Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The "$5 Rule" Stock Investing Rule Gives You a Powerful Edge over Goldman Sachs Traders

InvestorEducation / Learning to Invest Dec 23, 2013 - 12:47 PM GMT

By: Money_Morning

InvestorEducation

Robert Hsu writes: We hear it all the time, this notion that professional traders at top-tier Wall Street firms like Goldman Sachs, JPMorgan Chase, and HSBC have tremendous advantages over smaller, individual investors.

The system is rigged...

Too-big-to-failbankers are getting richer at the expense of the little guy...


And a lot of it's true. We reveal these "insider advantages" all the time here at Money Morning.

But as a former hedge fund trader at Goldman Sachs, I know firsthand that some of these notions are fantasy.

In some cases, operating outside the system gives you the edge, especially when it comes to "The $5 Rule."

It handcuffed me at Goldman, essentially forbidding me to make an irresistible trade. But it didn't ban my non-Goldman friend from the opportunity. So he made the trade.

And it worked.

He turned $50,000 into more than $1 million, in less than two years.

Clearly, this is an edge the big-gun institutional traders wish they had...

The Freedom to Make Money... Any Way You Want
At most major Wall Street firms, there are trading and operational policies in place that restrict and limit employees from engaging in the kind of trading that an individual not employed at the firm is free to pursue.

These personal-account trading rules can be highly restrictive.

While I was at Goldman Sachs, there were rules preventing short-term trading in employee accounts. In many cases, employees were forced to hold positions for anywhere from three to six months, depending on the type of security traded.

Normally, this wasn't a big problem. But it became a huge problem back in 2000, right as the tech-stock bubble was bursting. Many of my fellow employees owned big personal positions in some of the most speculative tech stocks out there. Yet due to the trading restrictions imposed by the firm, they were prohibited from selling positions right as they were falling off the proverbial cliff.

Of course, individual investors don't have this problem. If you want to sell, you just press a few buttons, or call your broker, and you're out. Case closed.

You also have an advantage on the buying side...

The "$5 Rule" Gives You a $1 Million Edge
Another restriction imposed at Goldman Sachs was a rule prohibiting employees from buying stocks that traded under $5.

Now, I'm not usually an advocate of stocks that trade under $5. But, as with just about everything in life, there is a proper time and place for their use.

During runaway bull market moves, such as what took place in 1999 and again in 2009, these low-priced stocks tend to outperform due in large part to the fact that they have the highest beta, and the biggest potential for price swings to the upside. For instance, it is a lot easier for a $1 stock to triple in value to a $3, than a $100 stock to triple to a $300 stock.

In 1998, right before the big 1999 tech bull run, a friend of mine identified a dot-com stock trading under $1 - a company he believed had fantastic upside potential.

After checking the company out, I agreed with him. But there was nothing I could do about it. I was barred from owning this stock due to the sub-$5 per share rule.

My friend, however, worked at a currency trading firm that imposed no stock trading restrictions on its employees.

His "freedom" paid off.

The stock eventually soared, shooting above $20 by 2000, allowing my friend to turn his $50,000 investment into over $1 million. Wisely, he sold his position, took his trading profits out of the market, and redeployed that capital into real estate - right before the boom in that market got underway.

Years later, after I had left Goldman Sachs and had ventured out on my own, I was finally able to make some big money in low-priced stocks.

There's no doubt it was a great experience to have spent years as a trader at a money-machine like Goldman Sachs. But savvy individual investors operating without restrictions can actually do better than the pros.

Remain both bold and nimble... and you can do a lot better.

Source : http://moneymorning.com/2013/12/23/5-rule-gives-powerful-edge-goldman-traders/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules