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Basically I have been margin trading and even when I make a slight profit, ie short btc and it goes down $10, or buy and it goes up $10, I still lose money. I'm wondering why i'm still losing money Any advice or helpful links are appreciated! I took some screen shots to show current status of my account. Trade historyFee HistoryCurrent balance
The dollar standard and how the Fed itself created the perfect setup for a stock market crash
Disclaimer: This is neither financial nor trading advice and everyone should trade based on their own risk tolerance. Please leverage yourself accordingly. When you're done, ask yourself: "Am I jacked to the tits?". If the answer is "yes", you're good to go. We're probably experiencing the wildest markets in our lifetime. After doing some research and listening to opinions by several people, I wanted to share my own view on what happened in the market and what could happen in the future. There's no guarantee that the future plays out as I describe it or otherwise I'd become very rich. If you just want tickers and strikes...I don't know if this is going to help you. But anyways, scroll way down to the end. My current position is TLT 171c 8/21, opened on Friday 7/31 when TLT was at 170.50. This is a post trying to describe what it means that we've entered the "dollar standard" decades ago after leaving the gold standard. Furthermore I'll try to explain how the "dollar standard" is the biggest reason behind the 2008 and 2020 financial crisis, stock market crashes and how the Coronavirus pandemic was probably the best catalyst for the global dollar system to blow up.
Tackling the Dollar problem
Throughout the month of July we've seen the "death of the Dollar". At least that's what WSB thinks. It's easy to think that especially since it gets reiterated in most media outlets. I will take the contrarian view. This is a short-term "downturn" in the Dollar and very soon the Dollar will rise a lot against the Euro - supported by the Federal Reserve itself.US dollar Index (DXY)If you zoom out to the 3Y chart you'll see what everyone is being hysterical about. The dollar is dying! It was that low in 2018! This is the end! The Fed has done too much money printing! Zimbabwe and Weimar are coming to the US. There is more to it though. The DXY is dominated by two currency rates and the most important one by far is EURUSD.EURUSD makes up 57.6% of the DXY And we've seen EURUSD rise from 1.14 to 1.18 since July 21st, 2020. Why that date? On that date the European Commission (basically the "government" of the EU) announced that there was an agreement for the historical rescue package for the EU. That showed the markets that the EU seems to be strong and resilient, it seemed to be united (we're not really united, trust me as an European) and therefore there are more chances in the EU, the Euro and more chances taking risks in the EU.Meanwhile the US continued to struggle with the Coronavirus and some states like California went back to restricting public life. The US economy looked weaker and therefore the Euro rose a lot against the USD. From a technical point of view the DXY failed to break the 97.5 resistance in June three times - DXY bulls became exhausted and sellers gained control resulting in a pretty big selloff in the DXY.
Why the DXY is pretty useless
Considering that EURUSD is the dominant force in the DXY I have to say it's pretty useless as a measurement of the US dollar. Why? Well, the economy is a global economy. Global trade is not dominated by trade between the EU and the USA. There are a lot of big exporting nations besides Germany, many of them in Asia. We know about China, Japan, South Korea etc. Depending on the business sector there are a lot of big exporters in so-called "emerging markets". For example, Brazil and India are two of the biggest exporters of beef. Now, what does that mean? It means that we need to look at the US dollar from a broader perspective. Thankfully, the Fed itself provides a more accurate Dollar index. It's called the "Trade Weighted U.S. Dollar Index: Broad, Goods and Services". When you look at that index you will see that it didn't really collapse like the DXY. In fact, it still is as high as it was on March 10, 2020! You know, only two weeks before the stock market bottomed out. How can that be explained?
Global trade, emerging markets and global dollar shortage
Emerging markets are found in countries which have been shifting away from their traditional way of living towards being an industrial nation. Of course, Americans and most of the Europeans don't know how life was 300 years ago.China already completed that transition. Countries like Brazil and India are on its way. The MSCI Emerging Market Index lists 26 countries. Even South Korea is included. However there is a big problem for Emerging Markets: the Coronavirus and US Imports.The good thing about import and export data is that you can't fake it. Those numbers speak the truth. You can see that imports into the US haven't recovered to pre-Corona levels yet. It will be interesting to see the July data coming out on August 5th.Also you can look at exports from Emerging Market economies. Let's take South Korean exports YoY. You can see that South Korean exports are still heavily depressed compared to a year ago. Global trade hasn't really recovered.For July the data still has to be updated that's why you see a "0.0%" change right now.Less US imports mean less US dollars going into foreign countries including Emerging Markets.Those currency pairs are pretty unimpressed by the rising Euro. Let's look at a few examples. Use the 1Y chart to see what I mean. Indian Rupee to USDBrazilian Real to USDSouth Korean Won to USD What do you see if you look at the 1Y chart of those currency pairs? There's no recovery to pre-COVID levels. And this is pretty bad for the global financial system. Why? According to the Bank of International Settlements there is $12.6 trillion of dollar-denominated debt outside of the United States. Now the Coronavirus comes into play where economies around the world are struggling to go back to their previous levels while the currencies of Emerging Markets continue to be WEAK against the US dollar. This is very bad. We've already seen the IMF receiving requests for emergency loans from 80 countries on March 23th. What are we going to see? We know Argentina has defaulted on their debt more than once and make jokes about it. But what happens if we see 5 Argentinas? 10? 20? Even 80? Add to that that global travel is still depressed, especially for US citizens going anywhere. US citizens traveling to other countries is also a situation in which the precious US dollars would enter Emerging Market economies. But it's not happening right now and it won't happen unless we actually get a miracle treatment or the virus simply disappears. This is where the treasury market comes into play. But before that, let's quickly look at what QE (rising Fed balance sheet) does to the USD. Take a look at the Trade-Weighted US dollar Index. Look at it at max timeframe - you'll see what happened in 2008. The dollar went up (shocker).Now let's look at the Fed balance sheet at max timeframe. You will see: as soon as the Fed starts the QE engine, the USD goes UP, not down! September 2008 (Fed first buys MBS), March 2009, March 2020. Is it just a coincidence? No, as I'll explain below. They're correlated and probably even in causation.Oh and in all of those scenarios the stock market crashed...compared to February 2020, the Fed balance sheet grew by ONE TRILLION until March 25th, but the stock market had just finished crashing...can you please prove to me that QE makes stock prices go up? I think I've just proven the opposite correlation.
Bonds, bills, Gold and "inflation"
People laugh at bond bulls or at people buying bonds due to the dropping yields. "Haha you're stupid you're buying an asset which matures in 10 years and yields 5.3% STONKS go up way more!".Let me stop you right there. Why do you buy stocks? Will you hold those stocks until you die so that you regain your initial investment through dividends? No. You buy them because you expect them to go up based on fundamental analysis, news like earnings or other things. Then you sell them when you see your price target reached. The assets appreciated.Why do you buy options? You don't want to hold them until expiration unless they're -90% (what happens most of the time in WSB). You wait until the underlying asset does what you expect it does and then you sell the options to collect the premium. Again, the assets appreciated. It's the exact same thing with treasury securities. The people who've been buying bonds for the past years or even decades didn't want to wait until they mature. Those people want to sell the bonds as they appreciate. Bond prices have an inverse relationship with their yields which is logical when you think about it. Someone who desperately wants and needs the bonds for various reasons will accept to pay a higher price (supply and demand, ya know) and therefore accept a lower yield. By the way, both JP Morgan and Goldmans Sachs posted an unexpected profit this quarter, why? They made a killing trading bonds. US treasury securities are the most liquid asset in the world and they're also the safest asset you can hold. After all, if the US default on their debt you know that the world is doomed. So if US treasuries become worthless anything else has already become worthless. Now why is there so much demand for the safest and most liquid asset in the world? That demand isn't new but it's caused by the situation the global economy is in. Trade and travel are down and probably won't recover anytime soon, emerging markets are struggling both with the virus and their dollar-denominated debt and central banks around the world struggle to find solutions for the problems in the financial markets. How do we now that the markets aren't trusting central banks? Well, bonds tell us that and actually Gold tells us the same! TLT chartGold spot price chart TLT is an ETF which reflects the price of US treasuries with 20 or more years left until maturity. Basically the inverse of the 30 year treasury yield. As you can see from the 5Y chart bonds haven't been doing much from 2016 to mid-2019. Then the repo crisis of September 2019took place and TLT actually rallied in August 2019 before the repo crisis finally occurred!So the bond market signaled that something is wrong in the financial markets and that "something" manifested itself in the repo crisis. After the repo market crisis ended (the Fed didn't really do much to help it, before you ask), bonds again were quiet for three months and started rallying in January (!) while most of the world was sitting on their asses and downplaying the Coronavirus threat. But wait, how does Gold come into play? The Gold chart basically follows the same pattern as the TLT chart. Doing basically nothing from 2016 to mid-2019. From June until August Gold rose a staggering 200 dollars and then again stayed flat until December 2019. After that, Gold had another rally until March when it finally collapsed. Many people think rising Gold prices are a sign of inflation. But where is the inflation? We saw PCE price indices on Friday July 31st and they're at roughly 1%. We've seen CPIs from European countries and the EU itself. France and the EU (July 31st) as a whole had a very slight uptick in CPI while Germany (July 30th), Italy (July 31st) and Spain (July 30th) saw deflationary prints.There is no inflation, nowhere in the world. I'm sorry to burst that bubble. Yet, Gold prices still go up even when the Dollar rallies through the DXY (sadly I have to measure it that way now since the trade-weighted index isn't updated daily) and we know that there is no inflation from a monetary perspective. In fact, Fed chairman JPow, apparently the final boss for all bears, said on Wednesday July 29th that the Coronavirus pandemic is a deflationarydisinflationary event. Someone correct me there, thank you. But deflationary forces are still in place even if JPow wouldn't admit it. To conclude this rather long section: Both bonds and Gold are indicators for an upcoming financial crisis. Bond prices should fall and yields should go up to signal an economic recovery. But the opposite is happening. in that regard heavily rising Gold prices are a very bad signal for the future. Both bonds and Gold are screaming: "The central banks haven't solved the problems". By the way, Gold is also a very liquid asset if you want quick cash, that's why we saw it sell off in March because people needed dollars thanks to repo problems and margin calls.When the deflationary shock happens and another liquidity event occurs there will be another big price drop in precious metals and that's the dip which you could use to load up on metals by the way.
Dismantling the money printer
But the Fed! The M2 money stock is SHOOTING THROUGH THE ROOF! The printers are real!By the way, velocity of M2 was updated on July 30th and saw another sharp decline. If you take a closer look at the M2 stock you see three parts absolutely skyrocketing: savings, demand deposits and institutional money funds. Inflationary? No. So, the printers aren't real. I'm sorry.Quantitative easing (QE) is the biggest part of the Fed's operations to help the economy get back on its feet. What is QE?Upon doing QE the Fed "purchases" treasury and mortgage-backed securities from the commercial banks. The Fed forces the commercial banks to hand over those securities and in return the commercial banks reserve additional bank reserves at an account in the Federal Reserve. This may sound very confusing to everyone so let's make it simple by an analogy.I want to borrow a camera from you, I need it for my road trip. You agree but only if I give you some kind of security - for example 100 bucks as collateral.You keep the 100 bucks safe in your house and wait for me to return safely. You just wait and wait. You can't do anything else in this situation. Maybe my road trip takes a year. Maybe I come back earlier. But as long as I have your camera, the 100 bucks need to stay with you. In this analogy, I am the Fed. You = commercial banks. Camera = treasuries/MBS. 100 bucks = additional bank reserves held at the Fed.
