Margin Account: Learn How to Open Margin Account Angel ...

[Business] - Broker Huatai International brings zero fee trading to Hong Kong, piles pressure on smaller rivals already struggling with thin margins

[Business] - Broker Huatai International brings zero fee trading to Hong Kong, piles pressure on smaller rivals already struggling with thin margins submitted by AutoNewsAdmin to SCMPauto [link] [comments]

[Business] - Broker Huatai International brings zero fee trading to Hong Kong, piles pressure on smaller rivals already struggling with thin margins | South China Morning Post

[Business] - Broker Huatai International brings zero fee trading to Hong Kong, piles pressure on smaller rivals already struggling with thin margins | South China Morning Post submitted by AutoNewspaperAdmin to AutoNewspaper [link] [comments]

Example of trading with 9x leverage using Interactive Brokers [Portfolio Margin|Superposition Trading|SPX Meltdown Hedge protection]

Example of trading with 9x leverage using Interactive Brokers [Portfolio Margin|Superposition Trading|SPX Meltdown Hedge protection] submitted by diggonomics to options [link] [comments]

Stock broker with maximum margin https://www.teqmocharts.com/p/open-astha-trade-account.html

Stock broker with maximum margin https://www.teqmocharts.com/p/open-astha-trade-account.html submitted by TeqmoCharts to u/TeqmoCharts [link] [comments]

Broker that will allow trading SVXY with margin

Does anyone know of a broker that will allow me to trade SVXY with margin? It would be great if that broker had a REST API or an SDK too. I've called about 5 popular brokers and they all have 100% margin requirements for SVXY.
submitted by Chuque to wallstreetbets [link] [comments]

best broker to trade coins with margin/leverage? preferably cash account?

i have been trading some forex, and i wish to start trading some cryptos in the same fashion.
is there a good platform that i can use to do this?
i think i can with binance, but the thing is short term i want to short bitcoin, but it seems counter productive to be funding my account with bitcoins than...is there a better way or a way to just use a cash account?

i currently use darwinex, but there crypto options are limited....and closed on weekends
submitted by filthycasual4 to Bitcoin [link] [comments]

09-24 00:22 - 'If you want to trade stocks don't do it via a bank , they are too expensive and too slow. And they don't have the same tools. Limit, stop loss, margin, lever / Do it directly with somebody like interactive brokers. / If you...' by /u/Twenty4C removed from /r/belgium within 205-215min

'''
If you want to trade stocks don't do it via a bank , they are too expensive and too slow. And they don't have the same tools. Limit, stop loss, margin, lever
Do it directly with somebody like interactive brokers.
If you want to start trading smaller amounts then what is required at IB, i could recommend Lynx. (also works on IB platform, so you are sure it is safe). I think IB min is 10000 and lynx 3000.
Don't go for a cheap online broker because you will only buy a claim for a stock and not a stock itself.
Oh and don't go short with margin trading. That is just dangerous.
'''
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Author: Twenty4C
submitted by removalbot to removalbot [link] [comments]

My boss and I talked about opening a shared ib account, getting portfolio margin and utilizing option pricing inefficiencies for arbitrage opportunities. Only risk in any trade would be a failure to deliver on behalf of the broker. My question is with portfolio margin...

Can anyone tell me if that’d even count toward buying power once the full trade is locked in? Or can i essentially just repeat it until the price is back to efficiency?
submitted by antifrgl01 to wallstreetbets [link] [comments]

Is there any way to reduce the interest rate on margin (e.g. by pledging the equities in my trading account with the broker)

Hello
I was hoping to short some equities in the US stock market. I may end up holding the short position for about a month. Is there any way that I can reduce the interest on the margin that I have to use while shorting stocks. For example, if I pledge my existing long positions from my long-term investment portfolio, can the brokers like a Ameritrade or E*TRADE consider reducing their loan interest rate?
Thank you for any inputs
submitted by ramana2887 to stocks [link] [comments]

Hey guys new to this thread. Been trading futures want to start trading Ltc and Btc can anyone plz recommend a good broker (who provides margin) to get started with? Outside US

submitted by juaari to litecoin [link] [comments]

Cryptocurrency Trading 101 (Margin Trading with CFD Brokers)

Cryptocurrency Trading 101 (Margin Trading with CFD Brokers) submitted by skywalker_boss to CryptoCurrency [link] [comments]

Bitcoin Exchanges in China Stop Margin Trading - Ethereum Classic Freezes 'Difficulty Bomb' With 'Diehard' Fork - CoinBase CEO Says Broker Tax Forms Can Be a "Potential Solution" - How to create a DAO on the Wings Platform

submitted by cryptocompare to cryptocompare [link] [comments]

