible! This is why we see a lot of first time investors trying it incognito via online brokers. Newbies who had always wanted to test their skills at handling their own investments are often the ones easily attracted
to online investing. Most of whom are individuals who have suddenly acquired some excess capital from a booming start-up business undertaking, or a blooming professional career. These people find online investing to be a "perfect fit" for their "dreamed fantasy". Well, why not? Not only does online investing allow them to manage their own investments in the comforts and confidentiality of their own abodes, it is also quick and easy (so it seems) to learn! With their first click on the mouse, newbies immediately experience an exhilarating transformation into their fancied and fantasized role of becoming a real stock or forex traders in that instant; executing orders at will while experiencing the thrill of pitting their own raw trading skills against seasoned money/stock traders online. With hundreds of sites offering free tutorial services, seminars, and e-books, plus a free live demo account to boot, online forex/stock trading is really catching fire with this lot of trader-wanna-bees! But, alas, these "George Soros Wannabees" should not fool themselves into believing that online investing (especially forex with its sometimes wild and wide price fluctuations) will be like "picking apples" all the time.
For forex traders, stock traders, commodity futures traders, bond traders!
Since Steve Nison came up with his first book "Japanese Candlestick Charting Techniques" in 1991, forex traders stock traders, commodity futures traders all over the world have been awed and mystified by this centuries old charting tool! The ensuing interest for, and the widespread popularity of this trading tool was simply magical. Every Tom, Dick, and Harry dealing with any form of trading was scrambling for whatever available Candlestick tutorials, books, and lessons there are! Practically everyone in the investment industry was mesmerized by the simplicity and the seemingly promising trading results Candlestick will bring to its users!
It is a well accepted fact that the Japanese are regarded as one of the most efficient money managers and smartest trading partners in the world. The introduction/revelation of their purportedly 'secret' trading tools to the rest of the world would naturally lend an air of mysticism to the event!
But everyone wonders if the Japanese Candlestick Charting Technique is really a well-kept secret intentionally hidden from the rest of the world for centuries!?....Until, Steve Nison accidentally discovered it in the '90's!?
My answer is a categorical no! No, the Japanese Candlestick Chart was not a well-kept secret! Let us start uncovering the truth behind the mysteries and mysticism that shrouds Candlesticks by looking back at Japan's history.
“E” is For Ego – The Biggest Stumbling Block of Most Forex Traders
Making money on online Forex Trading is actually easy! It is only the forex traders themselves who makes it rather difficult and complicated to win trades.
Consider this!
To make money trading the foreign exchange market, there are only 5 basic and simple rules to follow! All of which are quite easy to understand.
One needs only to:
1. Buy low, sell high.
2. Let profits run, cut losses quickly.
3. Add to a winning position, never to a losing one.
4. Go with the trend. (Don’t buck it!)
However, simple though, the above rules may seem to many, most forex traders I’ve known still continue to lose money on forex!
Instead of buying low and selling high, many forex traders find themselves buying high and selling low instead! In fact, a lot of them jump into the market for the wrong reasons.
WHEN THE PERFORMANCE INVESTMENT PRODUCTS CORPORATION SCAM HIT THE NEWS WIRES, SOME WRITERS DESCRIBED THE INCIDENT AS BEING SIMILAR TO THE LARGE SCALE INVESTMENT FRAUD PERPETRATED BY THE MANILA INTERNATIONAL FUTURES EXCHANGE IN THE MID‘80′S.
BUT DOES THE SIMILARITY END THERE?
The dollar fell to a 14-year low of 84.81 yen on Friday last week. The market continued to extend declines to fresh multi-year lows since breaking below the recent 2008/2009 matched trend lows at 87.15. There is technically no real support now until 79.75 which represents the 1995 historic lows, and a retest of this level can not be ruled out at this point with the overriding trend so intensely bearish .However, daily charts are indicating a possible correction from oversold territories, and the shorter-term risks seems to favor additional upside back towards the 88.50-89.00 area before considering the possibility for another round of weakness below the recent 84.80 trend low. On top of that, after the dollar's decline to 84.81 level last Friday, Japanese officials mentioned intervention as a possibility in order to weaken the yen. This temporarily put a plug on further dollar declines against the yen. But this week's action - plans to offer about 10 trillion yen ($115.8 billion) in short-term loans to commercial banks to boost liquidity and maintaining the key interest rate at 0.1 percent - could help weaken the yen without resorting to selling the currency, analysts said.