Revisiting 2008 briefly: the true money printers
The true money printers are the commercial banks, not the central banks. The commercial banks give out loans and demand interest payments. Through those interest payments they create money out of thin air! At the end they'll have more money than before giving out the loan. That additional money can be used to give out more loans, buy more treasury/MBS Securities or gain more money through investing and trading. Before the global financial crisis commercial banks were really loose with their policy. You know, the whole "Big Short" story, housing bubble, NINJA loans and so on. The reckless handling of money by the commercial banks led to actual money printing and inflation, until the music suddenly stopped. Bear Stearns went tits up. Lehman went tits up. The banks learned from those years and completely changed, forever. They became very strict with their lending resulting in the Fed and the ECB not being able to raise their rates. By keeping the Fed funds rate low the Federal Reserve wants to encourage commercial banks to give out loans to stimulate the economy. But commercial banks are not playing along. They even accept negative rates in Europe rather than taking risks in the actual economy. The GFC of 2008 completely changed the financial landscape and the central banks have struggled to understand that. The system wasn't working anymore because the main players (the commercial banks) stopped playing with each other. That's also the reason why we see repeated problems in the repo market.
How QE actually decreases liquidity before it's effective
The funny thing about QE is that it achieves the complete opposite of what it's supposed to achieve before actually leading to an economic recovery. What does that mean? Let's go back to my analogy with the camera. Before I take away your camera, you can do several things with it. If you need cash, you can sell it or go to a pawn shop. You can even lend your camera to someone for a daily fee and collect money through that.But then I come along and just take away your camera for a road trip for 100 bucks in collateral. What can you do with those 100 bucks? Basically nothing. You can't buy something else with those. You can't lend the money to someone else. It's basically dead capital. You can just look at it and wait until I come back. And this is what is happening with QE. Commercial banks buy treasuries and MBS due to many reasons, of course they're legally obliged to hold some treasuries, but they also need them to make business.When a commercial bank has a treasury security, they can do the following things with it:- Sell it to get cash- Give out loans against the treasury security- Lend the security to a short seller who wants to short bonds Now the commercial banks received a cash reserve account at the Fed in exchange for their treasury security. What can they do with that?- Give out loans against the reserve account That's it. The bank had to give away a very liquid and flexible asset and received an illiquid asset for it. Well done, Fed. The goal of the Fed is to encourage lending and borrowing through suppressing yields via QE. But it's not happening and we can see that in the H.8 data (assets and liabilities of the commercial banks).There is no recovery to be seen in the credit sector while the commercial banks continue to collect treasury securities and MBS. On one hand, they need to sell a portion of them to the Fed on the other hand they profit off those securities by trading them - remember JPM's earnings. So we see that while the Fed is actually decreasing liquidity in the markets by collecting all the treasuries it has collected in the past, interest rates are still too high. People are scared, and commercial banks don't want to give out loans. This means that as the economic recovery is stalling (another whopping 1.4M jobless claims on Thursday July 30th) the Fed needs to suppress interest rates even more. That means: more QE. that means: the liquidity dries up even more, thanks to the Fed. We heard JPow saying on Wednesday that the Fed will keep their minimum of 120 billion QE per month, but, and this is important, they can increase that amount anytime they see an emergency.And that's exactly what he will do. He will ramp up the QE machine again, removing more bond supply from the market and therefore decreasing the liquidity in financial markets even more. That's his Hail Mary play to force Americans back to taking on debt again.All of that while the government is taking on record debt due to "stimulus" (which is apparently only going to Apple, Amazon and Robinhood). Who pays for the government debt? The taxpayers. The wealthy people. The people who create jobs and opportunities. But in the future they have to pay more taxes to pay down the government debt (or at least pay for the interest). This means that they can't create opportunities right now due to the government going insane with their debt - and of course, there's still the Coronavirus.
"Without the Fed, yields would skyrocket"
This is wrong. The Fed has been keeping their basic level QE of 120 billion per month for months now. But ignoring the fake breakout in the beginning of June (thanks to reopening hopes), yields have been on a steady decline. Let's take a look at the Fed's balance sheet. The Fed has thankfully stayed away from purchasing more treasury bills (short term treasury securities). Bills are important for the repo market as collateral. They're the best collateral you can have and the Fed has already done enough damage by buying those treasury bills in March, destroying even more liquidity than usual. More interesting is the point "notes and bonds, nominal". The Fed added 13.691 billion worth of US treasury notes and bonds to their balance sheet. Luckily for us, the US Department of Treasury releases the results of treasury auctions when they occur. On July 28th there was an auction for the 7 year treasury note. You can find the results under "Note -> Term: 7-year -> Auction Date 07/28/2020 -> Competitive Results PDF". Or here's a link. What do we see? Indirect bidders, which are foreigners by the way, took 28 billion out of the total 44 billion. That's roughly 64% of the entire auction. Primary dealers are the ones which sell the securities to the commercial banks. Direct bidders are domestic buyers of treasuries. The conclusion is: There's insane demand for US treasury notes and bonds by foreigners. Those US treasuries are basically equivalent to US dollars. Now dollar bears should ask themselves this question: If the dollar is close to a collapse and the world wants to get rid fo the US dollar, why do foreigners (i.e. foreign central banks) continue to take 60-70% of every bond auction? They do it because they desperately need dollars and hope to drive prices up, supported by the Federal Reserve itself, in an attempt to have the dollar reserves when the next liquidity event occurs. So foreigners are buying way more treasuries than the Fed does. Final conclusion: the bond market has adjusted to the Fed being a player long time ago. It isn't the first time the Fed has messed around in the bond market.
How market participants are positioned
We know that commercial banks made good money trading bonds and stocks in the past quarter. Besides big tech the stock market is being stagnant, plain and simple. All the stimulus, stimulus#2, vaccinetalksgoingwell.exe, public appearances by Trump, Powell and their friends, the "money printing" (which isn't money printing) by the Fed couldn't push SPY back to ATH which is 339.08 btw. Who can we look at? Several people but let's take Bill Ackman. The one who made a killing with Credit Default Swaps in March and then went LONG (he said it live on TV). Well, there's an update about him:Bill Ackman saying he's effectively 100% longHe says that around the 2 minute mark. Of course, we shouldn't just believe what he says. After all he is a hedge fund manager and wants to make money. But we have to assume that he's long at a significant percentage - it doesn't even make sense to get rid of positions like Hilton when they haven't even recovered yet. Then again, there are sources to get a peek into the positions of hedge funds, let's take Hedgopia.We see: Hedge funds are starting to go long on the 10 year bond. They are very short the 30 year bond. They are very long the Euro, very short on VIX futures and short on the Dollar.
This is the perfect setup for a market meltdown. If hedge funds are really positioned like Ackman and Hedgopia describes, the situation could unwind after a liquidity event:The Fed increases QE to bring down the 30 year yield because the economy isn't recovering yet. We've already seen the correlation of QE and USD and QE and bond prices.That causes a giant short squeeze of hedge funds who are very short the 30 year bond. They need to cover their short positions. But Ackman said they're basically 100% long the stock market and nothing else. So what do they do? They need to sell stocks. Quickly. And what happens when there is a rapid sell-off in stocks? People start to hedge via put options. The VIX rises. But wait, hedge funds are short VIX futures, long Euro and short DXY. To cover their short positions on VIX futures, they need to go long there. VIX continues to go up and the prices of options go suborbital (as far as I can see).Also they need to get rid of Euro futures and cover their short DXY positions. That causes the USD to go up even more. And the Fed will sit there and do their things again: more QE, infinity QE^2, dollar swap lines, repo operations, TARP and whatever. The Fed will be helpless against the forces of the market and have to watch the stock market burn down and they won't even realize that they created the circumstances for it to happen - by their programs to "help the economy" and their talking on TV. Do you remember JPow on 60minutes talking about how they flooded the world with dollars and print it digitally? He wanted us poor people to believe that the Fed is causing hyperinflation and we should take on debt and invest into the stock market. After all, the Fed has it covered. But the Fed hasn't got it covered. And Powell knows it. That's why he's being a bear in the FOMC statements. He knows what's going on. But he can't do anything about it except what's apparently proven to be correct - QE, QE and more QE.
A final note about "stock market is not the economy"
It's true. The stock market doesn't reflect the current state of the economy. The current economy is in complete shambles. But a wise man told me that the stock market is the reflection of the first and second derivatives of the economy. That means: velocity and acceleration of the economy. In retrospect this makes sense. The economy was basically halted all around the world in March. Of course it's easy to have an insane acceleration of the economy when the economy is at 0 and the stock market reflected that. The peak of that accelerating economy ("max velocity" if you want to look at it like that) was in the beginning of June. All countries were reopening, vaccine hopes, JPow injecting confidence into the markets. Since then, SPY is stagnant, IWM/RUT, which is probably the most accurate reflection of the actual economy, has slightly gone down and people have bid up tech stocks in absolute panic mode. Even JPow admitted it. The economic recovery has slowed down and if we look at economic data, the recovery has already stopped completely. The economy is rolling over as we can see in the continued high initial unemployment claims. Another fact to factor into the stock market.
TLDR and positions or ban?
TLDR: global economy bad and dollar shortage. economy not recovering, JPow back to doing QE Infinity. QE Infinity will cause the final squeeze in both the bond and stock market and will force the unwinding of the whole system. Positions: idk. I'll throw in TLT 190c 12/18, SPY 220p 12/18, UUP 26c 12/18.That UUP call had 12.5k volume on Friday 7/31 btw.
Edit about positions and hedge funds
My current positions. You can laugh at my ZEN calls I completely failed with those.I personally will be entering one of the positions mentioned in the end - or similar ones. My personal opinion is that the SPY puts are the weakest try because you have to pay a lot of premium. Also I forgot talking about why hedge funds are shorting the 30 year bond. Someone asked me in the comments and here's my reply: "If you look at treasury yields and stock prices they're pretty much positively correlated. Yields go up, then stocks go up. Yields go down (like in March), then stocks go down. What hedge funds are doing is extremely risky but then again, "hedge funds" is just a name and the hedgies are known for doing extremely risky stuff. They're shorting the 30 year bond because they needs 30y yields to go UP to validate their long positions in the equity market. 30y yields going up means that people are welcoming risk again, taking on debt, spending in the economy. Milton Friedman labeled this the "interest rate fallacy". People usually think that low interest rates mean "easy money" but it's the opposite. Low interest rates mean that money is really tight and hard to get. Rising interest rates on the other hand signal an economic recovery, an increase in economic activity. So hedge funds try to fight the Fed - the Fed is buying the 30 year bonds! - to try to validate their stock market positions. They also short VIX futures to do the same thing. Equity bulls don't want to see VIX higher than 15. They're also short the dollar because it would also validate their position: if the economic recovery happens and the global US dollar cycle gets restored then it will be easy to get dollars and the USD will continue to go down. Then again, they're also fighting against the Fed in this situation because QE and the USD are correlated in my opinion. Another Redditor told me that people who shorted Japanese government bonds completely blew up because the Japanese central bank bought the bonds and the "widow maker trade" was born:https://www.investopedia.com/terms/w/widow-maker.asp"
Since I've mentioned him a lot in the comments, I recommend you check out Steven van Metre's YouTube channel. Especially the bottom passages of my post are based on the knowledge I received from watching his videos. Even if didn't agree with him on the fundamental issues (there are some things like Gold which I view differently than him) I took it as an inspiration to dig deeper. I think he's a great person and even if you're bullish on stocks you can learn something from Steven!