When you die, your debt dies too

I was forced to flair it shitpost just in case.. but hear me out. I think I found a very cool very legal way of becoming guaranteed millionaires with no risk, while sticking it to fucking brokers and debt collections agencies.
Fuck those vultures, your tax dollars bailed out most of the former group anyway
Here's the plan
  1. Find an even number of homeless people who still have social security numbers (and haven't filed for a bankruptcy yet). Better yet, drug addicts. This is the hardest step. Say you found 2.
  2. Open brokerages in their names, fund it with small amounts. Say 5-10k each. Become their financial advisor.
  3. Find a highly volatile derivative on a highly volatile security. Say oil futures
  4. Go long in one set of accounts, short in another. One account goes negative, other might go to 6-7 figures.
  5. Take profits on the winner, ignore margin calls in the other.
Also works with terminal relatives and cancer patients.
Edit: I now have more awards on a shitpost from an alt than my 7 yo real account. Thank you fellow autists! In case any degenerate is taking this seriously, I have a very rare, covid repelling amulet to sell you

Edit 2: Fuck I wonder if shopify will let me sell those amulets online. TAM is yuuuuge so many of you OD'ed on vaccines as a baby. For future reference a "trading strategy" that begins with homeless drug addicts is not an advice or suggestion, nor is any other post that might fit the plot of It's always sunny in Philadelphia. Upvote 💩and go back to flippin' burgers. I will not respond to DMs.
submitted by ThrowRA_2352 to wallstreetbets [link] [comments]

Former investment bank FX trader: some thoughts

Former investment bank FX trader: some thoughts
Hi guys,
I have been using reddit for years in my personal life (not trading!) and wanted to give something back in an area where i am an expert.
I worked at an investment bank for seven years and joined them as a graduate FX trader so have lots of professional experience, by which i mean I was trained and paid by a big institution to trade on their behalf. This is very different to being a full-time home trader, although that is not to discredit those guys, who can accumulate a good amount of experience/wisdom through self learning.
When I get time I'm going to write a mid-length posts on each topic for you guys along the lines of how i was trained. I guess there would be 15-20 topics in total so about 50-60 posts. Feel free to comment or ask questions.
The first topic is Risk Management and we'll cover it in three parts
Part I
  • Why it matters
  • Position sizing
  • Kelly
  • Using stops sensibly
  • Picking a clear level

Why it matters

The first rule of making money through trading is to ensure you do not lose money. Look at any serious hedge fund’s website and they’ll talk about their first priority being “preservation of investor capital.”
You have to keep it before you grow it.
Strangely, if you look at retail trading websites, for every one article on risk management there are probably fifty on trade selection. This is completely the wrong way around.
The great news is that this stuff is pretty simple and process-driven. Anyone can learn and follow best practices.
Seriously, avoiding mistakes is one of the most important things: there's not some holy grail system for finding winning trades, rather a routine and fairly boring set of processes that ensure that you are profitable, despite having plenty of losing trades alongside the winners.

Capital and position sizing

The first thing you have to know is how much capital you are working with. Let’s say you have $100,000 deposited. This is your maximum trading capital. Your trading capital is not the leveraged amount. It is the amount of money you have deposited and can withdraw or lose.
Position sizing is what ensures that a losing streak does not take you out of the market.
A rule of thumb is that one should risk no more than 2% of one’s account balance on an individual trade and no more than 8% of one’s account balance on a specific theme. We’ll look at why that’s a rule of thumb later. For now let’s just accept those numbers and look at examples.
So we have $100,000 in our account. And we wish to buy EURUSD. We should therefore not be risking more than 2% which $2,000.
We look at a technical chart and decide to leave a stop below the monthly low, which is 55 pips below market. We’ll come back to this in a bit. So what should our position size be?
We go to the calculator page, select Position Size and enter our details. There are many such calculators online - just google "Pip calculator".

https://preview.redd.it/y38zb666e5h51.jpg?width=1200&format=pjpg&auto=webp&s=26e4fe569dc5c1f43ce4c746230c49b138691d14
So the appropriate size is a buy position of 363,636 EURUSD. If it reaches our stop level we know we’ll lose precisely $2,000 or 2% of our capital.
You should be using this calculator (or something similar) on every single trade so that you know your risk.
Now imagine that we have similar bets on EURJPY and EURGBP, which have also broken above moving averages. Clearly this EUR-momentum is a theme. If it works all three bets are likely to pay off. But if it goes wrong we are likely to lose on all three at once. We are going to look at this concept of correlation in more detail later.
The total amount of risk in our portfolio - if all of the trades on this EUR-momentum theme were to hit their stops - should not exceed $8,000 or 8% of total capital. This allows us to go big on themes we like without going bust when the theme does not work.
As we’ll see later, many traders only win on 40-60% of trades. So you have to accept losing trades will be common and ensure you size trades so they cannot ruin you.
Similarly, like poker players, we should risk more on trades we feel confident about and less on trades that seem less compelling. However, this should always be subject to overall position sizing constraints.
For example before you put on each trade you might rate the strength of your conviction in the trade and allocate a position size accordingly:

https://preview.redd.it/q2ea6rgae5h51.png?width=1200&format=png&auto=webp&s=4332cb8d0bbbc3d8db972c1f28e8189105393e5b
To keep yourself disciplined you should try to ensure that no more than one in twenty trades are graded exceptional and allocated 5% of account balance risk. It really should be a rare moment when all the stars align for you.
Notice that the nice thing about dealing in percentages is that it scales. Say you start out with $100,000 but end the year up 50% at $150,000. Now a 1% bet will risk $1,500 rather than $1,000. That makes sense as your capital has grown.
It is extremely common for retail accounts to blow-up by making only 4-5 losing trades because they are leveraged at 50:1 and have taken on far too large a position, relative to their account balance.
Consider that GBPUSD tends to move 1% each day. If you have an account balance of $10k then it would be crazy to take a position of $500k (50:1 leveraged). A 1% move on $500k is $5k.
Two perfectly regular down days in a row — or a single day’s move of 2% — and you will receive a margin call from the broker, have the account closed out, and have lost all your money.
Do not let this happen to you. Use position sizing discipline to protect yourself.