U.S. non-farm payrolls are will be released today, Friday, December 4, 2009. It is expected to contract to125K in November, which would be the smallest decline since March 2008, while the annual rate of employment is forecasted to hold at the 26-year high of 10.2%. From the data, investors will definitely weigh the prospects for a sustainable recovery.
In anticipation of this Friday's data, we have seen a rise in risk aversion yesterday which drove the dollar higher as it continues to benefit from safe-haven flows.
Trading this Friday's data actually favors a bearish outlook for the greenback as economists anticipate the labor market to weaken further however, price action following an enhanced employment report could set the stage for a long dollar trade.
1. Thou must first know thy self and thy market well.
Trading stocks, currencies gold, or commodity futures, or any other securities(fast moving markets) via the internet can be terribly taxing! Before you decide to plunge into it you must know offhand if you are ready to lose a lot of good night sleep for just monitoring the markets; or if you have the stomach to take frequent roller coaster rides during peak market activities (like watching your investment tremendously grow within seconds just to see it melt down in the next)! You must know first if you have the discipline to be able to maintain your cool during wild and wide price swings and still be able to call the shots objectively according to your pre-determined trading objectives. This means you should not to let fear overshadow you when the market moves against your position, nor allow greed to take the better of you when the market is in your favor. Remember always that markets are frequently unpredictable and that you must learn to adapt to its peculiarities fast otherwise it will eat you up alive.
2. Thou must deal only with registered brokers.
Make sure the broker is registered! If the broker is based in the U.S., contact the Securities and Exchange Commission (SEC) and also check with your state securities regulator as well. You can research the investment online using the SEC's EDGAR database at http://www.sec.gov/edgar.shtml. To contact your state regulator call the North American Securities Administrator's Association (NASAA) at (202) 737-0900 or online at http://www.nasaa.org/home/index.cfm. You may also contact the Commodity Futures Trading Association (CFTC) at http://www.cftc.gov/ and the Financial Industry Regulatory Authority (FINRA) at http://www.finra.org/index.htm. The rule of the thumb you must use here is “avoid the unregistered and junk the brokers with recorded complaints.”
For non-US based brokers, you must demand verifiable documentations from the broker regarding their affiliations and representations. Some online brokers are merely introducing brokers (IB), meaning they act as marketing representatives for a bigger broker, in which case you must demand to see the IB contracts and investigate the affiliation of the principal broker. Other brokers “white label” for their principals. Their websites may appear and have the looks of a big broker when in fact they are mere affiliates of other brokers. Don’t deal with white labelers if they don’t publish their principals. White labelers make money through an additional spread of a pip or two built in into their price quotes. While I don’t have anything against white labelers who are affiliated with established brokers of good standings, I would advise you to avoid them unless they have incorporated more add-on features or services other than those offered by their principals to justify the additional cost to you.
Big Daddy's suggestion that you deal only with registered brokers is not being biased against overseas brokers. It's just that online investors must always be provided with a forum or a venue to file any claims they may have against their online brokers in the future. And at this point in time,only U.S. based brokers can provide us with this safety net.
3. Thou shall shall not invest money you can not afford to lose!
One of the major pre-placement considerations an investor must make is determining the amount of capital he will be using. There is not set rule for this. In fact, everything is left to the discretion of the investor. However, one must understand that every investment involves a certain amount of risk. Placing an investment (online or otherwise) is in reality a form of risk-taking with the hope that the placement will generate a certain amount of profit after a while. However, the presence of the entailing risks also tells us that there is a possibility of losses. In fact, in fast moving markets the likelihood of losing all of your investment is all too real. This is the very reason why you must not invest more than your 'risk capital'. Risk capital is that part of your liquid assets or your wealth which if lost will not affect your lifestyle or your family's way of life. Never ever invest money meant for your your family's daily subsistence. Doing so will make an emotional wreck out of you. You will turn out to be an emotional trader; setting aside fundamentals; trading out of fear of losing the money on which you and your family depends on; holding on too long to losing positions hoping the market will finally turn into his favor. Once you become emotional trader you start trading on false hopes which ultimately lead you to disaster and the total loss of your investment.
