From the side of a student who is going to get in the job market or just got there, but is planning to grow in a career path, the article’s title sounds controversial. “What is positive about dozens of people/students wanting to get the same position I am applying for?!” This is a reasonable question.

I was inspired to write this article by the speeches of Dr. Marijn Dekkers during the International Conference 2011 at Tilburg University and the late Steve Jobs’ commencement speech presented at Stanford in 2005.

The article was published in ASSET magazine December Edition “Utopia”.

High competition in the Job Market? That’s great!

The topic, the competition in the job market, affects your personal finance. Therefore it is a quite live topic, especially nowadays. For example, Barack Obama mentioned the issue in his Job Plan speech in Congress, “Pass this bill, and hundreds of thousands of disadvantaged young people will have the hope and the dignity of a summer job next year”.

But forget about the words and look at the numbers. According to OECD data, by the end of 2011 the unemployment rate (the percentage of the labor force that is unemployed) will be approximately 8.3%, but the youth unemployment rate (age 15-24) will be more than twice as high, 19.1%! Therefore it is quite clear that the topic is hot, especially in the current situation.

Utopia

Utopia is defined as the unreal World which is considered well-wishing and attractive for many of us. However, is this always the case? Is it what an individual or a group of people really needs?

Today many students will agree that Utopia is the place wherein they get the job they studied and dreamed for right after graduation, or even before, during the studies. Consider that in Utopia there is a job market without competition: demand and supply are always in balance. Assume that a certain position in a local company is guaranteed after an individual successfully obtains his degree. Sounds attractive – no need to stress about the future, a job waits for you and so you can pay more attention to your hobbies and parties…You do not need to compete…

In case of the previously described Utopia, several questions appear. Is it good to have hardly any or no competition at all? Who will determine which job is appropriate? And, what is most important, will you enjoy the work prepared for you?

There are many factors which influence your satisfaction with the job you do. Based on my experience the least important is the name of the position, with the most being the team the individual works in. you would have no idea about your future, even if you know that there is a certain place for you. There are several factors you have to take into account to determine whether the job suits you and whether it will let you find passion in it, namely:

Company’s field of business – Consider your place is an alcohol production company; due to moral obligation some of you wouldn’t want to work for such a company.

Company ideology – Sometimes you are asked to be aggressive or, vice versa, extremely calm and straightforward in the way of doing business, even though your personal characteristics are different. This may create a very ungrateful atmosphere you do not want to be in. Or top management has the idea that instead of making a friendly family atmosphere in a company and its departments, it is better to create a highly competitive and tense environment, because they are looking for people with predating character.

Duties – Depending on the company the same position may include totally different duties and require various skills. Therefore in the world where you are assigned a job immediately when you start your studies, this may be the work you don’t want to do and it will not bring you satisfaction in the long run.

People are the most important factor because they are the ones creating the atmosphere at the company. This is the factor you usually cannot predict precisely. Therefore it is very difficult to offer you the position which actually suits you.

Routine will always come if you do the same thing for a long time and that is why it is very important to move, to change your position and life. Utopia is always something desirable but it is very difficult to create, even on a paper, because there are many factors you need to take into account.

Competition

What about competition itself? Is it good to have low or no competition? Although competition makes your life difficult, absence of competition allows you to stop developing. In the long term there is no flat trend. Either you are on the upward or on the downward path. Therefore, live in motion! Competition motivates you to work on yourself in all possible ways and to be ready to achieve your goals.

To be sacked, or to spend months looking for a job appropriate for your character and skills with a satisfactory, or at least decent, remuneration is never nice, because it negatively affects your cash balance, and it also puts emotional weight on your shoulders. However, “Getting fired is nature’s way of telling you that you had the wrong job in the first place.” – Hal Lancaster, in The Wall Street Journal. If there is someone better than you, this is not as bad as you may think. It means that there is room to grow.

What every person should be afraid of is not to make mistakes for a long time. If you do something challenging, something new, you will make mistakes or competition will push you to do them. If you do not make mistakes it means you stopped challenging yourself, stopped competing with yourself. Your laziness, as well as you, do not meet considerable competition.

There is no need to be afraid to fail and not to get the position you may think you dream about, because there is always something better.

Failures always push you to become stronger. The more difficult your path is and the more mistakes you make, the more you learn. Sometimes competition shows you that, although it looks like you are doing everything correct, it is still not enough. Therefore, you must be more committed with your doings. Being ambitious and passionate in something will always bring you higher dividends.

Don’t wish luck because luck is actually your success, which is the result of a hard work. Work on yourself and your future success will come.

Specially for: ASSET magazine December Edition “Utopia”

If you ask a question whether an organization can work more efficiently answer will be always yes and Commodity Futures Trading Commission (CFTC) is not an exception. There is a lot of work to do with the existing COT reports and market regulation. For example, financial futures reports are still only half done and cannot be used at the same level as legacy reports.

But today I got a chance to test the working speed of CFTC. As usual I started my market research on Monday (Monday is bad for entering in the markets and therefore perfect for analysis) with COT reports. But I have realized there was no data on 24th of January for Futures-and-Options-Combined reports in Historical Compressed .zip file which I use in my CotusTrader programme (yet in Russian only but intuitively easy to use).

Does CFTC work fast and in the efficient way? I say yes!

Appeared to be that due to some reasons this was not my program’s problem, there was no data included in the file. As long as, I am a trader time is money and I was not going to wait for a miracle and decided to test how well does CFTC work by sending an email to a regular common email. Email was sent at 15:08

Dear Sir/Madam,

I have noticed that although COT data was updated on 27th of January at cftc.gov website, it was not updated in Historical Compressed .zip file “dea_fut_xls_2012.zip” for Futures-and-Options-Combined.

Is there are a reason for that?  When will it be updated?

Thank you!

To tell you the truth I got so used to Dutch bureaucracy that was impressed with an answer in less than 12 minutes.

Dear Mr. Kabanovs,

The updated file is now posted.

Sincerely,
XXX
CFTC-Data Analytics-Chicago

And the file was really updated at the same time. For me it showed that CFTC are not very bureaucratic and work pretty efficiently. Even if they do mistakes, just state them and mistakes will be corrected. European Agencies showed take a lesson.

When you work with exchange traded derivatives (futures and options) you encounter margin level which allows to offset the default risk from counter parties.

Margin call, Maintenance Margin & Initial Futures Margin

Initial (Futures) Margin – the initial amount of funds which must be on your (your firm’s) trading (brokerage) account at the moment of opening a position in the market.

Maintenance Margin – the minimum amount of money on your account after you opened a position.

When the market price moves in unfavorable for you way, your cash balance in the account decrease. If the cash balance will derease till the certain level, called maintenance margin (level), you will be asked to add funds (margin call) in order to reach initial margin level or your position will be closed. Usually, in case of margin call for small account holders brokers just close the position.

Lets be clear regarding Margin Call – it is a moment when you are asked to add funds in order to reach the initial margin level or your position will be closed at the market price. You can decide to add funds or close the position. In US, most EU and other developed countries around the world as a margin you can offer not only currencies but also AAA (or local) governmental bonds. To be precise short term bonds or liquid enough to sell them fast and retrieve the needed amount of money.

You can see the margin and margin call system in the picture. Margin is recalculated every day.

Margin call, Maintenance Margin & Initial Futures Margin

For example, you bought (long) 2 contracts with initial margin of $10000 and maintenance margin of $7000. If the value of your deposited money (and alternatives) will go lower than 7000$, you will be asked to add funds fast or your position will be closed. For most people after you reach maintenance margin your position will be closed .

Very often the margin level is calculated using SPAN (Standard Portfolio Analysis of Risk).  As far as I know CME GROUP and Intercontinental Exchange use this method.

The specification of instruments and the margin levels you can find at ICE and COMEX group websites.

The simplest way to calculate return on investments is the calculation of Holding Period of Return (HRP) which is the comparison of expected (or actual) investment value after some time to the initial value of your investment. However Effective Rate of Return is a better way to valuate investments.

Effective Rate of Return vs Holding Period of Return (HRP)

Definition: Effective Rate of Return takes into account not only the change of investment value but also time, which is crucial (in my opinion) because time is money. And dollar (euro) today is more than a dollar (euro) tomorrow.

Suppose you are making your investment of 100$ once in January and next January receive your 106$ which means that HPR is 6%.