Kelly Criterion

If you’re wondering - why “about 2%” per trade? - that’s a fair question. Why not 0.5% or 10% or any other number?
The Kelly Criterion is a formula that was adapted for use in casinos. If you know the odds of winning and the expected pay-off, it tells you how much you should bet in each round.
This is harder than it sounds. Let’s say you could bet on a weighted coin flip, where it lands on heads 60% of the time and tails 40% of the time. The payout is $2 per $1 bet.
Well, absolutely you should bet. The odds are in your favour. But if you have, say, $100 it is less obvious how much you should bet to avoid ruin.
Say you bet $50, the odds that it could land on tails twice in a row are 16%. You could easily be out after the first two flips.
Equally, betting $1 is not going to maximise your advantage. The odds are 60/40 in your favour so only betting $1 is likely too conservative. The Kelly Criterion is a formula that produces the long-run optimal bet size, given the odds.
Applying the formula to forex trading looks like this:
Position size % = Winning trade % - ( (1- Winning trade %) / Risk-reward ratio
If you have recorded hundreds of trades in your journal - see next chapter - you can calculate what this outputs for you specifically.
If you don't have hundreds of trades then let’s assume some realistic defaults of Winning trade % being 30% and Risk-reward ratio being 3. The 3 implies your TP is 3x the distance of your stop from entry e.g. 300 pips take profit and 100 pips stop loss.
So that’s 0.3 - (1 - 0.3) / 3 = 6.6%.
Hold on a second. 6.6% of your account probably feels like a LOT to risk per trade.This is the main observation people have on Kelly: whilst it may optimise the long-run results it doesn’t take into account the pain of drawdowns. It is better thought of as the rational maximum limit. You needn’t go right up to the limit!
With a 30% winning trade ratio, the odds of you losing on four trades in a row is nearly one in four. That would result in a drawdown of nearly a quarter of your starting account balance. Could you really stomach that and put on the fifth trade, cool as ice? Most of us could not.
Accordingly people tend to reduce the bet size. For example, let’s say you know you would feel emotionally affected by losing 25% of your account.
Well, the simplest way is to divide the Kelly output by four. You have effectively hidden 75% of your account balance from Kelly and it is now optimised to avoid a total wipeout of just the 25% it can see.
This gives 6.6% / 4 = 1.65%. Of course different trading approaches and different risk appetites will provide different optimal bet sizes but as a rule of thumb something between 1-2% is appropriate for the style and risk appetite of most retail traders.
Incidentally be very wary of systems or traders who claim high winning trade % like 80%. Invariably these don’t pass a basic sense-check:
  • How many live trades have you done? Often they’ll have done only a handful of real trades and the rest are simulated backtests, which are overfitted. The model will soon die.
  • What is your risk-reward ratio on each trade? If you have a take profit $3 away and a stop loss $100 away, of course most trades will be winners. You will not be making money, however! In general most traders should trade smaller position sizes and less frequently than they do. If you are going to bias one way or the other, far better to start off too small.

How to use stop losses sensibly

Stop losses have a bad reputation amongst the retail community but are absolutely essential to risk management. No serious discretionary trader can operate without them.
A stop loss is a resting order, left with the broker, to automatically close your position if it reaches a certain price. For a recap on the various order types visit this chapter.
The valid concern with stop losses is that disreputable brokers look for a concentration of stops and then, when the market is close, whipsaw the price through the stop levels so that the clients ‘stop out’ and sell to the broker at a low rate before the market naturally comes back higher. This is referred to as ‘stop hunting’.
This would be extremely immoral behaviour and the way to guard against it is to use a highly reputable top-tier broker in a well regulated region such as the UK.
Why are stop losses so important? Well, there is no other way to manage risk with certainty.
You should always have a pre-determined stop loss before you put on a trade. Not having one is a recipe for disaster: you will find yourself emotionally attached to the trade as it goes against you and it will be extremely hard to cut the loss. This is a well known behavioural bias that we’ll explore in a later chapter.
Learning to take a loss and move on rationally is a key lesson for new traders.
A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not.
Bruce Kovner, founder of the hedge fund Caxton Associates
There is an old saying amongst bank traders which is “losers average losers”.
It is tempting, having bought EURUSD and seeing it go lower, to buy more. Your average price will improve if you keep buying as it goes lower. If it was cheap before it must be a bargain now, right? Wrong.
Where does that end? Always have a pre-determined cut-off point which limits your risk. A level where you know the reason for the trade was proved ‘wrong’ ... and stick to it strictly. If you trade using discretion, use stops.

