Notes from trading seminars / along with some of my own advice:
Technical Indicators / Trend
EMA vs SMA - exponential moving average, weights things more heavy that is more closer dated
Mac d is a trend indicator, it is just the difference between two moving averages like a fast and slow moving average
Bullish when positive slope as fast outpaces slow moving average, you want to see a big difference between the two moving averages
In on a positive slope
Use the mac d moving average and when the moving average crosses the mac d, you know momentum is slowing and you should get out.
But you do want to wait a little, profits are smaller, losses are larger, but you have a better hitting average, always wait for confirmation, you want to hit for singles and doubles
Technical Indicators / Stochastics
Momentum Oscillator range bound not 0-100 like mac d
Stochastics show where a stock closed relative to where it has closed in the past
%k 14 = last 14 periods - %d(3) averages out the 3 day stochastics averages and smoothes out the stochastics (smoothing)
Takes the range of the past period and find where todays close was in relative to the last range - if a stock closes at an all time high, than the stochastics will be 100
Even though price moves up, stochastics can go down
Fast stochastics smoothed is the same as regular slow stochastics
Fast stochastics - more rigid slow stochastics
Slow stochastics (more popular) - because you can make slow stochastics fast but you can make fast stochastics slow - more versatile, by turning slow statistics smoothing element to one, you get fast stochastics if you want more signals
Make buy and sell decisions on crossover
Above 60 we are a healthy bullish zone, you want to be in the trade, 50’s in stochastics is the “danger zone”
Youtube Videos:
Are you destined to deal? Goldman sachs managing director Jim Donavan
Every deal is different - it's never boring, always unique
You are helping people make the most important decision of their life
Its intense and you're going to work hard and at your best
6 tangible skills to deal
Interpersonal skills - the ability to convey in the client that your are competent and they can trust you with the most imprjant deal in their lifetime
Quantitative skills - you need to be comfortable with numbers, not a math major, but you will be involved with numbers
Interest in business - you read the wall street journal, know economics
Need to be discreet - confidential information that is very valuable will be widely available in the workplace
Ok with confrontation - you need to be able to confront people on the other side of the table, negotiation, there will be conflict
Put the client first - need to be there for the client whenever, immediate reactions
4 intangible skills
You have to be a student of the game - learn as much as you can from seniors - find a mentor, skills of a good investment banker are learned not innate
Have a system - investment bankers don't just wing it, they have plans that they follow for every deal and prospective client
Take control be confident and competent - every client wants you to take control because they know that YOU are the best in the business and that's why they are there for your help
Empathy - put yourself in someone else's shoes, what is your client going through, what do they want?
Remember you know more about this than the client does, you have to be confident and be able to give well informed answers
Have something that you can always do every day to relax, it can be small, but find something that you will not give up to keep you relaxed (running, lifting, cooking) - find your release
Try to work on as many deals that you can early in your career to get more experience
Sometimes it is best to tell the client that the deal is not in their best interest, do not go into every dela thinking it will go through, it is the best for you in the long run if you make the best decision for both parties involved
Don't be afraid to say NO to the client, say - it is not in your best interest for you to make these means because ___ is going to happen (it's not going to be good if you give me such an unreasonable deadline)
When you work with the client, don't just be his friend, be his STRATEGIC ADVISOR - build the relationship with the client where you work on the deal and stakes at hand but build that relationship by helping the client with other parts of the business, they will remember you and thank you for your advice next time they are looking for investment banker - take advantage of the time you are close with the client
You ask a lot of questions and a lot of open ended questions - get them to talk more
Be upbeat - even if things aren't going well be upbeat, it's contagious
Resume Tips:
4 sections for resume - skills and interest, leadership, professional education
Name top and contact info top right
Gpa and include major gpa if its higher
Add test scores if high, including sat and gmat, adn awards (dean's list)
Need to make sure that it is aesthetically pleasing
Try to get a resume bullet to the full length of the page
Bold company names, italicize the job title
Keep constituency
Lay out transactions sub sections when you are at boutique banking internships -= show what u worked on First words should always be past tense
Use the first world action verb that are used in the job description
Each line should be what you did, then what impact it had format - the golden format, should be about 75% format
QUANTIFY QUALIFY QUANTIFY Try to quantify the impact that you mad, make a statement using numbers to show what you did, how people you managed
Make your skills and interest line a conversation starter, be unique, try to make as many interests you have better chance at relating to the interviewer
What is private equity?
Private quality firms buy stakes in companies that are not profitable and hopefully be able to sell them that later
It's kind of like at law firms because there are initial partners (general partners) captains of the ship.
p/e’s get funds from limited parteres, like large institutions can be public pensions, wealth funds, and private families.
GP's = General Partners: familiar with the finance industry looking to make their own business
LP's = Limited Partners: Usually high net worth individuals looking to diversify their investments
GP’s look for investments in their first "fund" to go out and find a company to invest in
That fund goes out to investment in private companies to make a portfolio - this can take 15 years for the whole process, to buy in, sell, and distribute profits (almost like a SPAC)
GP’s get to keep 20% of the profits from a fund and distribute it among themselves and their analysts, 80% goes back to the LP’s
Then they go back and asks to raise their next fund (now they may even add another GP)
What is Investment Banking
Investment banks main job is underwriting and financing companies
Many investment banks have been around centuries will very good reputations
There is a big difference between commercial and investment banks but some commercial banks are also universal banks that have investment banking divisions
Universal banks can sell more products to the same client, they can be an advisor and sell them products and funds, Glass Steagall act of 1933 disables this but was repealed in 1999 by Bill Clinton
GS, MS and lazard chose to remain pure investment banks
Investment banking also may undergo trading - however makes a conflict of interest, there is a “chinese wall” between areas of the firm so that the client and ib priorities are in line
Investment bankers are also advisors, they develop relationships, sydney and henry for the 2nd had a great relationship and therefore henry chose goldman and sydney to take their company public.
What does a hedge fund manager do?
Make money in rising and falling markets, while protecting investors capital
Hedged funds are hedges, they have a long and short portfolio
Management company will usually get 1-2 percent of the AUM and a performance fee is taken out of the profits, however usually they want to see at least half of that fee reinvested back into the fund every year, so they are essentially trading their own money
This is different than prop traders, as they are trading public money, not their own like in hedge funds
Usually composed of a offshore fund and a onshore management company - in the offshore entity is in a tax haven
Usually you start with $50-$100 million and you want a billion AUM after 2-4 years
AUM - assets under management
They have a "term sheet" that outlines returns and rules
Algos have decreased volatility
What are futures?
Forward price- we pay the forward price we agree to buy the price if you're long, if you're short you want to see the price at the date
Spot price - if you're long the contract you want the spot prince to be more than forward price
You can close out futures anytime, you just need to cancel them by buying a long if you were short
Many futures ar enough on margin using leverage
You can use a future curve to see what the market expects front he oprocust over the next expiry dates
Options Strategies -
Straddle buying volatility, break even is option price plus or minus current price. Short term volatility increases the value of spread regardless of movement in stock price.
Poor man's covered call, - long deep ITM call paired with out of the money call sell for same expiration date (stock replacement strategy with sold OTM call)
Notes From Class:
QE - Quantitative Easing
FOMC - Federal Open market committee
Fed buys bonds to increase moneys uppyk and sells bonds to decrease it, this affects rates because the more they buy, they higher the price goes up, but this lowers rates, which means when the fed buys bonds they increase money supply and decreases interest rates
Shadow inflation - same price but you get less of the product - Southwest airlines cancelling flights, quality and employees go down
Stagflation - when the economy is not growing but inflation conditions to grow
Monetary policy controls the money supply controlled by the fed and the fed banks
5 components of the FED SYSTEM
5 member banks
Federal reserve district banks (each of the 12 have nine distinct governors on the board, they are subordinate to the dc board of governors in DC)
Board of government in dc that oversees this process (confirmed by the us senate and have a 14 year term)
Federal open market committee (FOMC) - they meet to control the money supply, they make the rate that banks charge each other when they borrow - the fed increases fed funds has a effect on interest rates ***the FOMC does not lift interest rates, they lift federal funds or (discount rate)
Advisory committees
***The two districts that have the controversy are dallas and boston
Fiscal policy is making decisions on taxing and spending, the infrastructure bill
Monetary is limited to the moneys supply, M1,2,3 and interest rates
The fed cut the overnight fund rate to zero (the reserve requirement) this march 15
Expansionary monetary policy - decrease the fed funds rate
Contractionary monetary policy - increase the fed funds rate
Fed Funds Rate (ranges from 0 - .25%)
the rate at which the banks charge each other through the FOMC regulations
tradition overnight ratio requirements is zero for smaller banks
If you're short on your overnight reserved requirements, you can borrow from another bank at the federal funds rate - they can also get it from the fed directly called the fed discount rate
Borrow to meet the reserve requirement
March 15 is when the policy is announced that they get rid of the reserve requirement