4. Thou shall not use unprotected computers!
Never use computers, whether at an airport, library or an office when accessing your financial accounts or records. Make sure you only enter confidential information on websites with the "locked padlock" icon in the browser frames (must have https at the beginning of the web address) Avoid using public wi-fi facilities in accessing your account or executing your online trades. Hackers are everywhere nowadays. It is advisable to do your online transactions only at the comforts and confidentiality of your abode. Turn off and unplug the computer you are using for trading when you are not on trade.
5. Thou shall not trade without a plan!
Never attempt to trade without a trading plan. A good money manager does not buy or sell out of whims and intuitions. No matter how long his experiences have been in trading a particular market, the successful investor/trader always prepare a plan before taking a plunge, so to speak. His every action stems from a careful study of a particular security, commodity, or currency contract. He always has a sound fundamental basis (underlying economic data) and/or a reliable technical view for the following trading decision parameters:
o the choice of item/market to trade, (which security, commodity, or currency)
o the specific position to take (whether to buy or to sell)
o the specific price range on which the position will be executed (entry point)
o the targeted price objective or exit point on which the trade must be closed
All these trading decision parameters must be clearly defined and set before executing any trade. Never attempt to trade fast moving markets online in the same manner and with the same do or die spirit as in p lacing bets on online gambling sites. Every trading decision must be based on a trading plan and every trading plan must be followed to the letter.
6. Thou shall not execute orders without trading stops!
Every trading plan must incorporate trading stops which shall act as a safety nets to limit your losses in case the market moves unfavorably against your established positions. There is no set or fast rule for creating your stops. However, in establishing your initial position you need to set your initial stop with a wider range - taking into account the highs and lows of the trading range established for the day, the proximity of your entry price to historical turn points (chart supports and resistance levels), and your tolerance level as dictated by your initial equity. (Make it a point that your initial stop must not be beyond the price level where it will eat up more than 20% of your equity). When the market starts to move in your favor, adjust your initial stop turning it into a trailing stop in the direction of the price movement. You must adjust your trailing stops tighter and tighter (closer to the spot price) as prices approach historical turn points or significant technical price levels (such as those established using the Fibonacci theory).
Stops are vital to your becoming a disciplined investor. They help you decide without hesitation when to cut a losing or winning trade. They prevent you from becoming an emotional trader and a perpetual loser. But most important of all,trading stops limit your actual loses. I have seen people lose all their investments in one single session because they adamantly held on to losing positions in the hope that the price will soon make a turn-around. I have also seen people who have reached their profit objectives but out of greed, held on to their positions. And when the market whipsawed they ended up losing everything.
7. THOU SHALL NOT TRADE ON MARGINS BEYOND 250:1 RATIO.
One of the main attractions of trading on line is the fact that most brokerage houses offer trading opportunities on margin basis (where you are allowed to put up only a fraction of the cost of the contracts you are buying or selling). This ratio may vary from broker to broker. While this is an advantage to the investors since it allows them to maximize the returns on their investments, it can also work against them because high margin ratios can also wipe out their equity fast in very volatile markets. For the more experienced traders who are incorporating strict money management strategies into their trading plans, the margin ratio may be a non-issue. However, for the ‘newbies’, trading with a lower margin ratio (between 50:1 and 250:1 ratio) will keep them in on volatile markets and allow them ample time to react to rapid price changes in the market place. At the same time, the lower margin ratios allow investors to avoid margin calls because it provides them elbow room to make the necessary adjustments on their positions (like temporarily freezing their positions by executing an opposite trade) thus temporarily avoiding actualizing losses. Investors must remember that brokers are not required to issue margin calls when an account falls below the required maintenance margins. They can just go ahead and cut your positions at a loss. Investors need to read, remember, and understand the fine lines in the brokers’ agreement regarding margins and margin calls.
8. THOU MUST ‘DEMO’ TRADE FIRST BEFORE ACTUAL TRADING.
Most online brokers offer demo trading on their sites which allows you to open demo accounts and trade live markets using only virtual money. This is a good chance for you to hone up your trading skills in real live market situations without risking your own money. You may do demo trades for as long as necessary (although some online brokers allow you only a maximum of 30 days to use their platform). Never open a real account unless you already feel comfortable with yourself, your trading plan, the broker’s trading platform, and the volatility of the market you are trading. If you are not yet satisfied with the outcome of your initial demo account, then go ahead and request for an extension of the demo account or, better still, open other demo accounts with other online brokers. Do not forget that trading volatile markets requires a large amount of self-restraint and discipline so never rush to a decision at all times.
