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  • Trader speculation

     
     
    When a trader says they are fully hedged, it is usually a sign that they have a bad position. In order to cover costs as an importer or trader, one simply must speculate. This speculation is not always outright long or short, but most of the time it is. Traders do however play quality and time differentials, and these are a different type of speculation.

    A good trader is disciplined. Operations are always accounted for as what they are. A good trader will never use a hedge lot to offset a bad speculative trade. Nor will a good trader mix quality arbitrage with spread trading.

    Keeping 'the book' well defined sounds easy but it is the downfall of many traders that they try to dress up their positions, that is, make them look better than they really are. Another sign of a good trader is the ability to take a loss. Traders cannot be right all the time. They only need to be right 60% of the time to be profitable. As one master trader once taught many years ago, a good trader must be able to cut off a finger before losing a hand, and cut off a hand before losing an arm.

    The ability to take losses and move on is an essential element in trading, applicable to exporters as well. 
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