Picking a clear level

Where you leave your stop loss is key.
Typically traders will leave them at big technical levels such as recent highs or lows. For example if EURUSD is trading at 1.1250 and the recent month’s low is 1.1205 then leaving it just below at 1.1200 seems sensible.

If you were going long, just below the double bottom support zone seems like a sensible area to leave a stop
You want to give it a bit of breathing room as we know support zones often get challenged before the price rallies. This is because lots of traders identify the same zones. You won’t be the only one selling around 1.1200.
The “weak hands” who leave their sell stop order at exactly the level are likely to get taken out as the market tests the support. Those who leave it ten or fifteen pips below the level have more breathing room and will survive a quick test of the level before a resumed run-up.
Your timeframe and trading style clearly play a part. Here’s a candlestick chart (one candle is one day) for GBPUSD.

https://preview.redd.it/moyngdy4f5h51.png?width=1200&format=png&auto=webp&s=91af88da00dd3a09e202880d8029b0ddf04fb802
If you are putting on a trend-following trade you expect to hold for weeks then you need to have a stop loss that can withstand the daily noise. Look at the downtrend on the chart. There were plenty of days in which the price rallied 60 pips or more during the wider downtrend.
So having a really tight stop of, say, 25 pips that gets chopped up in noisy short-term moves is not going to work for this kind of trade. You need to use a wider stop and take a smaller position size, determined by the stop level.
There are several tools you can use to help you estimate what is a safe distance and we’ll look at those in the next section.
There are of course exceptions. For example, if you are doing range-break style trading you might have a really tight stop, set just below the previous range high.

https://preview.redd.it/ygy0tko7f5h51.png?width=1200&format=png&auto=webp&s=34af49da61c911befdc0db26af66f6c313556c81
Clearly then where you set stops will depend on your trading style as well as your holding horizons and the volatility of each instrument.
Here are some guidelines that can help:
  1. Use technical analysis to pick important levels (support, resistance, previous high/lows, moving averages etc.) as these provide clear exit and entry points on a trade.
  2. Ensure that the stop gives your trade enough room to breathe and reflects your timeframe and typical volatility of each pair. See next section.
  3. Always pick your stop level first. Then use a calculator to determine the appropriate lot size for the position, based on the % of your account balance you wish to risk on the trade.
So far we have talked about price-based stops. There is another sort which is more of a fundamental stop, used alongside - not instead of - price stops. If either breaks you’re out.
For example if you stop understanding why a product is going up or down and your fundamental thesis has been confirmed wrong, get out. For example, if you are long because you think the central bank is turning hawkish and AUDUSD is going to play catch up with rates … then you hear dovish noises from the central bank and the bond yields retrace lower and back in line with the currency - close your AUDUSD position. You already know your thesis was wrong. No need to give away more money to the market.

Coming up in part II

EDIT: part II here
Letting stops breathe
When to change a stop
Entering and exiting winning positions
Risk:reward ratios
Risk-adjusted returns

Coming up in part III

Squeezes and other risks
Market positioning
Bet correlation
Crap trades, timeouts and monthly limits

***
Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
submitted by getmrmarket to Forex [link] [comments]

Beware of etoro

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
submitted by noratooo to stocks [link] [comments]

[NYTimes] Sources describe horror stories of young and inexperienced investors on Robinhood, many engaging in riskier trades at far higher volumes than at other firms