9. THOU MUST KEEP YOURSELF WELL INFORMED AT ALL TIMES.
You must update yourself with everything that is going on in the financial marketplace. The internet has plenty of sources for real-time financial news updates, commentaries, and forecasts and projections. You must find time to go through the more important items which are relevant to the market you are trading. Do not look only or limit your search to information favoring your current position in the market. You must also be sensitive to contrary news, opinions, and forecasts. Use favorable factual data and information as your basis for initiating your trades. On the other hand, use any contradicting information, opinion or forecast as your basis for setting your trading stops (whether they should be tighter or wider). Subscribe to newsletters from as many online brokers as are available. Most important of all, you must sharpen your skills at digesting all of the available information you happen to go through and be able to create an informed and calculated trading decision from the same as fast as the need arises.
10. THOU MUST ALWAYS INSURE AN UNINTERUPTED COMMUNICATIONS WITH YOUR BROKER.
Online investments depend a lot on your uninterrupted internet connections with your broker. Your trading could be adversely affected if for example your internet connection is down at the time the market makes a major move. You can lose a big opportunity to cash in on that market movement, or lose an opportunity to cut your loss if you happen to be on the other side of that market movement. There may also be instances where even the broker’s system breaks down due to heavy traffic, or computer glitches, or other natural calamities which may prevent orders from being filled. The online investors must be prepared for such contingencies. They must be familiar with the broker’s alternative options in case they cannot access their accounts online. And this should include automated telephone trading, fax orders, and direct phone dealing arrangements. All these alternative trading options must be arranged with your brokers prior to instituting your initial trades.
"[Private] I have read your post and I wanted to write a brief comment but your template doesn't have a clickable link for the comment form. Anyway, I just wanted to say that I agree with your views on how to spot fake online FX brokers. I'm still baffled though why some previous victims of other scams keep on falling for the same trap (I have studied the chatroom dialogues at PinoyMoneyTalk and other Pinoy Forums). Why don't they seem to learn their lessons? Is it plain greed or plain stupidity? I cannot seem to figure out anything in between." Posted on my message board in one of the social networks I am affiliated with was this note. The sender is a financial professional who also blogs about the many investment scams in the Philippines particularly the most recent PIPC-Michael Liew Forex Scam which is the subject of my continuing blog-expose.
"Why don't they (referring to Filipino investors) seem to learn their lessons? Is it plain greed or plain stupidity? " Before I give my "two-cents worth" of opinion on this, let us approach his query from the opposite side and re-hash the questions to try to get a clearer picture of the situation.
How were these scammers able to do the same scam over and over again and in the same place at that? How were these con artists able to dupe more investors repeatedly when all that they did every time were to merely relocate to other offices and hire a new staff?
In my own opinion, these con artists, armed with years of experience in plying their trade all over the globe, knew their target market here by heart. For one, they knew that they can easily pass off as legitimate enterprises within the local business communities here since the regulatory authorities are drowned in a culture of corruption and bribery is a way of life. For another, they knew damn well that the market is simply big and is still growing! Despite years of their plundering activities, they knew they have not yet tapped the full potential of the already established "have money to invest sector"of the Philippine society - the old rich.
On top of this, they are quick to recognize that there is this emerging sector or the evolving "new rich" - successful newbies or business owners who are fast accumulating new found riches - and, there are also the OFW's whose years of hard work abroad are now showcased via sizable savings ready to be tapped for investments.
The marketing savvy of of these con artists are truly amazing. Yet, they have not changed their proven marketing approach at all through these years. The game plan is to undertake mass recruitment by way of offering easy-to-land high paying marketing jobs. They target people with connections to the well-heeled sector of the community to join their marketing staff. Business patronage is simply established via personal cognizance. A rich uncle or two, a well off neighbor, or long time business associate with excess money to invest, they all easily fall prey to a well prepared marketing presentation made by a relative,a trusted neighbor or a long time business associate. The norm of "throwing caution to the wind" when a new business is offered is easily forgotten. The personalized marketing approach swings the tide to their favor. And decision making is now influenced by local culture which dictates them not to offend the relative, the neighbor, or the business associate by turning down their offer. Often the personal assurances of the 'related' marketing staff become the sole factor for the decision to make the investments.
