Article Trade What You Know and Know What You Trade

[T2W Bot]

Those who haven?t worked in the industry may not be aware that nowadays most investment bank traders will only trade one particular sector or cross rate or country. This has not necessarily always been the case. When I first started in the industry as an 18 year old trading Japanese warrants in 1989 all the banks involved in that market divided their trading books into alphabetical order. For example, I traded all warrants whose company names were from S to Z such as Sumitomo Chemical and Toyota. While this arrangement had seemed to work during the bull market years, it was only when the market got tougher during the crash years that banks realised that it would be far better to divide the trading books by sector as there was no discernable correlation between the contracts we were trading and it was possible for example for all traders to be taken short in say steel stocks because they started with different letters and were therefore traded by different traders.
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[Rhody Trader]

In trading, specialization can be a very good thing, suggests this article's author Gary Norden.

 

[fxmarkets]

"Trade What You Know and Know What You Trade "

" it was only when the market got tougher during the crash years that banks realised that it would be far better to divide the trading books by sector "

hmm It would also be helpful if you know how to trade, And I assume that because these now enlightened banks have now divided the books by sector, then come the next crash, all the banks will be short already waiting for those who do not have books by sector in a nice order to panic sell ( because of the disorderly nature of their books )

Now im just not getting this........ the banks blamed the jumble of sectors for losing money. oh dear oh dear, they really dont have a clue these banks.

"this assets just fallen 400 points because its in the wrong sector, hmm errr ummm, you best tidy them up then son, now if you had nice tidy books see you would of made money,cos that is so,say's ere' on this memo.. "


Maybe they are slowly heading towards

Know How To Trade You Will Know What To Trade And When To Trade It.

 

[Silent.Trader]

Now im just not getting this........ the banks blamed the jumble of sectors for losing money. oh dear oh dear, they really dont have a clue these banks.

It doesn't sound that ridiculous to me as you make it sound fxmarkets. All depends off course on the trading style. But assuming that they don't want to much a marketexposure and trade roughly market neutral it does make sense. If sectors are mixed there's a fair change that all traders are short the same sector and long the same sector. By trading by sector they'll not only be market neutral over the entiremarket, but also per sector as every trader will stay roughly market neutral. I think that should reduce volatility (read risk) significantly.

grtnx
Wilco

 

[SOCRATES]

This is real common sense for a change. I agree with your sentiments which are the result of experience, wholeheartedly. I am giving you a 10 for this. Whether what you say is constructively taken on board is another matter altogether. People are apt to pounce without considering the footprint of the instrument chosen to trade in. That is why specialisation is so important. With specialisation may come a niche and ultimately an edge for that particular niche. But the great majority are impatient and consequently assume they can pounce on anything just because it moves. As a consequence the result is the development of jacks of all trades and masters of none, I respectfully submit.


SOCRATES

 

[fxmarkets]

It doesn't sound that ridiculous to me as you make it sound fxmarkets. All depends off course on the trading style. But assuming that they don't want to much a marketexposure and trade roughly market neutral it does make sense. If sectors are mixed there's a fair change that all traders are short the same sector and long the same sector. By trading by sector they'll not only be market neutral over the entiremarket, but also per sector as every trader will stay roughly market neutral. I think that should reduce volatility (read risk) significantly.

grtnx
Wilco

hello Wilco.

Hmm now my knowledge of Banks trading is zero, so how could I comment? well just because your in a bank doesn't mean you are gonna make money.. you may be restricted.......?reading from the article I assumed these banks were engaged in speculative trading enabled by Opportunity to take advantage of volatility/risk and the article came across as these banks (traders who work in the bank) fell flat on their faces when opportunity to profit is favourable as I see it.

Is it speculative trading that banks are engaged in ? or something else which isn't trading as I perhaps label it.

Totally agree on the Know your onions aspect of it, that I assume is a very basic to the point that its a non starter in the equation. I would assume that the resources the banks have at their disposal they would be able to attract traders (for a while) who would know at what price it their product traded at 3 mins ago, 3 hours ago and 3 days ago.

Is it different in banks I mean if a traders long and his product that s/he is trading is not longing anymore

a) why havent they closed the long
b) why are they not looking for shorts
c) why did they lose so much money.

It reminds me of the fund managers who are experts at growth trusts unit trusts etc... whats going wrong... I understand that these managers often need to be invested or takes time to decide on what to do... but speculative traders taking advantage of price volatility ,hmm thats the point isn't it... ?? speed of action in that brief period of time is your friend not an excuse is it ?

open for learning here. Is it the size of money they need to shift which causes problems?
fx

 

[Ovue Grey-Areben]

I for one have never traded this way before, I guess it wouldn't hurt one's trading plan to trade this way.