Futures Investor Takes Eyes Off the Ball and Pays the Price

Prelude

Around 2013-2014, I had a short-term market speculative position on the Thailand Futures Exchange (TFEX) using a SET50 Futures contract. One day, the market slid around 10% because of political unrest, and I was on the losing side of the equation.    

Too busy to watch an investment 

It was a busy day at work, and I would generally not think too much about my position unless I received a call from my broker.  

I received a call. My broker told me that my position had to be forced closed. At the time, I was distracted and didn’t think carefully because of the existing demands of my day job. I told him to go ahead and close the position, but at the end of the day, the market had rebounded by around 7% to very near the previous day’s level.  

Price of distraction when playing with margins 

I didn’t think carefully that the slump was just a short-term effect and failed to ask my broker to wait for me to top up the money to the maintenance margin (the minimum amount of cash that must be maintained in a margin account) level.  

The size of loss was equivalent to that of my monthly salary at the time.  

 

Andrew’s takeaways – Avoid these errors to become a better investor 

Write down your plan before you start 

The first lesson from this story is that when we invest, we should set a plan. Most people go into an investment without a clear plan, particularly a plan about what to do when things go wrong. 

Make sure you have time to invest before you start 

It’s amazing the number of financial professionals I have met who don’t have enough time to take care of their own investments. I have seen many cases like the above story where the investor gets excited about the idea but doesn’t realize that they just don’t have time to follow it up. It is a reason why I often ask people to ask themselves, “do I have time to set aside for investing?” If the answer is “no”, then be very careful about investing in individual stocks or complex derivatives. 

 

Mistakes in this story 

   1. Failed to do their own research 

• Inadequately considered the market conventions concerning financial derivatives

   2. Failed to properly assess and manage risk 

• Failed to match investments with risk appetite 

   5. Failed to monitor their investment 

• Failed to review investment strategy regularly