Would you like to entertain yourself with a story about one of the greatest schemes in the history and, maybe, learn a few plays? This story is about three brave autistic brothers, who almost cornered the entire commodity and how one (not so brave, but shrewd) bank did it without anyone noticing. As in any good fable – there’s a moral and a strategy that you could draw from it. The year is 1971. Nixon temporarily abolishes gold standard. And every temporary government program is never reversed, as you know. Trading price of gold went sky high: from 270s to 800s in two years or so. Enter Hunt brothers, sons of H. L. Hunt, oil tycoon, one of, if not the, richest man in the world at that time. Hunt family was, what one might describe as, right-wing libertarian and anti-globalist. They believed that Keynesian economics and the US shift to the left in the 60s will lead to the debasement of the US dollar and monetary collapse. Thus, return to the gold or silver standard was the way, as they thought. Allegedly, Hunts also had a feud with Rothschild family and other financial speculators, and were resentful towards the US government for doing nothing to protect their oil assets in Libya, confiscated by Gaddafi. So they started their move against America, alpha-silver bug style. In 1973 Hunts began buying all the silver they could. And, instead of just speculating futures contracts, they actually took delivery. Initial price was $1.5/oz. Silver was shipped to Switzerland in secretive and costly operations and stored in vaults (brothers feared confiscations – remember, private citizens were still prohibited from owning gold in the US). The following events are quite vivid and include the efforts to create a cartel similar to OPEC, talks with Iran and Saudi monarchs, pump and dump publicity and large scale purchases of miners. But we will spare the details, except one: Hunts even tried to corner the soy market at the same time. Reminds you how WSB slv gang quickly switched to corn gang. But the soy scheme didn't fly and they focused on silver only. Their efforts pumped the price to almost $50/oz by early 1980. At some point Hunts controlled around 230 million oz of silver and the majority of what was traded. Hunt brothers laughing at your pump&dump effort Of course, when you are such a smart ass, you become a target. Chicago exchange officials became very concerned citizens by 1979. They started issuing numerous regulations limiting the amount of market share one can accumulate in one hands. As all American concerned citizens, they had financial incentive to do so: Hunts managed to prove that Chicago exchange board members had short positions against silver. Finally, CFTC (Commodity Futures Trading Commission) issued a ruling that basically forced Hunts to liquidate part of their portfolio by February 1980. This sent silver prices down dramatically and brothers started to get margin calls which they could not cover. And so their story ended with bankruptcies and heavy fines for the family. Shortly after, Reagan and Volcker raised interest rates and silver price never recovered to $50/oz ever since. We skip to the year 2008. Global financial crisis is in full swing. Bear Stearns is royally fucked, as due to all bears. Before the music was over, they mastered paper speculation of futures contracts like no one else. Bear Stearns accumulated world biggest naked short position on silver. What could go wrong? Stonks go up, silver goes down. Until it reversed and silver skyrocketed from $11 to $21. This became one of the margin calls to screw Bear Stearns. JP Morgan is asked by the FED and co. to buy out BS and to save the entire market. Since BS's shorts are now deeply down - JPM gets the whole bank with pennies on a dollar. But the problem is that JPM themselves have massive naked short position on silver. Combined with BS it will exceed anything permitted by the CFTC. Since Obama administration was in a rush, they push CFTC to grant JPM basically a carte blanche to accumulate any position over the limit for a period of time. Period of time comes due and turns out that JPM not only didn’t trim the shorts significantly – they even bought more shorts at some point. Even with all the fines, it went very much their way, because in 2009 silver dropped. So they pocketed hundreds of millions of dollars. But come 2011 and silver spiked again, dramatically. JPM, now bleeding cash on shorts, could close short positions, like any of us would do, right? Nope, fuckyall says JPM and starts hedging short futures positions with… physical silver. 'But wouldn’t that be even more control over the commodity?' - you might ask. See, nothing in the rules of CFTC says you can’t do that, because to help cronies speculate with paper futures contracts, made of thin air, CFTC basically started treating physical silver and futures as two different instruments (it’s, actually, even more complicated than that: google difference between physical, eligible, registered and so on). In the next 9 years JPM becomes the world biggest holder of both short contracts and physical silver. The later they 'loaned' to SLV trust, of which they are custodian. This way upkeep of physical silver, which otherwise would be a liability for hedging, becomes an asset, because we, retards, who own SLV pay the maintenance. People are often confused here, because SLV is issued by Black Rock, not JPM. Well, there is a difference between being an operator of a financial instrument and being a custodian providing backing. Now, to confuse you even more – JPM is one of the major holders of Black Rock itself with 1.6% or sth like that. By estimates of Theodore Butler, JPM acquired 900 million oz of physical silver since 2011. That’s 4 times more than what Hunts owned. Just shows you, that banks can get a pass with something that even the richest individuals can not. And you have to give it to JPM - their play was very clever. Instead of risking it all on a margin call, they make money on every turn. As of 2020, JPM still holds both shitton of physical silver and short COMEX contracts. You can call this the most epic straddle of all time. With such mass they can swing prices in any directions and profit from this on any given day. Latest example you’ve seen on the August 11th. Why am I bothering your poor gambling soul with this wall of text, you might ask? Market makers manipulate the market as they please, what’s new about that? Well, here we come to the conclusions and a strategy. How can a small retard replicate what the big boys are doing? Conclusions:
There will not be a linear up or down with silver and the swings might be dramatic. The reason being not only the sentiment of investors, but the ease of manipulation that is eligible to big players.
If we believe that speculation will throw the price of silver in all directions – it is unwise to go only long or short on silver, especially on a short term;
What shall we do? a) Only long expiration dates and calls; no weekly expiration, not even monthly. Ideally – at least half year options; b) Go long on certain silver stocks. Maybe I’ll do a write up on good silver stocks to buy; c) Sell covered calls on long positions; d) Buy 1-3 month puts on your long positions as a hedge; Now, day trade with those positions: on red days sell your puts and buy back covered calls. On green days – reload puts and sell calls. Repeat until lambo. P. S.: I gathered these facts from the open sources, since these events were of interest to me. Some facts are intentionally oversimplified, google for more details, there are good reads. And feel free to correct me if you know contradictory facts. P. P. S.: JPM, plz don’t whack me.
tldr; I'm an algorithmic cryptocurrency trader with my own cross-exchange trading platform that is performing well(ish) and I'm looking for ideas, partners, investors etc to help me push it forward. I've been trading cryptocurrencies programmatically since 2016 with some success. For about a year I made a modest living executing arbitrage trades across mostly fiat pairs using a bot hurredly hacked together in my spare time. As time went on the margins got lower and lower and eventually I turned the system off as it just wasn't profitable enough. I wasn't sure what to do, so I went back to my career in finance while I considered my options. Skip to the present day and I have rebuilt everything from scratch. I now have a cloud hosted (GCP), fully functional trading platform and have some new algos that are running unsupervised 24x7. The platform is far from finished of course, and like all non-trivial solutions to non-trivial problems: it has bugs, both scaling and performance problems and has a number of unfinished features. However, it does work, and cruically: it's stable, performant and reliable. In the past 12 months it has traded over $4m (roughly 40,000 executed orders and 100,000 fill events), and 99.9% of these orders are generated by my algos. I don't do arbitrage any more, though I may resurrect that algo as my exchange fees come down. My new algos are a little more sophisticated and they seem to reliably make a small profit (between 0.1% and 0.4%). I have a number of ideas cooking away for more algos, I'm just finding it difficult to manage my time. Both the platform and the algos need a lot of work and I only have one pair of hands. I'm actively trading on 18 exchanges and adding a new one roughly every couple of weeks. The system records and reports every order, trade, balance change, transfer, fee etc in real time using the APIs offered by each exchange. Each new exchange presents a new set of problems. Some are easy to integrate and have fairly sensible APIs, but some definitely do not. Some exchanges have helpful support, some defiantly do not. Some of the APIs change over time, some do not (although sometimes I wish they would). The more exchanges I add the more difficult it is to keep the system behaving in an rational manner. Some exchanges are so bad, though a combination of API and support, that I've had to blacklist them. With every exchange so far, and for varying reasons, I've had to implement both the streaming (websocket / fix) AND REST APIs in order to get a working solution. Exchanges don't typically do a great job with their APIs - some are astonishingly poor IMO, and have been for years. Some reputable exchanges do completely miss some really quite basic features. Some are internally inconsistent with things like error reporting. They all report fees differently and the way they charge fees varies greatly (some don't report the trade fees at all). Each exchange of course has it's own symbols for currencies and markets, and they also change over time (typically as a result of forked blockchains: BCC -> BCH -> BCHABC...). Some use different symbols between their own REST and websocket APIs. It's not uncommon for exchanges to delist markets, but surprisingly common for them it ignore the impact on users when they do so. It's also not uncommon for exchanges to delete your old orders after they close, but some exchanges will delete your trade data too after a relatively short period of time (good luck doing your tax returns). They all employ different strategies for rate limiting. Some have helpful metadata API calls, but most don't. And of course the API docs are often either missing, misleading or blatantly incorrect. Exchanges will routinely close markets, or suspend deposits and/or withdrawals of a certain currency (which has a huge impact on prices). The good ones with have API calls that reports this data, but there are very few good ones. I could go on but you get the picture. My application currently trades around 50-100k USD per day, and I'm planning/hoping to scale this up to 1m USD per day in a year from now. At any one moment it's managing about 100 to 300 concurrent open orders. The order management and trade reporting is the thing I've probably spent most time on. Having an accurate and timely order management system is vital to any trading system. My order sizes are relatively small and I have a pretty solid risk management system that prevents the algos from going crazy and building up large unwanted exposures. Having said that, the number of things that can go wrong is large, and when things do go wrong they tend to go VERY wrong VERY quickly... usually while I'm out walking the dog. I measure and record pretty much every aspect of the system so that I know when and where the time is being spent. Auditing is key. My system isn't what you'd call lightning fast right now. I don't think you would want to use it for high frequency trading. But I firmly believe that knowing where the time is being spent is over half the battle, so that's what I'm focusing on right now. Reducing latency and increasing throughput are always in the back of my mind, and although I've never intentionally designed the system to be fast, I make sure not to do anything that would needlessly slow it down. The platform itself is built on asynchronous messaging. It is backed by a cloud hosted SQL database and (apart from the database) all components have redundancy. It's running on a hand made cluster of 12 low cost servers, but much of the workload is distributed to cloud functions. It costs me a few hundred USD per month but as I scale up I expect that to scale up accordingly. I have a fairly basic front end (I'm not a UI person at all) built in react and firebase that I use to monitor and report the state of the system. It needs A LOT of work, but functionally it does what I need right now. I can see my orders, trades, portfolio, transfers etc in real time and I can browse and chart the market data that the system is collecting. One feature it has that I am very pleased with is the trade entry form for manual trading (its surprisingly nuanced). I only trade on spot markets right now, so other markets (derivates, lending etc) are not supported. Until I have an idea for a algo that trades in these markets I won't be adding them. And currently I only trade on the old fashioned, centralised exchanges. I'm writing this because I'm looking for ideas, partners, investors or even customers. I think the system has value, and it's time to move to the next level, whatever that may be. If you have an idea for an algo, adding them to the system is trivial now and if we could work out some sort of profit sharing I'd be keen to discuss it (and happy to sign an NDA of course). Feel free to reach out to me privately if you want to discuss anything.
