In the late 1980s, Bill Lipschutz served as the head of foreign exchange trading at Salomon Brothers. Currently, he is a manager of Heather Sage Capital Management. In the book "The New Financial Geek," Jack Schwarz described Bill Lipschutz as the largest and most successful foreign exchange trader at Salomon Brothers. This is not surprising at all because Lipschutz’s single transaction amounts are usually as high as billions of dollars, and profits are often calculated in tens of millions of dollars. According to Schwarz's estimates, during Lipschutz's eight-year tenure at Salomon Brothers, he generated more than 500 million U.S. dollars in profits, equivalent to an average daily gain of 250,000 U.S. dollars during the eight years.

"Everything depends on the money."

Discussion topics:

  • Sources of funds

And performance impact

Master the advantages of individual traders

Crazy dedicated enthusiasm

Salomon Trader

Decrease luck


Fear and worry

Information network and information compilation

Transaction structure
Manipulate other people's funds

The source of funds for the transaction may affect the operating style and performance, and most people fear that it is difficult to understand this. As Bill Lipschutz explained, even the most experienced trader can hardly understand it unless he knows it firsthand.

"At the beginning, I didn't understand the difference. Seven years ago, I thought very simply that no matter whether the capital came from Salomon Brothers, or ten wealthy individuals, from a single client, the result would be nothing. Different. My goal is to extract the maximum profit from the market. Different sources of funds will inevitably lead to different trading strategies and force trading to change motivations. The problem is not simply to say:'I have some funds on hand; regardless of the source, I will do my best and try to earn some profit every day. "It's not that simple. When a company faces wealthy customers, it will naturally have many different forces involved. Each month's performance will determine your life and death."

"Treasury management is a very tricky industry. The problem is not only operational performance but also customer expectations for investment results. Absolute performance data is often misleading. I can say to you:'Over over the past five years, the total number of our most active products. The reward is 600%', you might say:'Oh! 600%!' However, if you don’t know the performance of other foreign exchange managers or the risk we take to achieve this performance, the data itself is not clear. For example, suppose a manager manages US$200 million of funds, of which US$120 million is a fund with a specific investment objective. Suppose this part of the fund earns 600% of the return within four years. In that case, the investor is remarkably The capital may be recovered because the fund's risk structure does not meet investors' expectations. Fund management is a very complex game that often violates common sense."

"Let us consider the different trading methods between George Soros and Bit Lynch. Soros usually operates through a high degree of credit expansion, with the sole goal of making big money. The Magellan Fund managed by Bit Lynch is quite different. Interestingly, the primary goal is to protect capital. He is in the majority, and he is also a top stock picker, so he made a lot of money. But, please believe me, as long as the performance of Magellan Funds starts to decline, you can see Investors withdraw a large amount of capital, and eventually, even the fund will disappear. People who hand over the funds to George Soros must be psychologically prepared. The value of the fund may suddenly drop by 20-30%. I don't think anyone will diversify the investment. Investment. People’s motives are very different. Investors will choose funds that suit their style. Finally, customer preferences will affect the trader’s trading style."

As explained by Bill Lipschutz, different sources of funds mean different customer motivations and fund operation objectives and may also affect your trading style. As traders, we all need more capital. If the operation goes well, sooner or later, we will need a new source of funds, or borrowing (no need to accept the norms), or raising client funds. Regardless of the source of funds, you must understand that as your trading style may be affected, it will also affect trading performance. The worst case is performance decline, and the funds are not their own. Therefore, before pursuing new funds, be sure to evaluate how your trading will be affected carefully.

Private capital

The source of transaction capital is different, and the simplest one is self-owned funds. Bill Lipschutz explained how he operated his funds.

"For pure speculative funds other than investment, I have a high endurance to take risks. In principle, if I lose all speculative funds, I can accept it. Of course, I don't think I will suffer a complete loss, but I do—psychological preparation in this regard. Now I hold some investments, including my own house, which is an investment, and I also hold a stock portfolio, which is also considered an investment. The rest of myself can be used for speculation, and I expect a higher rate of investment return, but also ready to accept higher risks and severe price fluctuations. The risk of destruction in this type of transaction is very high; in other words, 100% loss may occur."

Bill Lipschutz only needs to be responsible for himself and trade entirely according to his preferences for their funds. However, the degree of freedom is reduced for other people's funds, and he explains this next.

Other people's funds

"However, when you are entrusted to manage the client's funds, it is another matter. The client said, 'I know you are a speculative trader, and I can frankly accept a 20% loss.' I often talk to my clients in detail. Try to understand what they think. I want customers to understand what we can and cannot do fully. If a customer looks directly into my eyes and says:'I can accept a 20% loss, no problem.' In this case, We know what he meant by 5%. If I call him three days later, "Do you know? Your net worth has fallen by 18%; I want to know what you think so that I can discuss the next step." I promise; he must have forgotten the previous statement about the 20% loss."

Since the client is not a trader, once a severe loss occurs, the client may not handle it properly. When you accept the entrustment to manage the client's funds, you are responsible for assisting them and not letting them fall into an emotionally unprepared situation. You can't take the client's funds and speculate in the market.

