Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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