I have a post that I explained how in etoro you don’t own the stock what so ever but u just own a cfd contract even if you don’t use margin In this post I’ll explain a little bit about how etoro pays dividends on your stocks even tho you don’t own them and the dangers of trading on this kind of brokers “””””””””””””””””””” As I said in one of my replay , the underlying asset is a cfd contract (cfd contracts are decaying assets ) , a cfd contract doesn’t grant you any ownership over the real stock. Let me explain again . In one of the legit brokers I use , they have this program that if you subscribe in , you give the broker the permission to lend the stocks in your portfolio to other traders who want to short sell the stock , like I have 5 apple stocks in my portfolio, if I’m signed up to the lending programme in this legit broker , then they can take my 5 apple stocks and lend them to someone who wants to short sell them . 1 - by law I’m not paid dividends on those stocks that they borrowed from me , but the borrower is paid the dividend cause he is the owner now as long as he is borrowing my stocks . 2- said broker will pay me 50% of the interest that he charges the short seller 3- the broker will still give me my dividends equivalent but in a form of capital gain ( etoro does pay u dividends equivalent from the commission that he charges on his platform , but not real dividends, ) This might sound complicated but again this is way a broker like etoro can tell their clients that they are buying the asset which in-fact they are not , it is legal but it is a form of word play , the real danger is if etoro goes bankrupt or for any reason doesn’t wna does his part of cfd contract deal then they tottaly can , they don’t do it upfront , but they can halt trading on a certain stock , just an example , a real legit broker will never halt trading on a stock unless the exchange itself halt trading and no one in the world can buy the stock , in etoro you will find that you can’t sell a certain position or open one , while at the same time other traders on other platforms are happily buying the same stock and selling it , this is one form of etoro saying “ I don’t want to keep up to my words that and exercise the cfd contract “ Somethings I said are a bit complicated but etoro banks on the low experience and innocency of their clients . They actually blocked a popular investor called “harshsmith” because he was allegedly scalping stocks , and he have 2k copiers , so every 1000$ he made is 2 million $ that etoro had to pay to all his copiers , they might not allow scalping and that’s their law but keep in mind , if they are a legit broker they would be happily letting him scalp cause he and his 2k copiers are paying commission, and commission is how they make their profit as they say (big lie , they make it from your losses ) , then why block and profitable popular investor with a lot of copiers paying commission? Cause they are paying him his profit from their pocket and not the real market , I don’t mind them having their own non scalping law , but why have it if your legit ?! More scalping is more commission for the broker right ? Unless it is not a legit broker such as etoro Hope this helps
DDDD - Retail Investors, Bankruptcies, Dark Pools and Beauty Contests
For this week's edition of DDDD (Data-Driven DD), we're going to look in-depth at some of the interesting things that have been doing on in the market over the past few weeks; I've had a lot more free time this week to write something new up, so you'll want to sit down and grab a cup of coffee for this because it will be a long one. We'll be looking into bankruptcies, how they work, and what some companies currently going through bankruptcies are doing. We'll also be looking at some data on retail and institutional investors, and take a closer look at how retail investors in particular are affecting the markets. Finally, we'll look at some data and magic markers to figure out what the market sentiment, the thing that's currently driving the market, looks like to help figure out if you should be buying calls or puts, as well as my personal strategy. Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
How Bankruptcies Work
First, what is a bankruptcy? In a broad sense, a bankruptcy is a legal process an individual or corporation (debtor) who owes money to some other entity (creditor) can use to seek relief from the debt owed to their creditors if they’re unable to pay back this debt. In the United States, they are defined by Title 11 of the United States Code, with 9 different Chapters that govern different processes of bankruptcies depending on the circumstances, and the entity declaring bankruptcy. For most publicly traded companies, they have two options - Chapter 11 (Reorganization), and Chapter 7 (Liquidation). Let’s start with Chapter 11 since it’s the most common form of bankruptcy for them. A Chapter 11 case begins with a petition to the local Bankruptcy court, usually voluntarily by the debtor, although sometimes it can also be initiated by the creditors involuntarily. Once the process has been initiated, the corporation may continue their regular operations, overseen by a trustee, but with certain restrictions on what can be done with their assets during the process without court approval. Once a company has declared bankruptcy, an automatic stay is invoked to all creditors to stop any attempts for them to collect on their debt. The trustee would then appoint a Creditor’s Committee, consisting of the largest unsecured creditors to the company, which would represent the interests creditors in the bankruptcy case. The debtor will then have a 120 day exclusive right after the petition date to file a Plan of Reorganization, which details how the corporation’s assets will be reorganized after the bankruptcy which they think the creditors may agree to; this is usually some sort of restructuring of the capital structure such that the creditors will forgive the corporation’s debt in exchange for some or all of the re-organized entity’s equity, wiping out the existing stockholders. In general, there’s a capital structure pecking order on who gets first dibs on a company’s assets - secured creditors, unsecured senior bond holders, unsecured general bond holders, priority / preferred equity holders, and then finally common equity holders - these are the classes of claims on the company’s assets. After the exclusive period expires, the Creditor’s Committee or an individual creditor can themselves propose their own, possibly competing, Restructuring Plan, to the court. A Restructuring Plan will also be accompanied by a Disclosure Statement, which will contain all the financial information about the bankrupt company’s state of affairs needed for creditors and equity holders to make an informed decision about how to proceed. The court will then hold a hearing to approve the Restructuring Plan and Disclosure Statement before the plan can be voted on by creditors and equity holders. In some cases, these are prepared and negotiated with creditors before bankruptcy is even declared to speed things up and have more favorable terms - a prepackaged bankruptcy. Once the Restructuring Plan and Disclosure Statement receives court approval, the plan is voted on by the classes of impaired (i.e. debt will not be paid back) creditors to be confirmed. The legal requirement for a bankruptcy court to confirm a Restructuring Plan is to have at least one entire class of impaired creditors vote to accept the plan. A class of creditors is deemed to have accepted a Restructuring Plan when creditors that hold at least 2/3 of the dollar amount and at least half of the number of creditors vote to accept the plan. After another hearing, and listening to any potential objections to the proposed Restructuring Plan, such as other impaired classes that don't like the plan, the court may then confirm the plan, putting it to effect. This is one potential ending to a Chapter 11 case. A case can also end with a conversion to a Chapter 7 (Liquidation) case, if one of the parties involved file a motion to do so for a cause that is deemed by the courts to be in the best interest of the creditors. In Chapter 7, the company ceases operating and a trustee is appointed to begin liquidating (i.e. selling) the company’s assets. The proceeds from the liquidation process are then paid out to creditors, with the most senior levels of the capital structure being paid out first, and the equity holders are usually left with nothing. Finally, a party can file a motion to dismiss the case for some cause deemed to be in the best interest of the creditors.
The Tale of Two Bankruptcies - WLL and HTZ
Hertz (HTZ) has come into news recently, with the stock surging up to $6, or 1500% off its lows, for no apparent fundamental reason, despite the fact that they’re currently in bankruptcy and their stock is likely worthless. We’ll get around to what might have caused this later, for now, we’ll go over what’s going on with Hertz in its bankruptcy proceedings. To get a clearer picture, let’s start with a stock that I’ve been following since April - Whiting Petroleum (WLL). WLL is a stock I’ve covered pretty extensively, especially with it’s complete price dislocation between the implied value of the restructured company by their old, currently trading, stock being over 10x the implied value of the bonds, which are entitled to 97% of the new equity. Usually, capital structure arbitrage, a strategy to profit off this spread by going long on bonds and shorting the equity, prevents this, but retail investors have started pumping the stock a few days after WLL’s bankruptcy to “buy the dip” and make a quick buck. Institutions, seeing this irrational behavior, are probably avoiding touching at risk of being blown out by some unpredictable and irrational retail investor pump for no apparent reason. We’re now seeing this exact thing play out a few months later, but at a much larger scale with Hertz. So, how is WLL's bankruptcy process going? For anyone curious, you can follow the court case in Stretto. Luckily for Whiting, they’ve entered into a prepackaged bankruptcy process and filed their case with a Restructuring Plan already in mind to be able to have existing equity holders receive a mere 3% of new equity to be distributed among them, with creditors receiving 97% of new equity. For the past few months, they’ve quickly gone through all the hearings and motions and now have a hearing to receive approval of the Disclosure Statement scheduled for June 22nd. This hearing has been pushed back a few times, so this may not be the actual date. Another pretty significant document was just filed by the Committee of Creditors on Friday - an objection to the Disclosure Statement’s approval. Among other arguments about omissions and errors the creditor’s found in the Disclosure Statement, the most significant thing here is that Litigation and Rejection Damage claims holders were treated in the same class as a bond holders, and hence would be receiving part of their class’ share of the 97% of new equity. The creditors claim that this was misleading as the Restructuring Plan originally led them to believe that the 97% would be distributed exclusively to bond holders, and the claims for Litigation and Rejection Damage would be paid in full and hence be unimpaired. This objection argues that the debtors did this gerrymandering to prevent the Litigation and Rejection Damage claims be represented as their own class and able to reject the Restructuring Plan, requiring either payment in full of the claims or existing equity holders not receiving 3% of new equity, and be completely wiped out to respect the capital structure. I’d recommend people read this document if they have time because whoever wrote this sounds legitimately salty on behalf of the bond holders; here’s some interesting excerpts: Moreover, despite the holders of Litigation and Rejection Damage Claims being impaired, existing equity holders will still receive 3% of the reorganized company’s new equity, without having to contribute any new value. The only way for the Debtors to achieve this remarkable outcome was to engage in blatant classification gerrymandering. If the Debtors had classified the Litigation and Rejection Damage Claims separately from the Noteholder claims and the go-forward Trade Claims – as they should have – then presumably that class would reject a plan that provides Litigation and Rejection Damage Claims with a pro rata share of minority equity. The Debtors have placed the Rejection Damage and Litigation Claims in the same class as Noteholder Claims to achieve a particular result, namely the disenfranchisement of the Rejection Damage and Litigation Claimants who, if separately classified, may likely vote to reject the Plan. In that event, the Debtor would be required to comply with the cramdown requirements, including compliance with the absolute priority rule, which in turn would require payment of those claims in full, or else old equity would not be entitled to receive 3% of the new equity. Without their inclusion in a consenting impaired class, the Debtors cannot give 3% of the reorganized equity to existing equity holders without such holders having to contribute any new value or without paying the holders of Litigation and Rejection Damage Claims in full. The Committee submits that the Plan was not proposed in good faith. As discussed herein, the Debtors have proposed an unconfirmable Plan – flawed in various important respects. Under the circumstances discussed above, in the Committee’s view, the Debtors will not be able to demonstrate that they acted with “honesty and good intentions” and that the Plan’s results will not be consistent with the Bankruptcy Code’s goal of ratable distribution to creditors. They’re even trying to have the court stop the debtor from paying the lawyers who wrote the restructuring agreement. However, as discussed herein, the value and benefit of the Consenting Creditors’ agreements with the Debtors –set forth in the RSA– to the Estates is illusory, and authorizing the payment of the Consenting Creditor Professionals would be tantamount to approving the RSA, something this Court has stated that it refuses to do.20 The RSA -- which has not been approved by the Court, and indeed no such approval has been sought -- is the predicate for a defective Plan that was not proposed in good faith, and that gives existing equity holders an equity stake in the reorganized enterprise even though Litigation and Rejection Damage Creditors will (presumably) not be made whole under the Plan and the existing interest holders will not be contributing requisite new value. As a disclaimer, I have absolutely zero knowledge nor experience in law, let alone bankruptcy law. However, from reading this document, if what the objection indicates to be true, could mean that we end up having the court force the Restructuring agreement to completely wipe out the current equity holders. Even worse, entering a prepackaged bankruptcy in bad faith, which the objection argues, might be grounds to convert the bankruptcy to Chapter 7; again, I’m no lawyer so I’m not sure if this is true, but this is my best understanding from my research. So what’s going on with Hertz? Most analysts expect that based on Hertz’s current balance sheet, existing equity holders will most likely be completely wiped out in the restructuring. You can keep track of Hertz’s bankruptcy process here, but it looks like this is going to take a few months, with the first meeting of creditors scheduled for July 1. An interesting 8-K got filed today for HTZ, and it looks like they’re trying to throw a hail Mary for their case by taking advantage of dumb retail investors pumping up their stock. They’ve just been approved by the bankruptcy court to issue and sell up to $1B (double their current market cap) of new shares in the stock market. If they somehow pull this off, they might have enough money raised to dismiss the bankruptcy case and remain in business, or at very least pay off their creditors even more at the expense of Robinhood users.
The Rise of Retail Investors - An Update
A few weeks ago, I talked about data that suggested a sudden surge in retail investor money flooding the market, based on Google Trends and broker data. Although this wasn’t a big topic back when I wrote about it, it’s now one of the most popular topics in mainstream finance news, like CNBC, since it’s now the only rational explanation for the stock market to have pumped this far, and for bankrupt stocks like HTZ and WLL to have surges far above their pre-bankruptcy prices. Let’s look at some interesting Google Trends that I found that illustrates what retail investors are doing. Google Trends - Margin Calls Google Trends - Robinhood Google Trends - What stock should I buy Google Trends - How to day trade Google Trends - Pattern Day Trader Google Trends - Penny Stock The conclusion that can be drawn from this data is that in the past two weeks, we are seeing a second wave of new retail investor interest, similar to the first influx we saw in March. In particular, these new retail investors seem to be particularly interested in day trading penny stocks, including bankrupt stocks. In fact, data from Citadel shows that penny stocks have surged on average 80% in the previous week. Why Retail Investors Matter A common question that’s usually brought up when retail investors are brought up is how much they really matter. The portfolio size of retail investors are extremely small compared to institutional investors. Anecdotally and historically, retail investors don’t move the market, outside of some select stocks like TSLA and cannabis stocks in the past few years. However when they do, shit gets crazy; the last time retail investors drove the stock market was in the dot com bubble. There’s a few papers that look into this with similar conclusions, I’ll go briefly into this one, which looks at almost 20 years of data to look for correlations between retail investor behavior and stock market movements. The conclusion was that behaviors of individual retail investors tend to be correlated and are not random and independent of each other. The aggregate effect of retail investors can then drive prices of equities far away from fundamentals (bubbles), which risk-averse smart money will then stay away from rather than try taking advantage of the mispricing (i.e. never short a bubble). The movement in the prices are typically short-term, and usually see some sort of reversal back to fundamentals in the long-term, for small (i.e. < $5000) trades. Apparently, the opposite is true for large trades; here’s an excerpt from the paper to explain. Stocks recently sold by small traders perform poorly (−64 bps per month, t = −5.16), while stocks recently bought by small traders perform well (73 bps per month, t = 5.22). Note this return predictability represents a short-run continuation rather than reversal of returns; stocks with a high weekly proportion of buys perform well both in the week of strong buying and the subsequent week. This runs counter to the well-documented presence of short-term reversals in weekly returns.14,15 Portfolios based on the proportion of buys using large trades yield precisely the opposite result. Stocks bought by large traders perform poorly in the subsequent week (−36 bps per month, t = −3.96), while those sold perform well (42 bps per month, t = 3.57). We find a positive relationship between the weekly proportion of buyers initiated small trades in a stock and contemporaneous returns. Kaniel, Saar, and Titman (forthcoming) find retail investors to be contrarians over one-week horizons, tending to sell more than buy stocks with strong performance. Like us, they find that stocks bought by individual investors one week outperform the subsequent week. They suggest that individual investors profit in the short run by supplying liquidity to institutional investors whose aggressive trades drive prices away from fundamental value and benefiting when prices bounce back. Barber et al. (2005) document that individual investors can earn short term profits by supplying liquidity. This story is consistent with the one-week reversals we see in stocks bought and sold with large trades. Aggressive large purchases may drive prices temporarily too high while aggressive large sells drive them too low both leading to reversals the subsequent week. Thus, using a one-week time horizon, following the trend can make you tendies for a few days, as long as you don’t play the game for too long, and end up being the bag holder when the music stops.
The Keynesian Beauty Contest
The economic basis for what’s going on in the stock market recently - retail investors driving up stocks, especially bankrupt stocks, past fundamental levels can be explained by the Keynesian Beauty Contest, a concept developed by Keynes himself to help rationalize price movements in the stock market, especially during the 1920s stock market bubble. A quote by him on the topic of this concept, that “the market can remain irrational longer than you can remain solvent”, is possibly the most famous finance quote of all time. The idea is to imagine a fictional newspaper beauty contest that asks the reader to pick the six most attractive faces of 100 photos, and you win if you pick the most popular face. The naive strategy would be to pick the faces that you think are the most attractive. A smarter strategy is to figure out what the most common public perception of attractiveness would be, and to select based on that. Or better yet, figure out what most people believe is the most common public perception of what’s attractive. You end up having the winners not actually be the faces people think are the prettiest, but the average opinion of what people think the average opinion would be on the prettiest faces. Now, replace pretty faces with fundamental values, and you have the stock market. What we have today is the extreme of this. We’re seeing a sudden influx of dumb retail money into the market, who don’t know or care about fundamentals, like trading penny stocks, and are buying beaten down stocks (i.e. “buy the dip”). The stocks that best fit all three of these are in fact companies that have just gone bankrupt, like HTZ and WLL. This slowly becomes a self-fulfilling prophecy, as people start seeing bankrupt stocks go up 100% in one day, they stop caring about what stocks have the best fundamentals and instead buy the stocks that people think will shoot up, which are apparently bankrupt stocks. Now, it gets to the point where even if a trader knows a stock is bankrupt, and understands what bankruptcy means, they’ll buy the stock regardless expecting it to skyrocket and hope that they’ll be able to sell the stock at a 100% profit in a few days to an even greater fool. The phenomenon is well known in finance, and it even has a name - The Greater Fool Theory. I wouldn’t be surprised if the next stock to go bankrupt now has their stock price go up 100% the next day because of this.
What is the smart money doing - DIX & GEX
Alright that’s enough talk about dumb money. What’s all the smart money (institutions) been doing all this time? For that, you’ll want to look at what’s been going on with dark pools. These are private exchanges for institutions to make trades. Why? Because if you’re about to buy a $1B block of SPY, you’re going to cause a sudden spike in prices on a normal, public exchange, and probably end up paying a much higher cost basis because of it. These off-exchange trades account for about one third of all stock volume. You can then use data of market maker activity in these dark pools to figure out what institutions have been doing, the most notable indicators being DIX by SqueezeMetrics. Another metric they offer is GEX, or gamma exposure. The idea behind this is that market markets who sell option contracts, typically don’t want to (or can’t legally) take an actual position in the market; they can only provide liquidity. Hence, they have to hedge their exposure from the contracts they wrote by going long or short on the stocks they wrote contracts to. This is called delta-hedging, with delta representing exposure to the movement of a stock. With options, there’s gamma, which represents the change in delta as the stock price moves. So as stock prices move, the market maker needs to re-hedge their positions by buying or selling more shares to remain delta-neutral. GEX is a way to show the total exposure these market makers have to gamma from contracts to predict stock price movements based on what market makers must do to re-hedge their positions. Now, let’s look at what these indicators have been doing the past week or so. DIX & GEX In the graph above, an increasing DIX means that institutions are buying stocks in the S&P500, and an increasing GEX means that market makers have increasing gamma exposure. The DIX whitepaper, it has shown that a high DIX is often correlated with increased near-term returns, and in the GEX whitepaper, it shows that a decreased GEX is correlated with increased volatility due to re-hedging. It looks like from last week’s crash, we had institutions buy the dip and add to their current positions. There was also a sudden drop in GEX, but it looks like it’s quickly recovered, and we’ll see volatility decreased next week. Overall, we’re getting bullish signals from institutional activity.
Bubbles and Market Sentiment
I’ve long held that the stock market and the economy has been in a decade-long bubble caused by liquidity pumping from the Fed. Recently, the bubble has been accelerated and it’s becoming clearer to people that we are in a bubble. Nevertheless, you shouldn’t short the bubble, but play along with it until it bursts. Bubbles are driven by pure sentiment, and this can be a great contrarian indicator to what stage of the bubble we are in. You want to be a bear when the market is overly greedy and a bull when the market is overly bearish. One of the best tools to measure this is the equity put / call ratio. Put / Call Ratio The put/call ratio dropped below 0.4 last week, something that’s almost never happened and has almost always been immediately followed up by a correction - which it did this time as well. A low put / call ratio is usually indicative of an overly-greedy market, and a contrarian indicator that a drop is imminent. However, right after the crash, the put/call ratio absolutely skyrocketed, closing right above 0.71 on Friday, above the mean put / call ratio for the entire rally since March’s lows. In other words, a ton of money has just been poured into SPY puts expecting to profit off of a downtrend. In fact, it’s possible that the Wednesday correction itself has been exasperated by delta hedging from SPY put writers. However, this sudden spike above the mean for put/call ratio is a contrarian indicator that we will now see a continued rally.
1D RSI on SPY was definitely overbought last week, and I should have taken this as a sign to GTFO from all my long positions. The correction has since brought it back down, and now SPY has even more room to go further up before it becomes overbought again
1D MACD crossed over on Wednesday to bearish - a very strong bearish indicator, however 1W MACD is still bullish
For the bulls, there’s very little price levels above 300, with a small possible resistance at 313, which is the 79% fib retracement. SPY has never actually hit this price level, and has gapped up and down past this price. Below 300, there’s plenty of levels of support, especially between 274 and 293, which is the range where SPY consolidated and traded at for April and May. This means that a movement up will be met with very little resistance, while a movement down will be met with plenty of support
The candles above 313 form an island top pattern, a pretty rare and strong bearish indicator.
The first line of defense of the bulls is 300, which has historically been a key support / resistance level, and is also the 200D SMA. So far, this price level has held up as a solid support last week and is where all downwards price action in SPY stopped. Overall, there’s very mixed signals coming from technical indicators, although there’s more bearish signals than bullish. My Strategy for Next Week While technicals are pretty bearish, retail and institutional activity and market sentiment is indicating that the market still continue to rally. My strategy for next week will depend on whether or not the market opens above or below 300. I’m currently mostly holding long volatility positions, that I’ve started existing on Friday. The Bullish case If 300 proves to be a strong support level, I’ll start entering bullish positions, following my previous strategy of going long on weak sectors such as airlines, cruises, retail, and financials, once they break above the 24% retracement and exit at the 50% retracement. This is because there’s very little price levels and resistance above 300, so any movements above this level will be very parabolic up to ATHs, as we saw in the beginning of 2020 and again the past two weeks. If SPY moves parabolic, the biggest winners will likely be the weakest stocks since they have the most room to go up, with most of the strongest stocks already near or above their ATHs. During this time, I’ll be rolling over half of my profits to VIX calls of various expiry dates as a hedge, and in anticipation of any sort of rug pull for when this bubble does eventually pop. The Bearish case For me to start taking bearish positions, I’ll need to see SPY open below 300, re-test 300 and fail to break above it, proving it to be a resistance level. If this happens, I’ll start entering short positions against SPY to play the price levels. There’s a lot of price levels between 300 and 274, and we’d likely see a lot of consolidation instead of a big crash in this region, similar to the way up through this area. Key levels will be 300, 293, 285, 278, and finally 274, which is the levels I’d be entering and exiting my short positions in. I’ve also been playing with WLL for the past few months, but that has been a losing trade - I forgot that a market can remain irrational longer than I can remain solvent. I’ll probably keep a small position on WLL puts in anticipation of the court hearing for the disclosure statement, but I’ve sold most of my existing positions.