"For a fund manager, if you buy IBM stock and the stock price drops by 25%, no one will ask anyone to walk because everyone owns IBM-this is a prudent investment. But if you buy one For online speculative stocks, the stock price rises 80% and then falls, and then the company goes bankrupt. You may have to leave behind. Clients will get their money back, and you may find it difficult to raise funds."

"The problem is not just the rate of return. There are many different motives involved in the customer's investment decision-making. This will directly affect the level of the transaction. If the odds of a certain transaction are very high, why don't you invest more money? Well, because of a wrong judgment— -Even if the probability is only 5%-the result is far worse than the correct judgment; even if the judgment is correct, the probability is as high as 95%. Some traders think, 'Hey! If I help clients earn 25%, they must be pleased and think I am a Great trader; then I can earn many management fees. "But, do you know? If a 5% loss occurs, they will withdraw the funds, and I may be closed for good." Therefore, the trading decision is not about the chances of winning or losing, and the situation is much more complicated. Generally speaking, in addition to the probability of winning or losing a profit, traders must also consider many related issues.

Therefore, the complexity of operating client funds far exceeds that of own funds. It would help if you considered the possible outcome of the transaction and the possible reaction of the customer. Your decision is bound to be constrained by the customer's response and then affect the performance of the operation. The pressure is relatively small for the company's funds, and there is more room to play; Bill explains this next.

Company capital

"Managing individual customers’ funds and protecting capital are the key goals. As a company’s trader, the goal is to make money. In addition, the company is more able to accept losses. For a company, the key is whether the company wants to intervene in foreign exchange transactions. The performance of individual traders will not affect the conclusions in this regard. For example, if a company incurs a loss of 20 million U.S. dollars, the trader may be fired, but, likely, foreign exchange trading will not be launched because of this. , The foreign exchange market itself will rarely be the object of blame."

Since the operation of other people’s funds must be subject to various restrictions, this may cause a question: “Why don’t you take a mortgage loan from a bank, regardless of the performance of the operation, you must repay the loan?” Unfortunately, due to various practical difficulties, often Both must rule out this feasibility.

"First of all, if an investment bank or company is going to delegate the management of transactions or speculative products to an individual, they usually want that person to enter the company system. This is not to exclude the management of funds to others, but many sensitive issues are involved. No matter who supervises the work in this area or approves the loan, it is likely to break the job. For example, suppose you hand over the funds to someone else to manage, in the event of a loss of millions, everyone will ask:'In the end, Who approved it?' Then, you were fired. On the contrary, if the company transfers the funds to a department for management, this is the company's decision. If there is a loss, these decision-makers will not lose their jobs."

In short, you must consider the various sources of funds available, comprehensively evaluate the gains and losses they may cause, and then make the final decision. Is it worth it if the hens laying the golden eggs will reduce their production due to foreign funds? In other words, if the transaction performance cannot be improved, what is the point of obtaining additional funds?

Therefore, before accepting new funds, you must consider the following questions:

1. What are the expectations expressed by the funding provider?
2. What are his real expectations?
3. Does my past operational performance meet the expectations of the fund provider?
4. Can my performance meet the real expectations of the fund provider?
5. If the expectation of the fund provider cannot be met, what will be the consequences?
6. How much control does the fund provider require?
7. How often does the fund provider evaluate the operational performance?
8. What is the personality of the fund provider? Is it difficult to deal with and keep asking for trouble?
9. Is it possible to set certain specifications?

Advantages of individual traders

Of course, most traders do not work in large investment banks. Most traders use their free time and occasionally try a few trades. In contrast, individual traders are "David," and investment banks are "giants." The former lacks essential equipment, logistics personnel, research conditions, the latest information systems, analysis software, and hardware, and also lacks peer competition. Environment of. However, David also has some advantages that giants don't. To effectively defeat giants in the market, individual traders must give full play to their benefits.
Advantage 1: No need to force transactions

Uncomfortable, but the chance of profit is higher. This is the advantage of refusal to deal. As Bill explained, the benefits of personal transactions in this regard surpass those of professional traders in investment banks, who have to deal with the supervision of upper-level supervisors.

"If you work as a trader in a large institution, it may be difficult to say,' Today's market doesn't look right, let's read the newspaper,' because the boss may have said earlier:'You don't trade, what newspaper do you read?' If a trader can reduce the number of transactions by 50%, he can usually make more money."

"250 trading days a year, assuming you make one trade every day, do you know what the final result will be? As a result, there are only five key trades, and the view of three trades is completely wrong, making you lose your ass. The two judgments are completely correct, and you have turned them over. The remaining 245 trades are irrelevant-small gains and small losses. In many cases, it is not suitable for entering the market, but you reluctantly trade, and the result can only be expected. If you are not careful, you may also build a position with a poor chance of winning, which will result in heavy losses. There are only a few real winning or losing decisions."

"It is important to understand the benefits of market outlook'. As a result, there is no appropriate market and no high chance of winning, so don't enter the market reluctantly. The key to the entire trading game is to continue to grasp the advantage. The bet must be placed on the high chance of winning. If you always follow this principle, you can take the lead. Of course, the risk of destruction must be low enough so that you won’t be three or two out of the game because of three or two consecutive losses. So, suppose you work as a trader in a large institution. If someone is old, It’s staring at you and saying, “You don’t take care of the trading position? Should you read the newspaper?” The correct answer is “exactly.” However, the management might not listen.”