1988 - 1st Quarter (6)
1988 - 1st Quarter (6)
"Are you going to put in the entire 5 million dollars?"
After swallowing dryly, David spat out the words with a trembling voice.
We had earned a whopping 5 million dollars with 18 million dollars.
A profit so exciting that a normal person would be holding a wild victory party.
"Yes."
"Crazy."
But I am not.
It's insufficient, and still insufficient.
"Then you'll maintain the leverage ratio as well?"
"Of course."
"And it's inverted pyramiding."
"Every time usable funds become available, all of it."
David closed his eyes.
"Um, putting aside incentives, can I at least get my salary properly?"
I fully understand that sentiment.
Our current margin point is 97.52.
Since yesterday's closing price was 93.5, the moment we additionally sell 5 million dollars at the same price, the margin call line drops to 96.64.
In the futures market, 2 points is a level that, if unlucky, can be touched several times even in a single day.
The moment the Fed gets pissed off and turns its head, we could get liquidated.
"What is inverted pyramiding?"
Ah, I hadn't explained it to Ara beforehand.
Well, there's still some time before the market opens, so I should explain.
It was me who said to ask questions immediately whenever something comes up.
"First, pyramiding. As you roughly guessed, the method of increasing positions using margin is called pyramiding."
"But margin is already deposited to secure positions, isn't it?"
"Ah, right. I should explain MTM first."
I glanced at the clock.
That should be enough time.
Then, before explaining.
"David."
"Yes."
"Tell the staff."
"......Haa-. Understood."
He nodded and went out of the conference room.
"Futures are mark to market. A system that constantly tracks transactions."
"?"
"Difficult?"
"A bit, I don't quite understand."
"Hmm....... It's like this. Stocks have the market setting the price, right? After the market closes, the book value per share is evaluated based on the closing price."
"Yes."
"MTM is a bit different. The benchmark itself is set by the market, but that's a market where real money moves."
"Real money?"
"Yes. For example, suppose a $1 stock becomes $10. The stock's value is $10, but unless that stock actually moves, no money has moved. Right?"
"Futures aren't like that?"
"If a $1 futures contract becomes $10, after market close, the exchange settles and deposits the $9 profit into the account."
"And the futures contract is still held?"
"Correct."
Moreover, if you contract well with IB, you can even make interim withdrawals while maintaining the position.
In principle, withdrawing the full amount excluding margin is freely possible, but IB or brokers don't readily do that, so you usually need a contract.
"Instead, the interim valuation amount is managed separately within the account and constantly moves. If the price goes down again, that cash is taken back."
"I understand what kind of system it is."
"Good. For us, that's 5 million dollars, right?"
"Yes."
"Withdrawal is still impossible, but that 5 million dollars is already ours. And it's in the margin account."
"Ah....... So it can be used as margin."
"Exactly."
If you've understood up to here, it's easy.
"Increasing the same position using that money is called pyramiding."
"I'm not sure if I understood correctly, but then can contracts be increased infinitely?"
"Of course. In theory, yes."
"But why is David acting like that?"
"Hmm-. So, how should I put it."
I pondered briefly, then opened my mouth.
"When falling in an elevator, if you jump at the right timing, can you survive?"
"No."
"No. You can survive. In theory."
"......Uh......?"
"Jump at the same speed as the falling speed. Of course, that means having the power to jump from the ground to the falling height."
"So, um, going in now is......"
"From David's perspective, it would feel like that?"
Pyramiding is similar to margin buying in stocks, where you borrow using stock collateral for additional purchases.
However, unlike mortgage loans with limited LTV, the difference is that you can put in the full profit amount and there's no interest.
"And since it's inverted, it would feel even more like that."
"What is reverse pyramiding?"
"In pyramiding, inevitably, the contracts entered first are bound to be the largest."
"That would be the case."
"But futures are leveraged, right? If you continuously increase positions as profits grow?"
"Then......, later ones could be bought even more?"
"Yes. It becomes like a pyramid triangle turned upside down. That's why it's inverted pyramiding."
"......."
Ara fell deep into thought.
I turned my eyes again and glanced at the clock.
Time is gradually approaching.
"Anything else you're curious about?"
"You said money constantly comes in and out."
"In theory. Actually, real cash movement happens after market close. Why?"