As always, I'll be posting live thoughts related to my personal strategy here for people asking. 6/15 2AM - /ES looking like SPY is going to gap down tomorrow. Unless there's some overnight pump, we'll probably see a trading range of 293-300. 6/15 10AM - Exited any remaining long positions I've had and entered short positions on SPY @ 299.50, stop loss at 301. Bearish case looking like it's going to play out 6/15 10:15AM - Stopped out of 50% of my short positions @ 301. Will stop out of the rest @ 302. Hoping this wasn't a stop loss raid. Also closed out more VIX longer-dated (Sept / Oct) calls. 6/15 Noon - No longer holding any short positions. Gap down today might be a fake out, and 300 is starting to look like solid support again, and 1H MACD is crossing over, with 15M remaining bullish. Starting to slowly add to long positions throughout the day, starting with CCL, since technicals look nice on it. Also profit-took most of my VIX calls that I bought two weeks ago 6/15 2:30PM - Bounced up pretty hard from the 300 support - bull case looks pretty good, especially if today's 1D candle completely engulphs the Friday candle. Also sold another half of my remaining long-dated VIX calls - still holding on to a substantial amount (~10% of portfolio). Will start looking to re-buy them when VIX falls back below 30. Going long on DAL as well 6/15 11:30PM - /ES looking good hovering right above 310 right now. Not many price levels above 300 so it's hard to predict trading ranges since there's no price levels and SPY will just go parabolic above this level. Massive gap between 313 and 317. If /ES is able to get above 313, which is where the momentum is going to right now, we might see a massive gap up and open at 317 again. If it opens below 313, we might see the stock price fade like last week. 6/15 Noon - SPY filled some of the gap, but then broke below 313. 15M MACD is now bearish. We might see gains from today slowly fade, but hard to predict this since we don't have strong price levels. Will buy more longs near EOD if this happens. Still believe we'll be overall bullish this week. GE is looking good. 6/16 2PM - Getting worried about 313 acting as a solid resistance; we'll either probably gap up past it to 317 tomorrow, or we might go all the way back down to 300. Considering taking profit for some of my calls right now, since you'll usually want to sell into resistance. I might alternatively buy some 0DTE SPY puts as a hedge against my long positions. Will decide by 3:30 depending on what momentum looks like 6/16 3PM - Got some 1DTE SPY puts as a hedge against my long positions. We're either headed to 317 tomorrow or go down as low as 300. Going to not take the risk because I'm unsure which one it'll be. Also profit-took 25% of my long positions. Definitely seeing the 313 + gains fade scenario I mentioned yesterday 6/17 1:30AM - /ES still flat struggling to break through 213. If we don't break through by tomorrow I might sell all my longs. Norwegian announced some bad news AH about cancelling Sept cruises. If we move below $18.20 I'll probably sell all my remaining positions; luckily I took profit on CCL today so if options do go to shit, it'll be a relatively small loss or even small gain. 6/17 9:45AM - SPY not being able to break through 313/314 (79% retracement) is scaring me. Sold all my longs, and now sitting on cash. Not confident enough that we're actually going back down to 300, but no longer confident enough on the bullish story if we can't break 313 to hold positions 6/17 1PM - Holding cash and long-term VIX calls now. Some interesting things I've noticed
1H MACD will be testing a crossover by EOD
Equity put/call ratio has plummeted. It's back down to 0.45, which is more than 1 S.D. below the mean. We reached all the way down to 0.4 last time. Will be keeping a close eye on this and start buying for VIX again + SPY puts we this continues falling tomorrow
6/17 3PM - Bought back some of my longer-dated VIX calls. Currently slightly bearish, but still uncertain, so most of my portfolio is cash right now. 6/17 3:50PM - SPY 15M MACD is now very bearish, and 1H is about to crossover. I'd give it a 50% chance we'll see it dump tomorrow, possibly towards 300 again. Entered into a very small position on NTM SPY puts, expiring Friday 6/18 10AM - 1H MACD is about to crossover. Unless we see a pump in the next hour or so, medium-term momentum will be bearish and we might see a dump later today or tomorrow. 6/18 12PM - Every MACD from 5M to 1D is now bearish, making me believe we'd even more likely see a drop today or tomorrow to 300. Bought short-dates June VIX calls. Stop loss for this and SPY puts @ 314 and 315 6/18 2PM - Something worth noting: opex is tomorrow and max pain is 310, which is the level we're gravitating towards right now. Also quad witching, so should expect some big market movements tomorrow as well. Might consider rolling my SPY puts forward 1 week since theoretically, this should cause us to gravitate towards 310 until 3PM on Friday. 6/18 3PM - Rolled my SPY puts forward 1W in case theory about max pain + quad witching end up having it's theoretical effect. Also GEX is really high coming towards options expiry tomorrow, meaning any significant price movements will be damped by MM hedging. Might not see significant price movements until quad witching hour tomorrow 3PM 6/18 10PM - DIX is very high right now, at 51%, which is very bullish. put/call ratio is still very low though. Very mixed signals. Will be holding positions until Monday or SPY 317 before reconsidering them. 6/18 2PM - No position changes. Coming into witching hour we're seeing increased volatility towards the downside. Looking good so far
Investment Thesis: Why investing in POW.TO (Power Corporation of Canada) now is an investment in a future high market cap Wealthsimple IPO
I have seen some posts here wondering about the wisdom of investing in Wealthsimple's parent company, Power Corporation of Canada (POW.TO). I decided to look more into this, decided to post my investment thesis and research on why I, long-term, I have a very bullish view on Wealthsimple (and by extension POW.TO), and why I think this is equal to being an early stage investor in a Wealthsimple IPO.
Ownership: Power Corporation of Canada (POW.TO) (83.2% ownership)
AssetsUnderMangement: $5.4 billion, as of June 30, 2020 (4.9 billion in June 30, 2019)
Wealthsimple Invest (ETF Roboadvisor service), WS was one of the first-movers in this space in Canada and offered robo-advising as part of its initial product in 2015. WS claims to have largest digital investing presence in Canada (70% of the market) (reference).
Wealthsimple Cash, a savings account service
Wealthsimple Trade, a commission free trading app where users can buy and sell ~8,000 stocks and ETFs
Wealthsimple Crypto, a commission free cryptocurrency trading app, currently in beta
SimpleTax.ca, a free tax-return service used by ~1 million Canadians per year, acquired in late 2019
WS has had many successful rounds of funding and a vote of confidence from both its parent POW.TO and other multinationals investing in fintech.
Last year WS received a $100 million dollar investment led by Allianz X, the start up investor arm of German financial services giant Allianz
WS has had 7 total investing rounds, totalling $266.9 million (reference)
WS has been extremely aggressive in targeting growth areas. Wealthsimple’s CEO Mike Katchen has said he wants to position the company as a “full-stack” financial services company. Here are some of their current expansion areas:
UK and USA Expansion - in 2017, they started offering similar investing services in the UK and the US (reference and reference).
Socially Responsible ETFs - WS recently partnered with Mackenzie Investment to offer socially responsible ETFs with a social and environmental focus. Although probably not something that older investors care about, this is particularly important for younger investors who want to make sure their investments are socially responsible
Cryptocurrency - WS is currently testing a beta service of their cryptocurrency app, and offering fee-free cryptocurrency trading, similar to Wealthsimple Trade. Whatever your views of cryptocurrency (I'm of the view that I can in some cases be part of a portfolio to hedge against risk), it's here to stay. Earlier this month, WS was the first company in Canada to register with the Ontario Securities Exchange Commission (reference). My sense is that crypto will face increasing regulations and scrutiny in the coming years, which will be a good thing for WS which is a step ahead of the game (reference). Even Google is starting to look into relaxing its restraints on crypto (reference).
Other full-stack services - WS has been mum on what other services they might offer, but insurance, mortgages, and chequing accounts could be other areas of disruption. (Reference)
WS is run by young guys who have big ambitions and plans for the company. Sometimes there are CEOs with the intangibles that can really drive a company's growth, and from what I can glean, I think the company has a lot of potential here in terms of vision by its leaders. You can read more about the founders here
Michael Katchen, CEO, Background: Led product and marketing at a start up called 1000memories, a Y Combinator startup later acquired by Ancestry.com. Worked for McKinsey & Company.
Brett Huneycutt, COO, Rhodes Scholar... not much else I know about the guy
Quote sfrom CEO: Michael Katchen On being laughed out of the boardroom when he proposed his idea for Wealthsimple:
Within the last month, Wealthsimple has also opened an office in London. Katchen said a push into the European market is “possible” as its “ambitions are global,” but right now the Canadian and U.S. markets are “a lot to chew.” It is a far cry from the company’s early days: Katchen said he was “laughed out of the boardroom” for laying out a global vision for Wealthsimple at a time when they had just $1.9-million in funding and 20 users***.***“It’s a very personal mission of mine since I moved back from California, to inspire more Canadian companies to think big and to think internationally about the businesses that they’re building,” he said. (reference)
On Wealthsimple's growth in the next 10-15 years:
Wealthsimple has more than $5 billion in assets under management and 175,000 customers in Canada, the U.S. and U.K. He sees that reaching $1 trillion 15 years. “We’re just getting started,” he said. “Our plans are to get to millions of clients in the next five years.” (reference)
Brand Value and Design
Out of all the financial services company in Canada, WS probably has the most cohesive and smart design concept across its platforms and products. I see the value in Wealthsimple in not just the assets they have under management, but also the value of the brand itself. I mean, what kind of financial services company makes a blog post about their branding colour scheme and font choices? Also see: Wealthsimple’s advertisement earlier this year capturing 4 million views on Youtube. There also seems to be very strong brand awareness and brand loyalty amongst its users. I think a lot of users find WS refreshing as a financial services company because they cut through the "bullshit" and legalese, and try to simply things for the consumer. They also have their own in house team of designers and creative directors to do branding, design, and advertising, and this kind of vertical integration is generally unheard of in the financial services industry (reference).
Interestingly, the CEO’s ultimate goal is to take the company public. Therefore, I see an investment in POW.TO as being an early stage pre-IPO investor in WS (reference).
The goal is to get Wealthsimple to the size and scale to go public, something that Katchen said he’s “obsessed with.” While admitting that an IPO was still a few years down the road, Katchen already has a target of $20 billion in assets under administration (AUA) as the tipping point (the company recently announced $4.3 billion in AUA as of Q1 2019) (reference)
Ultimately, my sense is that a spun-out Wealthsimple IPO eventually be worth a lot, perhaps even more than POW.TO at some point. Obviously the company is losing money right now, and no where even close to an IPO, and there are still many chances that this company could flop. The best analogy that I can think of is when Yahoo bought an early stake in Alibaba (BABA) back in the early 2000s, and there came a point where their stake in BABA was worth more than Yahoo’s core business. I think an investment in POW.TO now is an early investment in WS before it goes public. (reference)
Expansion problems. In the UK, they reported significant losses and despite increasing users. (reference). The US is also an especially competitive space with lots of similar competitors.
The robo-advising, fintech space is highly competitive now, and the Big Five Banks and other investment/trading companies could easily start offering low-cost or commission free trading
Competitors such as Robinhood could also expand into the Canadian market and take out a huge chunk of WS's userbase
The X Factor
What I find particularly compelling about WS is they have aggressively positioned themselves to be a disruptor in the Canadian financial services industry. This is an area that has traditionally been thought to be a firewall for the Big Five Banks. There is also a generational gap in investing approaches, knowledge, and strategy, and I think WS has positioned itself nicely with first-time investors. My sense is that COVID-19 has also captured a huge amount of young adults with its trading app in the last few months, who will continue to use Wealthsimple products in the future. The average age of its user is around 34. As younger individuals are more comfortable with moving away traditional banking products, I think Wealthsimple’s product offering offers significant advantages over its competitors.