Fed funds rate - right now it is virtually zero, when banks borrow they essentially don't have to pay for it
The fed controls two major interest rates -
discount window: ***
Fed Discount Rate available at the “discount window”
Fed discount rate - the rate at which the fed will charge banks for borrowing from them so they can meet the reserve requirement
However, rates lower than .25 virtually 0 - march 15th, the reserve requirement is now 0 as of 16th
Textbook Notes:
Textbook Chapter 4:
"Federal Reserve System (Fed) U.S. central bank that sets monetary policy and regulates banking system" (Textbook Chapter 4, Page 83)
"Federal National Mortgage Association (Fannie Mae) created to support the financial markets by purchasing home mortgages from banks so that the proceeds could be lent to other borrowers (Textbook Chapter 4, Page 83)
Government National Mortgage Association (Ginnie Mae) created to issue its own debt securities to obtain funds that are invested in mortgages made to low to moderate income home purchasers(Textbook Chapter 4, Page 83)
Federal Home Loan Mortgage Corporation (Freddie Mac) formed to support mortgage markets by purchasing and holding mortgage loans (Textbook Chapter 4, Page 83)
"Central bank federal government agency that facilitates the operation of the financial system and regulates the money supply (Textbook Chapter 4, Page 85)
"Fed board of governors seven-member board of the Federal Reserve that sets monetary policy" (Textbook Chapter 4, Page 89
"monetary policy formulated by the Fed to regulate money supply growth" ( Textbook Chapter 4, Page 92)
"dynamic actions Fed actions that stimulate or repress economic activity or the level of prices ( Textbook Chapter 4, Page 92)
defensive activities Fed activities that offset unexpected monetary developments and contribute to the smooth, everyday functioning of the economy ( Textbook Chapter 4, Page 92)
accommodative function Fed efforts to meet credit needs of individuals and institutions, clearing checks, and supporting depository institutions" ( Textbook Chapter 4, Page 92)
"fractional reserve system reserves must be held equal to a certain percentage of bank deposits
bank reserves vault cash and deposits held at Federal Reserve Banks (Textbook Chapter 4, Page 93)
required reserves the minimum amount of total reserves that a depository institution must hold
required reserves ratio percentage of deposits that must be held as reserves (Textbook Chapter 4, Page 93)
excess reserves the amount by which total reserves are greater than required reserves (Textbook Chapter 4, Page 93)
"Fed discount rate interest rate that a bank must pay to borrow from its regional Federal Reserve Bank (Textbook Chapter 4, Page 95)
primary credit rate interest rate used in practice to reflect the discount rate charged by Reserve Banks for loans to depository institutions (Textbook Chapter 4, Page 95)
"open-market operations buying and selling of securities by the Federal Reserve to alter the supply of money" (Textbook Chapter 4, Page 97)
"quantitative easing (QE) a nontraditional monetary policy approach to stimulate economic activity" (Textbook Chapter 4, Page 97)
"federal funds rate interest rate on overnight loans from banks with excess reserves to banks that have deficit reserves" (Textbook Chapter 4, Page 98)
"Consumer Credit Protection Act 1968 act requiring clear explanation of consumer credit costs and prohibiting overly high-priced credit transactions (Textbook Chapter 4, Page 100)
Regulation Z enacts Truth in Lending section of the Consumer Credit Protection Act with intent to make consumers able to compare costs of alternate forms of credit" (Textbook Chapter 4, Page 100)
"European Central Bank (ECB) conducts monetary policy for the European countries that adopted the euro as their common currency" (Textbook Chapter 4, Page 104)
KEY TERMS PAGE 105
Textbook Chapter 5:
"gross domestic product (GDP) measures the output of goods and services in an economy" (Textbook Chapter 5, Page 111)
"inflation an increase in the price of goods or services that is not offset by an increase in quality" (Textbook Chapter 5, Page 111)
"federal budget annual revenue and expenditure plans that reflect fiscal policy objectives concerning government influence on economic activity (Textbook Chapter 5, Page 114)
budget surplus occurs when tax revenues (receipts) are more than expenditures (outlays) (Textbook Chapter 5, Page 114)
budget deficit occurs when tax revenues (receipts) are less than expenditures (outlays) (Textbook Chapter 5, Page 114)
"monetizing the debt Fed buys government securities to help finance a budget deficit and to add to bank reserves and increase the money supply" (Textbook Chapter 5, Page 114)
"aggregate demand total demand for final goods and services in the economy at a point in time" (Textbook Chapter 5, Page 118)
"automatic stabilizers continuing federal programs that stabilize economic activity (Textbook Chapter 5, Page 118)
transfer payments government payments for which no current services are given in return" (Textbook Chapter 5, Page 118)
"tax policy setting the level and structure of taxes to affect the economy" (Textbook Chapter 5, Page 119)
"deficit financing borrowing of funds by selling Treasury securities to meet revenue shortfalls relative to expenditures (Textbook Chapter 5, Page 120)
crowding out occurs when there is a lack of funds for private borrowing due to the sale of Treasury securities to cover budget deficits (Textbook Chapter 5, Page 120)
"national debt total debt owed by the government (Textbook Chapter 5, Page 120)
Debt management involves funding budget deficits and refinancing maturing Treasury securities previously issued to fund the national debt. The Treasury has formulated three debt management goals:
Fund deficits and refinance maturing debt at the lowest cost to taxpayers over time.