"Then if the price rises in the middle and money needs to be taken back, but you've already bought futures with it, what happens?"
"You have to prepare the money."
To deduce reverse trading on her own.
This is quite surprising.
"They forcibly liquidate the held positions until that money appears. Before that, they'll probably make a call or two. Calls urging you to deposit money."
"That's a margin call."
"Correct. When you receive a margin call request, if you can't deposit that money, they forcibly liquidate."
"Then, buying more makes you more vulnerable to price fluctuations?"
"Ooh-!"
I exclaimed in admiration.
To even notice that the margin call line thins.
For someone who knows finance even a little, it might seem too obvious, but for a beginner who hasn't much exposure to derivatives, realizing that is impressive.
"Excellent."
"......Heh."
However, she probably doesn't yet know how dangerous that becomes.
Even traders, unless they've tried it themselves like a madman, would only know it theoretically or by feeling.
David didn't curse without reason.
"Let's go."
"Yes."
Time is up.
Soon, the market will open.
We left the office and headed to the trading room.
"Is this right......."
"Don't know. Just do as instructed. No choice."
"It seems I can't even do as instructed. If I mess up catching those few ticks, the positions I'm responsible for will immediately collapse. With pyramiding, there's no way to recover either."
Most of EXE's employees are veterans with considerable years of experience.
Thus, they all seemed to understand what kind of crazy thing we were trying to do.
I took out a cigarette and put it in my mouth.
Click. Sss-.
Ara immediately lit it for me.
"Inhale-. Exhale-."
This damn cigarette.
Due to the times, not smoking disadvantaged you in various ways, so I learned, but from some point, I had to smoke to survive.
At least cigarettes are better.
There's a reason why quite a lot of Wall Street traders are drug addicts.
'I'm getting nervous.'
I rubbed the moisture forming on my hand against my pants to wipe it off.
I couldn't help but be nervous.
'I have to solve the process myself.......'
I have the answer sheet.
But there is no solution process.
To invest using only the Status Window's chart, the only method is to put it in and wait.
That way, I missed Copers.
Given it's not clearly etched in my memory, Copers' profit rate probably isn't that high.
But what if it is?
Then I become an idiot who had the answer sheet but missed it all.
If I were to live like that, I'd have just lived moderately as a retail investor.
Calling call girls daily, partying, living while envied by people.
Not a difficult thing.
Even just going retail, I could easily earn 10 billion dollars.
With that kind of money, I could live worry-free for life.
But I don't intend to live like that.
For that, something inside me—that lowly desire and greed—won't stay quiet.
Of course, revenge also cannot be omitted from that process.
"Inhale-. Exhale-."
Exhaling cigarette smoke, I thought.
This is an opportunity and a test.
In this world, humans overflowing would sell their souls if they could see the future one minute ahead.
But I have the answer sheet outright, don't I?
The remaining variable is solely skill.
The test of experience and skill I've built over decades from past iterations.
"Ara."
"Yes."
"You'll be incredibly busy. Move briskly."
"Got it."
"David."
"Yes. Advisor-nim."
"Mid-control must be done well. Ensure banks don't get mixed, and check if volume management is working properly."
"Leave it to me. I have to earn my incentive worth."
"Huh-. Right."
The employees each sat in their seats, staring intently at their terminals.
One hand holding a phone, the other holding a pen.
"Is the tape sufficient?"
"For today's usage, it's sufficient."
"Good."
I too looked at the terminal and various documents, grasping a pen and calculator.
Ding-ding-ding-!
Different from the pit's opening bell sound, but here too, an opening bell was installed.
The market opened.
"Opening price! 93'15!"
"14, 15, 16, 15! Sideways!"
The employees began shouting from their seats.
Various numbers were busily appearing on the terminals.
An era where real-time charts or graphs aren't even provided.
You have to judge based only on executed volumes, and even those displayed with over a minute delay.
"Salomon, Morgan. Sell 10 at 15."
I said while writing SM and JS, along with price and quantity, on a memo.
"Jackson! Jackie! Sell 10 over 15!"
David heard my words and immediately shouted.
The traders responsible for Salomon Brothers and J.S. Morgan immediately picked up their receivers and made calls.
The target was 1,500 contracts.
Leverage 30x, notional 180 million dollars.