Power Corp is a Good Home
Currently POW.TO is trading at $26.30, down from its 52-week high of $35.15. I see an investment in POW.TO now as fairly low risk, and while WS grows, and there is also the added benefit of a high dividend stock. One of the most confusing things I found about Power Corp was its confusing corporate structure where there were two stocks, Power Financial Corp, and Power Corp of Canada. Fortunately, in Dec 2019, they simplified and consolidated the stocks, which also simplifies the holding structure of WS. I currently see POW.TO has a good stock to hold as well if you're a dividend holder, with a dividend of 6.86%. Also, POW.TO is patient enough to bide its time and let its investment in WS grow, unlike a VC that might want to sell it quick. For example, the reason why WS went with POW.TO instead of the traditional VC route is explained here:
Katchen has directly addressed the question of why he did not go the traditional VC route recently, saying: If you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off. And so Katchen essentially flipped Wealthsimple to Power Financial. Power is well known as a conservative, patient, long-term investor. (https://opmwars.substack.com/p/the-wealthsimple-founders-before)
My belief is there is a huge unrecognized potential in POW.TO's massive ownership stake in WS that will be realized maybe 5-10 years down the road. I didn't really dive into the financials of POW.TO in relation to WS's performance, because the earnings reports do no actually say much about WS. I'm aware of the main criticisms that POW.TO is a mature company and dividend stock that has been trading sideways for many years, and the fact that WS is currently not a profitable company. I am not a professional investor, and this is just my amateur research, so I certainly welcome any comments/criticism of this thesis that people on this subreddit might have! (Please be gentle on me!).
The importance of crosshair placement, why you're doing it wrong, and how to fix it.
Valorant and the importance of crosshair placement.
Introduction Hey guys, I'm Twix, and I'm back with another informative post, this time concerning the aspect of crosshair placement. Through this post I will be discussing the importance of crosshair placement within the tac shooter genre, going over the most common mistakes I see people make in my experience as a coach, and offering structured routines to remedy the majority of these mistakes. If you haven't read through any of my posts before ( I wouldn't they're too long ) I am an FPS player which mainly played CS:GO competitively, with around 7k hours and multiple level 10 faceit accounts and LAN wins in the past 5 years, who transitioned towards the end of my CS:GO days into being an FPS coach, I mainly worked with people trying to gain a competitive edge in CS, but later moved to coaching Apex players, and following the closed beta release of Valorant, I have been coaching Valorant players for the past few months, with unanimously positive feedback. If you haven't read my first post which is a comprehensive general guide for players looking to improve in Valorant, I highly recommend you look at it here before continuing on to this post. In relation to other qualifications / achievements, I have hit top 30 as hitscan DPS in Overwatch, maintained top 500 ranking in Apex ( PC ) for a couple of seasons, and hold numerous 1% rankings on various Kovaak's FPS Aim Trainer maps. My main goal in creating these posts is to contribute to the Valorant community by sharing my knowledge gained over 10k collective hours of FPS experience ( mainly Tactical fps ) and hopefully help the people reading my posts improve and gain that competitive edge they need to progress into their desired ranking. For those of you interested in learning more about my coaching service, or looking for a community of Valorant players looking to improve, I will link my Discord server at the end of this post.
Why is crosshair placement important?
If I was asked about the importance of consistent crosshair placement in games such as PUBG, Apex, Overwatch, Fortnite, etc. I would probably answer by saying that while it's beneficial to maintain solid crosshair placement, it's by no means the most important aspect in relation to performing well in those games, in tactical shooters however, it's a whole different story. Tactical shooters are low TTK ( time to kill ) games, and for the most part, a single bullet to the head is enough to eliminate a player, this means that in contrast to AFPS games, or games like Overwatch or Apex, which have a much higher TTK, first shot accuracy is of extreme importance in Valorant, inevitably leading to the fact that crosshair placement is also extremely important. In a game with higher TTK, even if your first shot accuracy isn't perfect in an aim duel, you can win the fight if you land more shots on the opposing player over x amount of time that you trade with them, while in Valorant, whoever needs to make the least amount of adjustment to their crosshair when engaging in a 1v1 scenario wins the exchange. It doesn't matter if your raw aim is out of this world, even if you have the most precise flicks known to the FPS community, if your crosshair placement is sub-optimal, you will lose vs. someone with consistent crosshair placement, this is simply due to the fact that all they need to do, is click once your head moves into their crosshair, often without even needing to move their mouse. Crosshair placement may very well be the most important aspect in relation to gunplay and generally the mechanical aspect of tac shooters such as CS:GO or Valorant, as it's the deciding factor in the majority of aim duels.
A large amount of players tend to underestimate the importance of crosshair placement in Valorant, and especially the underlying complexity of maintaining consistency in that context. People think that all you need to do to maintain solid crosshair placement is aim high enough to hit headshots, meaning that the only factor that affects crosshair placement is vertical positioning, others still stick to making their main source of information on game improvement being players who make statements as un-informative and vague as "just click heads", my main goal is to break down and explain the multiple factors that go into proper crosshair placement. Lets start with the basics: Vertical Positioning: As mentioned above, one of the elements which ties into crosshair placement is vertical positioning. this is the set distance that you need to position your crosshair at in relation to the ground to be able to align your crosshair's horizontal axis with player model head-level. The good thing about vertical positioning, is that you can get accustomed to the head level that the player models have in Valorant quite rapidly, as the hitbox sizes in this game are identical, meaning you can always use the ground as a point of reference to determine where the enemy player's head would be. In Valorant, the head level always remains a set distance from the ground In order to train your general ability to place your crosshair at the correct height, try to make a habit out of constantly reminding yourself to place your crosshair at head level, regardless of where you are or what you're doing on the map. What I mean by this, is that even if there isn't any imminent threat of enemy players peeking you, try to keep constantly keep your crosshair at head level, the more time you spend doing this, the faster it will become a habit and become something you do subconsciously, without having to actively focus on the action. This habit allows you to build muscle-memory during otherwise useless down-time, another way to do this is to track your teammate's heads with your crosshair while rotating, leaving spawn etc. While vertical positioning is something that people get used to relatively easily, I have come across a recurring issue among the VODs of people I coach, and that is that people generally struggle with adapting the vertical component of their crosshair's position to varying points of elevation. Here's an image to help you visualize a scenario where this could be an issue: Peeking C Long, Positions marked: Cubby ( right ), Platform ( left ), back-site ( back ) In the image above I am peeking into C back-site from C long on the map 'Haven', I have highlighted three different positions / angles where an enemy could potentially peak from in an in-game reenactment of this scenario, Platform, Cubby, and back-site. What you'll notice is that these positions all have different points of elevation, meaning that while using the ground as reference will allow me to maintain my crosshair at head-level if someone peeks my position from ground level on C site, in order to clear cubby and platform, I would need to adjust my crosshair accordingly, using their lower levels as a reference for where the head-level position would be in those angles. Unfortunately, if you are struggling with this due to the fact that you aren't familiar with the map layout yet, the only thing that will remedy your situation is more time spent playing the game, if however, your issue stems from a mechanical inability, meaning that your mouse control isn't good enough to allow you to make such adjustments comfortably, the routine provided later in the guide may help you get past that issue. Horizontal Positioning: Just as with vertical positioning, horizontal positioning is pretty self-explanatory in terms of it's function. Knowing at what height to position your crosshair at in relation to the environment is far easier to do than knowing where to position it on a horizontal axis, the reasoning behind this is that with vertical placement you will always have the ground or lower level of the object the opponent is standing on as a point of reference which allows you to instantly know at what height head-level is. When focusing on the horizontal aspect of crosshair placement, there isn't a set point of reference at all times; Sometimes you need to hold wide angles, sometimes you need to move along with the object you're playing against, and sometimes you need to pre-aim to swing effectively, all this variability makes it much harder for a newer player to grasp crosshair placement and horizontal positioning is just as crucial as vertical positioning if not even more important. A very common mistake which I see a lot of in the VODs I review as a coach, is newer players holding angles too tightly, meaning that they're playing in a position where they anticipate an enemy push and are waiting for the engagement, and their crosshair is a position where it's hugging the edge of the wall the enemy will peek from. Here is a visual representation of what I'm talking about: Example of incorrect horizontal placement In the image above, I'm holding an angle where if someone crosses moving parallel to the wall I'm looking at, I'll have under 50 ms to react, my crosshair is so close to the edge of the wall that I will need to click my LMB the milli-second I see the enemy. By holding this angle, chances are that by the time I click the enemy will have already crossed to the left of my crosshair resulting in a miss and most likely my death; It would take inhuman reaction times for anyone to hit a player while holding like this, especially if the enemy player is swinging. Instead, you should allow some distance from your crosshair to the edge of the angle you're holding, allowing yourself to spot the enemy's player model, and then time your click effectively. Here is a visual representation of correct crosshair placement while holding the same angle: Example of correct horizontal placement As you can see, in the image above I am allowing for some space between the wall and my crosshair, giving me a significantly longer time window to spot an enemy player and react. Holding an angle that's too "tight" would mean I need to make a larger adjustment to hit the enemy, and therefore I increase my margin of error due to vertical overshoot ( see below ). There are exceptions to the rule when it comes to the distance you need to hold at, if the angle you are holding only allows forward movement ( into your crosshair ) you can hold a narrow line of sight. If you are clearing an angle ( moving along it to check for enemies ) and you are the agressor, you can hold tight and move along with the wall / LOS to allow for a faster reaction if you spot an enemy during your movement. If you are the agressor and you want to swing into an angle that you believe / know an enemy is holding, it is sometimes optimal to pre-aim, meaning you position your crosshair in a way where without moving your mouse it will be aimed at the enemy's head once you swing out the angle. Vertical Offset: The final common issue I would like to bring up which ties into both crosshair placement and horizontal click-timing, is something I call "vertical offset" or "vertical overshoot", this is a player's inability to move his crosshair horizontally while maintaining the same vertical placement. Vertical offset is a big issue when it comes to switching angles or flicking horizontally, I have seen many scenarios where a player is holding an angle properly with their crosshair at a pixel-perfect vertical position in relation to head level, only to make a 30 degree turn to check a different angle and end up shooting at an enemy's chest and losing the duel. Usually, the larger the movement, the more the player's crosshair deviates vertically. Here is a depiction of what vertical offset / overshooting looks like in-game: Example of margin of error caused by vertical offset / overshooting In the image above the green dot is where the crosshair should end up in an ideal scenario while flicking from it's current position to the target dummy, while the green lines represent a theoretical margin of error for overshooting. Fortunately for people that face this issue, I have come up with multiple Kovaak's maps and firing range excercises to help combat it and largely reduce your margin of error when moving your crosshair / flicking horizontally.
Settings: What sensitivity / crosshair should I use?