https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html
Richard Dobatse, a Navy medic in San Diego, dabbled infrequently in stock trading. But his behavior changed in 2017 when he signed up for Robinhood, a trading app that made buying and selling stocks simple and seemingly free.
Mr. Dobatse, now 32, said he had been charmed by Robinhood’s one-click trading, easy access to complex investment products, and features like falling confetti and emoji-filled phone notifications that made it feel like a game. After funding his account with $15,000 in credit card advances, he began spending more time on the app.
As he repeatedly lost money, Mr. Dobatse took out two $30,000 home equity loans so he could buy and sell more speculative stocks and options, hoping to pay off his debts. His account value shot above $1 million this year — but almost all of that recently disappeared. This week, his balance was $6,956.
“When he is doing his trading, he won’t want to eat,” said his wife, Tashika Dobatse, with whom he has three children. “He would have nightmares.”
Millions of young Americans have begun investing in recent years through Robinhood, which was founded in 2013 with a sales pitch of no trading fees or account minimums. The ease of trading has turned it into a cultural phenomenon and a Silicon Valley darling, with the start-up climbing to an $8.3 billion valuation. It has been one of the tech industry’s biggest growth stories in the recent market turmoil.
But at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. And the more that customers engaged in such behavior, the better it was for the company, the data shows.
Thanks for reading The Times. Subscribe to The Times More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times.
In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis.
The more often small investors trade stocks, the worse their returns are likely to be, studies have shown. The returns are even worse when they get involved with options, research has found.
This kind of trading, where a few minutes can mean the difference between winning and losing, was particularly hazardous on Robinhood because the firm has experienced an unusual number of technology issues, public records show. Some Robinhood employees, who declined to be identified for fear of retaliation, said the company failed to provide adequate guardrails and technology to support its customers.
Those dangers came into focus last month when Alex Kearns, 20, a college student in Nebraska, killed himself after he logged into the app and saw that his balance had dropped to negative $730,000. The figure was high partly because of some incomplete trades.
“There was no intention to be assigned this much and take this much risk,” Mr. Kearns wrote in his suicide note, which a family member posted on Twitter.
Like Mr. Kearns, Robinhood’s average customer is young and lacks investing know-how. The average age is 31, the company said, and half of its customers had never invested before.
Some have visited Robinhood’s headquarters in Menlo Park, Calif., in recent years to confront the staff about their losses, said four employees who witnessed the incidents. This year, they said, the start-up installed bulletproof glass at the front entrance.
“They encourage people to go from training wheels to driving motorcycles,” Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli, said of Robinhood. “Over the long term, it’s like trying to beat the casino.”
At the core of Robinhood’s business is an incentive to encourage more trading. It does not charge fees for trading, but it is still paid more if its customers trade more.
That’s because it makes money through a complex practice known as “payment for order flow.” Each time a Robinhood customer trades, Wall Street firms actually buy or sell the shares and determine what price the customer gets. These firms pay Robinhood for the right to do this, because they then engage in a form of arbitrage by trying to buy or sell the stock for a profit over what they give the Robinhood customer.
This practice is not new, and retail brokers such as E-Trade and Schwab also do it. But Robinhood makes significantly more than they do for each stock share and options contract sent to the professional trading firms, the filings show.
For each share of stock traded, Robinhood made four to 15 times more than Schwab in the most recent quarter, according to the filings. In total, Robinhood got $18,955 from the trading firms for every dollar in the average customer account, while Schwab made $195, the Alphacution analysis shows. Industry experts said this was most likely because the trading firms believed they could score the easiest profits from Robinhood customers.
Vlad Tenev, a founder and co-chief executive of Robinhood, said in an interview that even with some of its customers losing money, young Americans risked greater losses by not investing in stocks at all. Not participating in the markets “ultimately contributed to the sort of the massive inequalities that we’re seeing in society,” he said.
Mr. Tenev said only 12 percent of the traders active on Robinhood each month used options, which allow people to bet on where the price of a specific stock will be on a specific day and multiply that by 100. He said the company had added educational content on how to invest safely.
He declined to comment on why Robinhood makes more than its competitors from the Wall Street firms. The company also declined to comment on Mr. Dobatse or provide data on its customers’ performance.
Robinhood does not force people to trade, of course. But its success at getting them do so has been highlighted internally. In June, the actor Ashton Kutcher, who has invested in Robinhood, attended one of the company’s weekly staff meetings on Zoom and celebrated its success by comparing it to gambling websites, said three people who were on the call.
Mr. Kutcher said in a statement that his comment “was not intended to be a comparison of business models nor the experience Robinhood provides its customers” and that it referred “to the current growth metrics.” He added that he was “absolutely not insinuating that Robinhood was a gambling platform.”
ImageRobinhood’s co-founders and co-chief executives, Baiju Bhatt, left, and Vlad Tenev, created the company to make investing accessible to everyone. Robinhood’s co-founders and co-chief executives, Baiju Bhatt, left, and Vlad Tenev, created the company to make investing accessible to everyone.Credit...via Reuters Robinhood was founded by Mr. Tenev and Baiju Bhatt, two children of immigrants who met at Stanford University in 2005. After teaming up on several ventures, including a high-speed trading firm, they were inspired by the Occupy Wall Street movement to create a company that would make finance more accessible, they said. They named the start-up Robinhood after the English outlaw who stole from the rich and gave to the poor.
Robinhood eliminated trading fees while most brokerage firms charged $10 or more for a trade. It also added features to make investing more like a game. New members were given a free share of stock, but only after they scratched off images that looked like a lottery ticket.
The app is simple to use. The home screen has a list of trendy stocks. If a customer touches one of them, a green button pops up with the word “trade,” skipping many of the steps that other firms require.
Robinhood initially offered only stock trading. Over time, it added options trading and margin loans, which make it possible to turbocharge investment gains — and to supersize losses.
The app advertises options with the tagline “quick, straightforward & free.” Customers who want to trade options answer just a few multiple-choice questions. Beginners are legally barred from trading options, but those who click that they have no investing experience are coached by the app on how to change the answer to “not much” experience. Then people can immediately begin trading.
Before Robinhood added options trading in 2017, Mr. Bhatt scoffed at the idea that the company was letting investors take uninformed risks.
“The best thing we can say to those people is ‘Just do it,’” he told Business Insider at the time.
In May, Robinhood said it had 13 million accounts, up from 10 million at the end of 2019. Schwab said it had 12.7 million brokerage accounts in its latest filings; E-Trade reported 5.5 million.
That growth has kept the money flowing in from venture capitalists. Sequoia Capital and New Enterprise Associates are among those that have poured $1.3 billion into Robinhood. In May, the company received a fresh $280 million.
“Robinhood has made the financial markets accessible to the masses and, in turn, revolutionized the decades-old brokerage industry,” Andrew Reed, a partner at Sequoia, said after last month’s fund-raising.
Image Robinhood shows users that its options trading is free of commissions. Robinhood shows users that its options trading is free of commissions. Mr. Tenev has said Robinhood has invested in the best technology in the industry. But the risks of trading through the app have been compounded by its tech glitches.
In 2018, Robinhood released software that accidentally reversed the direction of options trades, giving customers the opposite outcome from what they expected. Last year, it mistakenly allowed people to borrow infinite money to multiply their bets, leading to some enormous gains and losses.
Robinhood’s website has also gone down more often than those of its rivals — 47 times since March for Robinhood and 10 times for Schwab — according to a Times analysis of data from Downdetector.com, which tracks website reliability. In March, the site was down for almost two days, just as stock prices were gyrating because of the coronavirus pandemic. Robinhood’s customers were unable to make trades to blunt the damage to their accounts.
Four Robinhood employees, who declined to be identified, said the outage was rooted in issues with the company’s phone app and servers. They said the start-up had underinvested in technology and moved too quickly rather than carefully.
Mr. Tenev said he could not talk about the outage beyond a company blog post that said it was “not acceptable.” Robinhood had recently made new technology investments, he said.
Plaintiffs who have sued over the outage said Robinhood had done little to respond to their losses. Unlike other brokers, the company has no phone number for customers to call.
Mr. Dobatse suffered his biggest losses in the March outage — $860,000, his records show. Robinhood did not respond to his emails, he said, adding that he planned to take his case to financial regulators for arbitration.
“They make it so easy for people that don’t know anything about stocks,” he said. “Then you go there and you start to lose money.”
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DDDD - Retail Investors, Bankruptcies, Dark Pools and Beauty Contests