This marketing approach was so successful in the past because there was a dearth for high profile jobs available for the ever growing workforce and so these con artists were able to grow their businesses without a hitch. However, with the entry of and proliferation of high paying call center jobs in the country in the last three years, recruitment slowed down for these con artists. Their businesses suffered a slack. Obligations to pay up clients were rising faster than the generation of new investments. Finally, rather than to wait for the scam to blowup in their faces, they flew the coop bringing with them the whole caboodle of money invested with them.
Going back to my blogger friend's posted question, the victims of the latest PIPC-Michael Liew Forex scam as well as the investors in the Franc-Swiss capers (the latest forex investment scams to hit the Philippine scene) can not be deemed stupid. They were new victims of an old scam. My friend may argue this with me and say "if this is not plain stupidity then what is?" Well, I believe, if you have been duped before and allowed yourself to be duped again then that is plain stupidity. However, more than 90% of the PIPC and Franc-Swiss scam victims were not the same investors conned by the fake forex brokers in the last decade that they have been active in the country. They were mostly relatively new investors. I would moderate my call and term this as simple ignorance.
Again,my blogger friend may argue with me and say that this is plain stupidity since all the other scams that transpired in the last two decades have been well publicized in both print and broadcast media! Ahh, but here again is were the marketing savvy of the con artists shines out. They knew that there is a high chance that their targeted new victims never heard or read about forex scams in the country or if they did, there is a greater chance that they may not recall them at all. It is quite hard to recall a news item of no interest to you at all at that time, and which happened one or two years ago. These new victims may have been too busy building up their riches to even pay attention to news items of no direct bearing to them at that point. And, if there were those who could recall, these are easily overturned by personal assurances by the marketing staff who happen to be their relatives or close associates. A perfect staging ground for a scam indeed!
It is not plain stupidity that Filipino investors fell prey once more to investment scams. It is plain ignorance and total indifference to what is going on around them. To avoid recurrence of such incidents therefore, every one (investors, regulatory authorities and legislators alike) must be continually vigilant.
As for the greed, I should say investment decisions are often accompanied by a certain amount of greed.
In 1987, after our attempt to make an actual delivery of Copra (dried coconut meat used to produce coconut/vegetable oil and one of four commodities traded at the defunct Manila International Futures Exchange) was blocked with an offer to withdraw our maturing contracts at a nifty profit, the brokerage house I used to work for decided to close the branch where I was assigned. We were offered two options: resign and get a severance pay or be reassigned to the main office in Makati, the country’s premier financial district. I decided to be reassigned, and you wouldn’t believe what I went through next!
Having first-hand knowledge that prices can be manipulated at the exchange, I set out to find out more about this well-hidden secret. With the help of a friend who used to work at the trading floor of the exchange, I learned the hand signals used at the MIFE trading floor (in contrast to the open outcry system used by established exchanges like
CBOT and NYSE). I would visit MIFE’s viewing deck and take down notes. I noted which big broker protects certain price levels in each commodity traded at the exchange. With this knowledge, I would scamper back to the office to place my orders. Guess what? Every time I place a limit order, the price would be off by a pip or two, making me more convinced that indeed I am trading in the right direction. But, my orders were not getting hit (the market wasn’t going to give me a free ride). In the succeeding sessions I decided to put in a market order (at any price order). Usually, this kind of order would be immediately confirmed. But lo and behold, my order for merely 2 contracts moved the price limit up for two consecutive sessions. In a limit up situation your order will not be confirmed even if you place a market order, meaning even if you are willing to take the order at any price. The convenient excuse they gave to justify the situation is that there were more buyers than sellers and so my order cannot be filled! Bullshit my ass, as if I didn’t know that the volume of trade in the exchange is a farce. Anyway, I could sense that I am being watched closely by then. Finally, realizing that I can wreck havoc to the company and to the exchange itself, the head trader (a HK-based Chinese) talked to me and told me outright that if I want to make money I must place my orders with another brokerage house. He told me he would even help me and gave me a list of brokers who are not that closely linked to our company. He gave me specific instructions to open accounts and place orders only with the brokers he had just shortlisted. And sure enough my orders were getting hit and my clients were making money for a while, until it stopped once again. My orders were not getting hit once more. I later realized that this must have been the times when no new orders were coming in to the member brokers of the exchange. Then, one day the head trader approached me and talked to me heart to heart. He asked how many new accounts I could immediately open and when I told him I could open as many as he wanted, he finally made me an offer! He wanted 25% of the profits from my trades in exchange for information he would provide me (when to get in, what commodity to trade, what price to write, what specific session to enter). Not only that, he gave me his own money to open an account for him with another broker and I was to get 25% this time while he gets the rest. I fell for it, besides who wouldn’t? It was sure money for me and my clients. We did make a killing then!
Later on, I learned from the guy himself that there was a huge order from China (they were operating sweat shops in China too) and they simply were bucketing this huge placement. We merely took a free ride with them, in the process hitting the other unfriendly, or uncooperative brokers of the exchange. It was all dirty! And, they have been doing this for the past 10 years…milking Philippine investors dry.
I knew then that I needed to stop. Innocent investors were getting duped dry of their hard earned savings. This was not the kind of career path I wanted to take. So, when an offer to work with a forex broker came along, I and my group made a plunge without hesitation, thinking then that the forex market cannot be manipulated as with MIFE. I was wrong because I encountered more surprises after that. In the light of renewed efforts to re-establish the Manila International Futures Exchange by some known figures in the banking industry here in the Philippines, I am compelled by conscience to blog about my real life experiences in this industry hoping that similar pitfalls can now be avoided by both investors and the regulatory authorities alike. Extra effort must be spent to unmask who the real people behind the revival of MIFE are. My blog site shall serve as a watch dog for similar investment undertakings. It shall be a forum to expose those who are out there to scam innocent investors. Big daddy will be vigilant and this is now his newfound advocacy.
The SEC had been ineffective in going after Performance Foreign Exchange Corporation which has remained operational up to now despite the numerous complaints filed against the company by many of its disgruntled investors, and inspite of successive raids made by the National Bureau of Investigation (the local counterpart of the US’ FBI) into their offices. PFEC even challenged the cease and desist order issued by SEC against it all the way up to the Supreme Court and won.
How can this happen? How can the SEC be rendered useless by a forex boiler room operator?
In my opinion, SEC’s helplessness in the issue of PFEC was its own making.
First, it failed to keep up with the many changes happening in the financial markets specifically in the foreign exchange markets towards the turn of the century. It failed to notice that with the advent of advanced computer technology, a parallel market to the established interbank foreign currency trading network was fast evolving.
Second, the Philippine’s SEC was playing to the hilt its assumed role of being a copy cat of its US counterparts. Online foreign currency trading in the US is considered as commodity futures trading and falls under the jurisdiction and oversight functions of CFTC (Commodity Futures Trading Commission), an independent entity established through an act of the US Congress to regulate commodity futures trading in that country. Why under the CFTC? Well, in the US there are commodity exchanges like the Chicago Mercantile Exchange which deals on financial instruments such as currency futures. Spot currency trading then used to refer to and was limited to the buying and selling of the spot month (current month) currency contracts in these exchanges. Control and oversight functions for spot foreign currency trading were therefore under the jurisdiction of CFTC. However, US authorities were also quick enough to notice the advent of and the proliferation of online, off exchange, spot currency currency trading done electronically through banks with networks that spans every corner of the globe. And so the US congress,on the recommendation of CFTC passed “The Commodity Futures Modernization Act of 2000 (CFMA) which made clear that the CFTC has jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public. ( Please refer to my earlier blog entitled Foreign Currency Trading Update, August 15, 2008.)
The Philippines SEC was lifting off and adopting policies and opinions from its US counterparts without studying its own local scenario falling into the age old colonial mentality of embracing the belief that “whatever it is that holds true in the US must hold true also in the Philippines. And so when SEC went up against PFEC in the courts of law, it was rebuffed by the highest court in the land (the Supreme Court) because it tried to pin down PFEC with the charge that it was illegally engaging in commodity futures transaction. (See my blog on this HANGING BY A THREAD (PART2 ) - (SEC BLUNDERED AND PFEC GOES SCOT FREE)•August 13, 2008 and HANGING BY A THREAD (PART1 ) - (OR HOW PFEC MANAGE TO REMAIN AFLOAT)•August 12, 200
The funny thing is from the advent of commodity futures trading in the Philippines in 1985 to its closure in 1997 which was followed by the influx of forex boiler room operators, the SEC was swamped with mounting complaints from forex investors. And take note, the revised Securities Regulatory Act of the Philippines was enacted in the year 2000, the SEC could have recommended revisions to the securities code as early as then but they didn’t.
Now, two years after the PIPC scam, it has not made any move at all to recommend revisions in the code which must incorporate clarificatory provisions that will define SEC’s jurisdiction and oversight functions over unregulated firms dealing with the buying and selling of spot currency contracts to include firms offering subsidiary forex services such as consultancy services, research, and forex trading platforms.
The US made its move in the year 2000 to regulate on line, off exchange spot currency trading. What has the Philipines’ SEC done?
I started out as a commodity futures trader in 1986. I was recruited and trained by the staff of a member-broker of the now defunct Manila International Futures Exchange for two weeks. After which, the company already let me out to solicit clients. I still had a basket full of questions that were left unanswered after the training so I had to content myself to doing a lot of research on my own to fully equip myself. Afterwards, I immediately called on close acquaintances, personal contacts, and family friends as I thought that one or two may dabble into this because of personal cognizance. And true enough, one of our family friends did! In fact, the guy was already trading in Copra futures (dried coconut meat from which coconut oil is extracted). He happened to be trading with another company ( also a member broker of MIFE) and was losing heavily. Knowing me personally, he decided to open up an account with me to try me out. We sold the 6 month forward contract of Copra futures and immediately we got caught up in a losing position. We sold the contracts at Php10 at that time when the current price of Copra was only Php6 in the real market. Both the guy and I were baffled by the way the prices at the exchange were moving…they were going up while the actual market price as well as the price of the end product (coconut oil) in the world market were going down. We went through a series of successive margin calls specially when the contract month of our holdings got nearer. What the people at the headquarters did not know was my guy was “loaded” and can absorb the uncanny rise of prices in the exchange. But the most important bit of information the headquarters did not know about my client was the fact he was one of the biggest copra trader in southern Philippines and supplies copra to large multinational companies in Manila.
When the contracts we were holding for six months became spot month, the price went all the way up to Php18 (while the actual market price was only Php5). My client and I already sensed that something was amiss. It was as if the market was doing all it can to break our resolve and get us out of the market and take our loss. So, the last time I went to my client to collect the required deposit to cover the full amount of the contracts, we both decided we will deliver. And when I served notice to the company that my client will deliver, it practically got everyone in the exchange truly worried. I received successive phone calls from my own manager asking me to discourage my client because of “the many obstacles we needed to hurdle to get our deliveries accepted by the exchange.” However, I made it very clear to my manager that my client was unwavering on his decision to make the deliveries. It didn’t make sense then to decide not to deliver because doing so will mean taking a whooping loss. Besides, the price of copra in the world market dropped to only Php5, and if we deliver to the exchange, we will get paid with the contract price of Php10 ( a reasonable profit for the 6 month ordeal the exchange made us go through, so we thought).
My manager decided to visit my client personally. I didn’t know what they talked about since they had a one-on-one session while I was sipping coffee at the hotel lobby. But after their talks, my client gave me specific instructions not to liquidate our positions without a reasonable profit.
In the next few days after that, I saw an unbelievable reversal in the price of the spot month of copra futures. From Php18 it went down to Php12. My manager started calling me again to liquidate our positions. My client and I stood firm. When the price reached Php8, my manager called me again and was practically begging me to liquidate. Sensing the utter desperation in him, I called up my client and we liquidated all our positions.
What a nerve racking experience it was for a neophyte trader like me. It was quite revealing though. I found out so early in my career as a commodity futures trader that prices in the Manila International Futures Exchange could be manipulated.
I got the chance to find out how extensive their scam operations were when I was transfered to the main office after they decided to close the branch I was working in. I shall share them with you in my next blog.
(Watch out for my succeeding blogs as they will be more revealing.)
There are times when the stock market hits the doldrums. Trading volume declines and share prices go sideways. These are times when investors become extremely edgy and impatient and start looking for other ways to beef up the earning potential of their investment portfolio. These are times when they are tempted to discard their buy-and-hold strategy! Times when they may even prematurely divest themselves of their under-performing stock holdings despite maintaining a neutral to moderately bullish outlook of the stock market. There is, however, a way of maximizing returns on investments when the market hits the doldrums! Known as 'covered calls', this option trading strategy allows investors to generate additional income from their buy-and-hold portfolio during those times when the market goes sideways!
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