This part of the post discusses a topic which is highly subjective, both the sensitivity you use and the crosshair you use are something preference-based that you should decide upon on your own, the reason I'm adding this section into the post is for players which are newer to the tac-shooter genre; There are a few guidelines that will help them narrow down the settings that work the best for them. First off, don't by any means copy your favorite pro's config, just because something works for a professional player that has probably spent well above 10,000 hours playing FPS games and decided upon their ideal sensitivity and crosshair within that massive period of time, doesn't mean that it's going to work for you, use whatever you're most comfortable with. Other than individual preference, and having gotten used to their sensitivity, the Pros you watch may be using gear which feels different at their sensitivity setting. A lighter mouse, faster mouse-pad, and faster feet can feel very different in terms of mouse movement, even if you're playing on the same sensitivity value on paper. In relation to grip-styles and what mice are ideal for each hand size, make sure to check out my first post in this sub before moving forward with this guide, as playing on hardware that caters to your individual preferences plays an important role in increasing your mechanical potential. Sensitivity: As I stated in the paragraph above, sensitivity is something quite subjective and while there's no general rule as to which single sens value is superior, Valorant and CS:GO professionals tend to stick to e-dpi or cm/360 much lower than professional players in other titles and FPS subgenres. Your e-dpi is your in-game sensitivity value multiplied by your mouse's DPI setting. The average e-dpi used by Valorant professionals is around 250 e-dpi, which would be a value of 0.625 in-game @ 400 DPI, or around 50 cm/360. Pro player & Streamer sensitivity settings (e-dpi) cm/360 is a universal format for sensitivity measurement, it's the amount of centimeters you need to move your mouse in order to perform a full rotation. This is the format adopted within aimer communities due to the simple fact that you asking someone "what sensitivity do you play on?" And them responding with "1.5 in CSGO" is pretty useless information as they could be playing at any DPI range, and you don't necessarily know what each CSGO sens corresponds to in relation to physical movement, or even movement in other games. "e-dpi" solves the issue of different DPI x Sens measurements within the same game, but the cm/360 format is easily transferable from title to title. The reason professional players in the tac shooter genre use lower sens on average, is due to the fact that in contrast with other FPS games, tac shooters don't require larger or extended movements, instead they require you to hold or clear angles while maintaining stable crosshair placement, the least adjustments you need to make to your crosshair's position on your screen, the better your "aim" will be. The majority of players I have coached report that it has been significantly easier for them to maintain consistent crosshair placement at lower sensitivities. For newer players that still haven't found a "main" sensitivity that they feel comfortable on, I would recommend for them to stick to the range of 200-300 e-dpi, while for more experienced players coming from CS or other similar games, I would recommend a similar range with a higher cap, at 200-400 e-dpi ( very few professional players play above 300 e-dpi ). Crosshair settings: This is something even more subjective and preference-based than sensitivity even, so what I will do in this section is simply post my own settings which I use for my in-game crosshair, and explain why I picked each value within the menu. Crosshair Settings So, lets break my crosshair down setting by settings:
Color: I use "Cyan" as it stands out quite well for me with my current color settings, any color that doesn't match your enemy outline color works perfectly fine here.
Inner Line Opacity: This setting basically determines how see through your crosshair will be, I like setting mine at "1" as It makes the crosshair stand out more.
Inner Line Thickness: I set this to "1" which is the lowest value, a lot of professional players like to use "2", I think setting the value to "1" makes it easier to align your crosshair with heads or with other objects in the environment, it is also less obstructive, so I highly recommend either this or "2" to newer players
Inner Line Offset: This setting determines how large the gap is in your crosshair, I like setting this to "1" as the gap is as small as possible without disappearing, larger gaps make it more difficult to determine where the exact center of your screen is, which can act as a hnderance in your first shot accuracy at longer range engagements.
Movement & Firing Error: These settings just turn your crosshair into a dynamic crosshair and make the gap widen significantly while moving or shooting respectively in order to give you a visual representation of how the innacuracy factor works. Useless and distracting, would highly suggest that you keep these both off unless you're very new and still don't understand how movement / spray accuracy works.
Outer Lines: Everything is off here, I don't think playing with outer lines provides any benefit whatsoever and it's an extra distraction.
Crosshair Placement Improvement Routine:
A large portion of improving your crosshair placement is based on simply playing the game more, crosshair placement is largely based on muscle memory, part of having good crosshair placement is simply based on having experience in-game allowing it to become a subconscious habit, and the rest is based on your ability to anticipate player model movement and learn to make horizontal movements without simultaneously your crosshair vertically. The routine I will provide is not only a great way to work on your crosshair placement, but also highly beneficial to the click-timing aspect of your aim, which is basically the only element of aiming required in Valorant, as good tracking is unecessary in such a low TTK game. If you are already training using a daily routine on Kovaak's ( as you should be ) you can just implement this into your daily scenarios. Kovaaks: ( These are all maps which require you to make horizontal movements without overshooting vertically, thus good aim training for those struggling with crosshair placement, see my other posts for a larger variety of Kovaaks maps )
1 wall 2 targets horizontal - 10 minutes ( focus on your flicks, work on hitting both targets in the same movement, not pausing in between )
Valorant Small flicks - 10 minutes ( Great routine as head level is that of Valorant, and vertical deviation will cause you to miss, forcing you to maintain head level as you play through it )
PatTarget Switch small - 10 minutes ( Works on your ability to swap from one target to another while maintaining head level crosshair placement, keep LMB held while playing, only go for heads )
Valorant doesn't currently offer it's own deathmatch servers, therefore the next best thing is practicing in CS:GO. HSDM is a headshot only modifier for community FFA servers in CS:GO. To access these maps go to "Community Server Browser" and simply type in "HSDM", any server with decent population will do ( preferably 128 tick ). Playing FFA on headshot only forces you to maintain head-level crosshair placement as body shots don't count. I advise going for taps rather than spraying, as it limits the RNG, also spraying in CS:GO isn't transferable to Valorant as a mechanic. Make it a challenge for yourself to maintain positive K/D while playing. Use the AK in rifle servers, and the USP-S in pistol servers.
Set the target dummy position to static, and practice your click timing by only going for the targets furthest to the left and furthest to the right interchangeably, do this for around 10 minutes.
Play Spike Rush and set it to hard. When set on "Hard" the AI will one shot you as soon as you peek if it has seen you, and one shot you after around half a second if you shift-peek it. Pretty decent warmup in relation to crosshair placement as you will die every single time if you aren't instantly headshotting the targets the moment you peek. Play this for another 10 minutes.
Link to my Discord server for further questions / coaching inquiries:
You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat. The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility. Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award! (Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.) As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on! Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter. I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.
How to Invest in Stocks
A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy. I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos: The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI: https://www.youtube.com/watch?v=cRMpgaBv-U4&t=2256s The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles: https://www.youtube.com/watch?v=2MHIcabnjrA Please note that I have no connection to whomever posted the videos.
TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save. The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments. Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).
Eligibility to Open a TFSA
You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.
Where you Can Open a TFSA
There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:
The Canadian big 5 bank branches and most other financial institutions offer a TFSA that allows you to buy mutual funds, hold cash, GICs, term deposits, and possibly ETFs. This is a good choice if you want guaranteed returns or diversified investing.
There are a number of on-line banks such as Tangerine, Simplii Financial, Oaken Financial, and many more that offer the TFSA.
The discount DIY brokerage arms of the big 5 banks give you more choices, including stocks, warrants, bonds and options. There are also standalone brokers like IBKR Canada, Questrade, Qtrade, and Virtual Brokers, among others, that offer this.
Some brokerages and financial advisors also offer TFSAs that give you these investment choices, in different formats such as:
Traditional brokerage, where a stockbroker invests your money (BMO Nesbitt Burns, RBC Dominion Securities and others)
Financial advisor who will invest your money according to a plan you put together with the advisor (TSI Network and many others)
"Robo" advisors such as Wealthsimple, RBC InvestEase, BMO SmartFolio, or Wealthbar
BMO's AdviceDirect, which is a semi-directed hybrid between standalone DIY investing and fully-advised investing, where you operate on a DIY basis but have access to a registered investment advisor (a live person) who can give you suggetions and advice.
Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.
What You Can Trade and Invest In
You can trade the following:
GICS, mutual funds, term deposits
individual common and preferred stocks listed on an "approved exchange" which is the TSX, TSX-V, NASDAQ, NYSE, and about 20 other exchanges worldwide, but not the US OTC pink sheets. Many examples, such as Suncor, Linamar, Apple, any of the big banks, and many thousands of others, when you want to buy into an individual company
stock-like securities like REITS, ETFs and ETNs, including 2x and 3x leveraged
gold and silver certificates
cash of many countries (CAD/USD/EUGBP/AUD/NZD/JPY/CHF and many others)
government bills and bonds of most countries, subsovereigns like Canadian provincial bills and bonds, and most corporations
options that trade on the Montreal Exchange or various options exchanges in the USA and the rest of the word (see FAQ for details)
gold, silver bullion certificates
shares in certain private companies -- but consult your tax advisor on this
What You Cannot Trade
You cannot trade:
commodity futures contracts
option spread positions (see FAQ for details)
anything that requires a margin account, meaning, a special kind of account that allows you to borrow money directly from the broker against the assets you have in your account and the assets you intend to buy.
crypto (although there exist crypto ETNs that you can buy)
Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.
Rules for Contribution Room
Starting at 18 you get a certain amount of contribution room. According to the CRA: You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA. The annual TFSA dollar limit for the years 2009 to2012 was $5,000. The annual TFSA dollar limit for the years 2013 and 2014 was $5,500. The annual TFSA dollar limit for the year 2015 was $10,000. The annual TFSA dollar limit for the years 2016 to 2018 was $5,500. The annual TFSA dollar limit for the year 2019 is $6,000. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html If you don't use the room, it accumulates indefinitely. Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares. You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.
E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020. Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021. In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it. But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty. But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room. This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room. There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever. Just remember the following formula: This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year. EXAMPLE 1: Say in 2020 you never contributed to a TFSA but you were 18 in 2009. You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020. In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free. You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020. The question is, How much room will you have in 2021? Answer: In the year 2021, the following applies: (A) Unused contribution room carried forward from last year, 2020: $19,500 (B) Contribution room provided by government for this year, 2021: $6,000 (C) Total withdrawals from last year, 2020: $100,000 Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500. EXAMPLE 2: Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions. How much room will you have in 2022? Answer: In the year 2022, the following applies: (A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500. Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month). But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency..... In the year 2022, the following would apply: (A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500. (B) Contribution room provided by government for this year, 2022: $6,000 (C) Total withdrawals from last year, 2020: $75,000 Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500. ...And...re-contributing that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022. For a more comprehensive discussion, please see the CRA info link below.
FAQs That Have Arisen in the Discussion and Other Potential Questions:
Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:" https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules. Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
Unrelated but of Interest: The Margin Account
Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.
Margin trading in the forex market is the process of making a good faith deposit with a broker in order to open and maintain positions in one or more currencies. Margin is not a cost or a fee, but Leverage and Margin Trading is the hottest way to make profits in the cryptosphere in 2020! By depositing a minimal amount or margin, traders can borrow additional funds or leverage from the exchange and extend their position exponentially! We create crypto margin trading platforms that come with trendy features and security protocols. (In Margin Trading, only funds in the margin account can be used for trading.) Transfer of funds in the account is done by you, as the exchange does not move your funds for you. The Margin Balance is calculated for each order With Margin Trading, initial required margin (initial margin) is calculated for each new order. Margin trading involves borrowing funds from an exchange, brokerage or other third-parties to increase investment. It leverages investment and position and allows traders to make more money with limited resources using a “loan”. Margin trading is a process of trading cryptocurrency with leverage, which allows you to deposit a fixed amount of assets as collateral and borrow multiple times the amount of cryptocurrency from the exchange (while paying a small amount in borrowing fees) to trade with a larger amount of funds than you actually own. <Benefits of Margin Trading> ① You can trade large amounts of money using
Introduction to Margin/Leverage Trading on Deribit
The Jamaica Stock Exchange recently started using the NASDAQ's trading platform. JSE Managing Director, Marlene Street Forrest, says this will allow investors to engage in short selling, margin ... Understanding forex leverage, margin requirements and sizing trades for successful trading. Get more information about IG US by visiting their website: https://www.ig.com/us/future-of-forex Get my trading strategies here: https://www.robbooker.com C... Disclaimer: Trading carries a significant risk of loss and may not be suitable for all investors. Traders should assess these risks either themselves or in consultation with a financial advisor ... What is margin or buying on margin? Here's what it means, put simply. Join The Exchange to get access to my 7 day free course and weekly tips about trading the stock market straight to your inbox!