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.

Technicals

Magic Markers on SPY, Daily
With Technical Indicators, there’s a few things to note
  • 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.

Live Updates

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
  1. 1H MACD will be testing a crossover by EOD
  2. 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
submitted by ASoftEngStudent to wallstreetbets [link] [comments]

PRPL Warrants are Back on the Menu Boys!

PRPL Warrants are Back on the Menu Boys!
What are you doing clicking this when you could be reading yet another TSLA post!?!

tl;dr - PRPL Warrants (PRPLW) were registered again by Purple Innovation to trade on Nasdaq, which should drive a liquidity boost to their value ahead of any pile in from Robinhood users that can now trade them. (EDIT: see my note at the end. As a few users have pointed out, I was wrong on the RH retards).
Also, I'm liking the 20c / 22.5c spreads for 8/21. Great risk/reward (as of Friday).

DD Recap

When PRPL had closed at $13.67 in the previous trading session I called PRPL to $19+ by 8/12 (ER) on 5/25. Congrats to those who listened.
If you actually do DD, I'd recommend you read the above link, along with the follow up DDs done for this quarter:

New DD

I'm going to chat about the following in this post:
  1. Warrants on NASDAQ
  2. Updates to some previous DD
  3. Future Vision of PRPL Shared by VP of Branding

Warrants on NASDAQ

PRPLW warrants were originally listed on Nasdaq when the SPAC combination was completed. Because there were less than 400 unique round lot holders, the warrants fell off of NASDAQ and onto OTC markets where they have sat for well over a year.
On Thursday 7/16, Purple refiled to have the warrants listed on NASDAQ. NASDAQ followed close behind with a filing that certified their approval of the relisting of PRPLW.
How is this good? This will allow Robinhood users to pile into the warrants as well (watch Robintrack to monitor for meme status). On another note, it makes these commission-less trades on most other brokers, and also allows these to become marginable securities for yours truly (which means I get to double down and buy a whole lot more PRPL plays on margin).
Regardless, there was a value drop when the de-listing occurred due to the liquidity drop. I would expect some liquidity premium to return on these when the listing goes active again.

Updates to Previous DD

Cutting the Low End Products
Purple sells every mattress they make and is only constrained in sales by their manufacturing capacity (Purple is the actual manufacturer of their product, unlike other mattress startups like Casper). Please read previous DD at the top if you want more details.
In order to maximize revenue on the same units of sale, Purple discontinued their low-end mattress. This week, they announced a $100 price increase on their mid-tier mattress as well as their most popular mattress.

Product Category Notes
Original Purple Mattress Low End Discontinued
2" Hybrid Mattress Mid-Tier $100 Price Increase
3" Hybrid Premier Mattress Most Popular $100 Price Increase
4" Hybrid Premier Mattress Premium Price Unchanged
As Purple is still having sell out and lead time problems (check their website lead times), this is definitely a case of management trying to increase dollars per manufacturing capacity. For every Original Mattress they didn't manufacture, they were able to sell a Hybrid.
This is a great sign of management increasing their unit economics yet again.

Jobs
You may recall that we've been tracking job postings on the Purple job board as another measure of growth. The last time I posted on this, there were 56 job postings. As of Friday, THERE ARE 98 JOB POSTINGS! More importantly, they are now offering a $2,000 signing bonus for factory production workers. There's some pretty interesting other jobs on there as well.
While the media screams about unemployment, Purple is trying to fill the roster to the point where production jobs are being offered a relatively substantial bonus!

Future Vision of PRPL Shared by VP of Branding

On 7/9, Burke Morley, VP of Brand and Executive Creative Director at Purple, did a podcast where he shares some of the internal vision they have at Purple. They do NOT consider themselves just a mattress company, but rather mattresses is just a way to generate cash to allow them to apply their comfort innovation across many categories.
Dismissing Purple as just a mattress company is like seeing Amazon as just a bookseller in 1998. Burke shares their vision where they want to bring their technology to every aspect of your life: your office, your car, the plane, etc. Based upon the popularity of Purple's standalone seat cushions recently, they clearly can adapt their product to each of these markets.
If you are a DD-type of investor, I highly recommend you listen to the whole podcast, which does come across as very right-brained, in order to understand where this company is going.
Given that they have generated over $70M in cash in just April and May alone, I'm assuming we are going to see some of that cash deployed in product development to tap into these new markets. Exciting few years ahead of Purple!

This is not investment advice and do your own research before making any investments.

I'm long PRPL via several hundred thousand warrants, 25c 8/17 and 20c/22.5c 8/17 spreads.


https://preview.redd.it/yly04erefxb51.png?width=1242&format=png&auto=webp&s=3e5f1b28e36e5b1c08ec0de3b84c740a9058ad3d
EDIT: Looks like Robinhood users are still SOL with warrants even though they are NASDAQ. Time to upgrade your broker. I still think we will see a liquidity premium for these coming off of OTC.
submitted by lurkingsince2006 to wallstreetbets [link] [comments]

How the TFSA works

(Updated August 9th, 2020)

Background


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.

Introduction


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:


Insurance


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:


What You Cannot Trade


You cannot trade:

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 to 2012 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.

Examples


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:



  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
  8. 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.
  9. Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
  10. 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.
  11. 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.
  12. 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
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. 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.
  24. 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.
  25. 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.
  26. 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.
  27. 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.
  28. 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.
  29. 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.

How Margin Loans Work - a Primer

submitted by KhingoBhingo to CanadianInvestor [link] [comments]

Assigned early on your short put spread? Send a thank you note...

"I was assigned early, what do I do?" is a common question - first, don't panic. Second, read the below. Third, don't panic. Fourth, ask questions.
When selling options, there is always a chance that the option owner can exercise early, leaving the option seller with stock that they weren't anticipating - either 100 long shares if they sold a put, or 100 short shares if they sold a call. This can cause confusion, particularly if one doesn't have the buying power to pay for the shares. In one tragic instance earlier this year, Alexander Kerns took his own life due to the buying power shown on his (misleading) screen after selling spreads.
Let's cover what happens if the short leg of a put spread is assigned before expiration and show that it is actually Good news for the option seller.
Traditional put spread:
If held to expiration, what can happen?
  1. AAPL finishes > 485, we keep 2.05 for a $205 win.
  2. AAPL finishes <480, we lose 2.95 ($5 is the width of the strikes, minus the $2.05 collected) for a $295 loss
  3. AAPL finishes between 480 and 485 and we are assigned 100 shares of stock at $485.
In scenario 3, we'll have $48,500 debited from our account and have 100 shares of AAPL. We'll still have the 2.05 credit from selling the spread, so our Effective entry price is $482.95 (485-2.05). If AAPL expires >= $482.95, we'll be profitable on our stock position, below $482.95 and we'll be unprofitable on our 100 shares. We will now have an increased potential for loss on Monday, as our long put has expired worthless.
Unless one wants to take the 100 shares, it is recommended to close the position before the market closes on expiration to avoid dealing with the stock.
Early Assignment
While it is somewhat rare, there are times when an option holder may choose to exercise their option early. If a stock is hard to borrow (usually calls), if the remaining extrinsic value is incredibly low, for a dividend (calls) or simply because the put or call holder is inexperienced, we may find that we're holding shares that we weren't expecting prior to expiration.
Don't panic
Continuing with our example, let's say that AAPL is trading at 460 on September 11th and we find that our short put has been assigned, changing our position to:
If held to expiration, what can happen?
  1. AAPL finishes at 485, our 480 put expires worthless, we sell the stock at close for break even, and keep the 2.05 credit for the initial spread - a $205 win.
  2. AAPL finishes <480, our 480 put expires in the money and we sell our shares at 480. We lose 2.95 - We bought the stock at $485, sold for $480, but received $2.05 in an initial credit. Total loss is $295.
  3. AAPL finishes between 480 and 485. We sell the stock at close, our 480 put expires worthless and we make money if the stock ends above $482.95, lose if it ends below $482.95.
Note that these three scenarios are Very similar to the initial put spread, with one important difference. This time, the first scenario only discusses if AAPL ends at $485. Look what happens if AAPL ends Higher than $485, for example:
  1. AAPL finishes at $490. Our 480 put expires worthless, we sell the stock at close and take in an extra profit of $5/share, for a total win of $705 ($500 on the stock + $205 on the put spread).
Early assignment of puts in short put spreads Helps the option seller
Between when we are assigned on the short put and expiration, we have a "free shot" at upside in the underlying name. Our risk hasn't changed.
This is too good to be true
There are some downsides, namely, you need the capital for the 100 shares. In this case, we've gone from a small margin requirement of less than $500 to needing $48,500 for the shares (for a cash account). If you don't have the cash, you can simply close the position. If you receive a margin call, you will normally have two to five days to fulfill it, giving you a bit of time to see if you get 'lucky' and there is a big recovery on the underlying. You should still proactively close the position, though, as your broker may decide to close other positions to fulfill the margin call.
How about calls?
The process is the same for a short call spread, but there are a couple of significant differences:
  1. You will pay interest on the short shares. This can be quite expensive if the underlying is volatile and/or hard to borrow.
  2. You will be responsible for dividends. You will have to pay any dividends that occur while you hold the short stock. This is the most common reason you'll be assigned on a short call and you'll need to be aware when selling calls or call spreads anytime there is a dividend prior to expiration.
For both of these reasons, it is generally easier to simply close the position if assigned early.
Don't Panic (Yes, I'm reusing this title)
When you sell options, you will occasionally be assigned. Once you have a good understanding of how options work, you'll see that there is a Benefit to being assigned early on short puts when they are part of a spread. You will also learn to close calls before they are likely to be assigned or, if assigned, know how to handle it.