Manage Treasury’s cash flows in an uncertain environment.
Manage the risk profile of outstanding debt. (Textbook Chapter 5, Page 120)
debt management involves funding budget deficits and refinancing maturing Treasury securities used to fund the national debt." (Textbook Chapter 5, Page 120)
"primary deposit deposit that adds new reserves to a bank (Textbook Chapter 5, Page 122)
derivative deposit deposit of funds that were borrowed from the reserves of primary deposits" (Textbook Chapter 5, Page 122)
"bank reserves a depository institution’s vault cash and funds held at its regional Federal Reserve Bank (Textbook Chapter 5, Page 128)
required reserves minimum amount of reserves that a depository institution must hold against its deposit liabilities (Textbook Chapter 5, Page 128)
required reserves ratio percentage of deposits that must be held as reserves by a depository institution (Textbook Chapter 5, Page 128)
excess reserves amount by which a depository institution’s bank reserves are greater than required reserves (Textbook Chapter 5, Page 128)
deficit reserves amount by which a depository institution’s bank reserves are less than required reserves" (Textbook Chapter 5, Page 128)
"Federal Reserve float temporary increase in bank reserves from checks credited to the reserve accounts of depositing banks but not yet debited to the reserve accounts of those banks from which the checks were drawn" (Textbook Chapter 5, Page 130)
"monetary base banking system reserves plus currency held by the public (Textbook Chapter 5, Page 131)
money multiplier number of times the monetary base can be expanded to produce a given money supply level (Textbook Chapter 5, Page 131)
"velocity of money average number of times each dollar is spent on purchases of goods and service" (Textbook Chapter 5, Page 133)
KEY TERMS PAGE 134
Textbook Chapter 6: International Trade and Finance
" A falling or weaker dollar puts upward pressure on interest rates throughout the U.S. economy."
The fed is winding down its bond purchases, this means that it's effectively taking money out of the economy, by selling more bonds the government reduces money supply - which is basically QE, open market operations
“One of those is quantitative easing, which is the purchase of U.S. Treasury bills and mortgage-backed securities, which increases the money supply in the economy and further keeps longer-term rates lower when the fed funds rate is already zero.”
When the Fed buys bonds, it lowers the supply of bonds, driving up the prices of the actual bonds, which then lowers the yields attached to them. Since July 2020, the Fed has been purchasing $80 billion of U.S. Treasury securities and $40 billion of agency mortgage-backed securities every single month. Look at the impact on longer-term treasury yields.
https://www.fool.com/investing/2021/08/21/how-the-federal-reserves-tapering-of-bond-purchase/
"international monetary system system of institutions and mechanisms to foster international trade, manage the flow of financial capital, and determine currency exchange rates"(Textbook Chapter 6, Page 138)
"gold standard standard by which currencies of major countries are convertible into gold at fixed exchange rates" (Textbook Chapter 6, Page 139)
"International Monetary Fund (IMF) created to promote world trade through monitoring and maintaining fixed exchange rates and by making loans to countries facing balance of trade and payments problems (Textbook Chapter 6, Page 139)
World Bank created to help economic growth in developing countries (also called the International Bank for Reconstruction and Development)" (Textbook Chapter 6, Page 139)
"Bretton Woods system system in which individual currencies would be tied to gold through the U.S. dollar via fixed, or pegged, exchange rates" (Textbook Chapter 6, Page 139)
"special drawing rights (SDRs) reserve assets created by the IMF and consisting of a basket of currencies that could be used to make international payments (Textbook Chapter 6, Page 139)
"flexible exchange rates system in which currency exchange rates are determined by supply and demand" (Textbook Chapter 6, Page 140)
"European Union (EU) organization established to promote trade and economic development among European countries (Textbook Chapter 6, Page 140)
"Brexit the plan for the withdrawal of the United Kingdom from the European Union" (Textbook Chapter 6, Page 141)
"European Monetary Union (EMU) subset of European Union countries called eurozone members that have adopted the euro ,(Textbook Chapter 6, Page 141)
European Monetary Union members that have adopted the euro as their common currency (Textbook Chapter 6, Page 141)
"euro official coins and paper currency of the eurozone member countries" (Textbook Chapter 6, Page 141)
"currency exchange markets (foreign exchange markets) electronic markets where banks and institutional traders buy and sell currencies on behalf of businesses, other clients, and themselves
foreign exchange markets same as currency exchange markets (Textbook Chapter 6, Page 143)
currency exchange rate value of one currency relative to another currency (Textbook Chapter 6, Page 143)
direct quotation method indicates the amount of a home country’s currency needed to purchase one unit of a foreign currency (Textbook Chapter 6, Page 143)
indirect quotation method indicates the number of units of a foreign currency needed to purchase one unit of the home country’s currency" (Textbook Chapter 6, Page 143)
"spot exchange rate rate being quoted for current delivery of the currency (Textbook Chapter 6, Page 144)
currency appreciation occurs when there is an increase in a currency’s value (Textbook Chapter 6, Page 144)
"equilibrium exchange rate currency exchange rate where the supply and demand for a currency are in balance (Textbook Chapter 6, Page 144)
"purchasing power parity (PPP) currency of a country with a relatively lower inflation rate will appreciate relative to the currency of a country with a relatively higher inflation rate" (Textbook Chapter 6, Page 147)
"international Fisher effect (IFE) currency of a country with a relatively lower nominal interest rate (due to a lower expected inflation rate) will have its currency appreciate relative to a country with a relatively higher interest rate (Textbook Chapter 6, Page 147)
"political risk risk associated with the possibility that a national government might confiscate or expropriate assets held by foreigners (Textbook Chapter 6, Page 148)
economic risk risk associated with possible slow or negative economic growth, as well as variability in economic growth" (Textbook Chapter 6, Page 148)
"arbitrage simultaneous, or nearly simultaneous, purchasing of commodities, securities, or currencies in one market and selling them in another where the price is higher” (Textbook Chapter 6, Page 148)
"multinational corporation a firm that engages in international business activities such as selling or purchasing goods and services involving foreign countries” (Textbook Chapter 6, Page 149)
"currency exchange rate risk the price risk associated with fluctuating exchange rates over time" (Textbook Chapter 6, Page 150)
"hedging action taken to reduce risk or insure against a possible negative outcome (Textbook Chapter 6, Page 150)
forward contract specifies the currencies to be exchanged, an exchange rate, and a future date when the transaction will be completed (Textbook Chapter 6, Page 150)
forward rate exchange rate specified in the forward contract (Textbook Chapter 6, Page 150)
"trade tariff tax on imports of goods and services" (Textbook Chapter 6, Page 158)
"balance of payments record of the transactions between one country and all other countries over a specific period (Textbook Chapter 6, Page 158)
balance of trade net value of a country’s exports of goods and services compared to its imports (Textbook Chapter 6, Page 158)
merchandise trade balance net difference between a country’s import and export of goods" (Textbook Chapter 6, Page 158)
"current account summary of the flow of funds between one country and all other countries involving the sale and purchase of goods and services plus funds from income-generating financial assets during a specified period (Textbook Chapter 6, Page 160)
Works Cited this Month
Youtube
https://www.youtube.com/watch?v=rYrFXzaXx8E&list=TLPQMDUxMDIwMjFdtaxx44GUuQ&index=1
Fidelity trading desk seminars
College textbook
Investopedia
St. louis fed (fred)