[Edit: Clarified when options may be assigned early for calls and puts]
submitted by OptionSalary to options [link] [comments]

Help: 380k margin call. Looking for guidance.

Feeling really dumb and depressed this morning as I was margin called for 380k. Hoping for some advice. Here’s the story:
1) Sold 10x AAPL 375c 21Aug20 2) Bought 10x AAPL 380c 21Aug20
The credit spread was about $3,000 at the time (mid-July), and max loss therefore should have been $2,000.
I believe the short position was ITM, and long was ATM at the time, although this is irrelevant.
This morning I received an email saying my short position was exercised (fuck me, I didn’t realize ex-div for AAPL was today). I’m assuming they exercised it yesterday to qualify for the upcoming dividend. My broker (Questrade in Canada) did nothing with my long position, so I’ve gone from a max loss of $2,000 to a much steeper one. I don’t know what to do..
Questrade rep convinced me to exercise my long position and sell the shares upon receipt. However, the share price has dropped $10 already today, so my loss has likely gone from $2,000 to $12,000 and could get worse if this drop continues. I submitted the request to exercise the calls and I’m waiting for the shares.
I entered this trade assuming my max loss would be $2,000. I thought questrade would require direction for the long position, cause I don’t have 380k to cover in my account.
TLDR; entered what I thought was a covered credit position, to later be naked and forced into to a $380,000 long position.
submitted by PeanutButter91 to options [link] [comments]

Results for a strategy I've been working on.

Hello,
I've been a long time lurker, but figured I would share what I've been up to for the last few months.
I've been working on a few different strategies (mainly mean reversion/momentum) with different variables/indicators using tick data. After many many many hours of tweaking, I optimized it further by isolating certain days of week / times of day (down to 30 minute windows) that performed the best on average, and it's now only trading those 'successful' windows.
I've been running the below strategy (lets call it strategy A) live for the past 1.5 months and so far results match the backtest. Strategy A works extremely well with high volatility, which is why I'm trying to milk it while I can. :)
It trades in very tight time intervals (average time in market = 13 mins), but is extremely selective about when it takes a trade, so that usually means a few trades per week. This is running on NinjaTrader (I coded it in ninjascript) and is trading 1 ES futures contract at a time. I built in a saftey-net where it halts trading for the day if the unrealized P&L drops below a certain amount, but so far it hasn't hit it.
I'm working on another strategy that performs much better in various market conditions and is backtesting successfully going back 3+ years, but is even more selective about when it executes trades. Because of this, the trades are even more sparse, but with an increased contract count, it performs quite well.
EDIT: There's been some confusion about how much capital I'm using. My broker only requires $1k of margin for every ES contract. Since I started live trading (end of june), I've been using $1.5K USD total and I've only been trading 1 ES contract/order. I've added another chart below outlining what the results would look like if you were to trade 30 ES contracts per order instead of 1 (this would require 30K USD + more for buffer in case of drawdown, so 40-50K to be safe). The liquidity pool for ES futures is very deep, so in theory, you could run this strategy at 100+ contracts/order.
Results:

Daily P&L
Cumulative Net Profit
Strategy Stats
Net Profit/month with 30 contracts/order

submitted by cyclical_trend to algotrading [link] [comments]

Short Video - Margin in Practice using TWS Brokers Who Recommend Investing On Margin Margin Trading 101: How It Works - YouTube Short Video - Margin - Getting Started - YouTube Best #Broker for Options Selling in India 2020 2021

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Short Video - Margin in Practice using TWS

What is margin trading? What is a margin? What is the difference between a cash account and a margin account? In episode #34 of Real World Finance we dive de... This IBKR short video will discuss: • The mechanics of commodities margin trading. • The margin requirement for commodities. Visit Traders' Academy: https://gdcdyn.interactivebrokers.com... To provide the margin trading facility, a broker may use his own funds or borrow from scheduled commercial banks and/or NBFCs regulated by RBI. A broker shall not be permitted to borrow funds from ... Stock Broker Comparison on Margin Required for Option Selling - Duration: 11:21. ... Scalp Trading $650 in 1 Hour Live Scalping 007 - Duration: 9:41. Michael Chin 124,760 views. This IBKR short video will explain the: • concept of margin and leverage • different types of margin and margin account types • underlying key concepts and d...

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