BUT if you invest your money during the whole year in parts, for example, $8.33 each month. Although the sum of investments during the year is 100$ it is not the same as investing 100$ at once. Therefore it is more precise to use an ERR for calculations because it takes into account cash flow in time.
If you use HRP in both cases you get a result of 6% per year. If you calculate ERR in first situation it is 6% and in the second one it is 6.17%.

How is Effective Rate of Return (ERR) calculated?

In order to obtain effective rate of return you need to divide 0.06 (or 6%) by 12 (number of compounding periods, months) which is 0.005 and add 1. (equals to 1.005). In the second step you need to raise 1.005 to the power of 12.
The result is: 1.005^12=1.0617. ERR is equal to 0.617 or 6.17%.

Hello, in order to prevent market price manipulation in futures and options markets Market regulators create market position limits. Knowing these limit may help you understand the market structure (if you look precisely into COT reports), as well as representing a company its a vital data for those who open large position in certain markets. If your position is 25+ or 1000+ contracts (depending on the market) you’ll have to report about your doings to the responsible institution. Such limits exist in many countries (for example, UK) but I will concentrate on US markets.

What are the CFTC and US exchanges position limits?

Commodity Futures Trading Commission (if you don’t know what the hell is this, read here about CFTC) with US exchanges created special limits for futures and options market participants. These limits show what position is counted as big and what is the maximum possible position in the futures or option market as a whole or one separate contract, for example cotton futures contract (CT) with expiration date in Dec 2011.

Why they are implemented?

They are implemented in order to look only after big companies and to limit their ability to negatively influence the market price. It means that on the one hand if you are a small entity you can relax and make your speculative or risk management positions, on the other hand if you can influence the market price you will be limited cause it will create unpleasant situation in the market.

Why do I need to know position limits?

Well, if you are connected directly or indirectly with market, credit or volatility risk management it is possible to meet these limits (of course only if part of risk management strategy will be a certain hedge position in US exchanges). Additionally, if you are a trader and you want not only click buttons but to understand the market you must know the market and such position limit knowledge + COT report analysis will give you a view of a certain market as a whole. What market participant exist, how many of them hold the biggest part of the market and etc.

Let’s look deeper into position limits: what types exist and what they exactly mean.

CFTC and US exchanges position limits

I will not copy here any table (you will find links to the tables in the end of the post) because they are too wide. But I will explain the meaning of limit (level) types:

All Month Accountability Level – the position level in all contracts of a certain market at which the exchange may order trader to stop increasing the position in order to prevent price manipulation.

Any One Month Accountability Level – the position level in contract with any expiration date of a certain market at which the exchange may order trader to stop increasing the position in order to prevent price manipulation.

Expiration Month Limit – the position level (in lots/contracts) which cannon be exceeded in the contract with the closest expiration date.*

Any/All Month Limit – the position level (in lots/contracts) which cannon be exceeded in all contracts of a certain market.*

Reporting Level – the position level (in lots/contracts) which reaching company must report about the level of position and its purposes to CFTC on a daily basis.

* possible exemptions for risk management and bonda fide positions.

Where can I find position limits?

Although CFTC is the “ruler” of the US futures and options industry. Position limits can’t be found on their website. They can be found on commodity exchanges website. Luckily for us, during last decade most of the exchanges where overtaken and basically two exchanges left: CME Group and InterContinental Exchange (ICE).

Here you can find position limits:

http://www.cmegroup.com/market-regulation/position-limits/

https://www.theice.com/publicdocs/futures_us_reports/all/Futures_US_Position_Limits.pdf

Here you can find answers on the most common questions about Exchange-Traded Notes (ETNs). Also this instrument has a similar name to ETFs, it won’t be wise to think they are equal. Both ETNs and ETFs track an assigned and stated in the prospectus index, both are traded like a stock and many of them are very liquid (depends on the instrument and what do you compare with). The similarities between these two instrument stop there.

Yes, they have similarities but not more than that. Find out what is an ETN.

Also read Exchange Traded Fund (ETF) FAQ.

Exchange Traded Note (ETN) FAQ

1. What are ETNs?
2. Where are ETNs traded?
3. How can I buy and sell ETNs?
4. What’s the typical cost of an ETN?
5. Do ETNs pay dividends?
6. What kind of risks do I have to take into account investing into ETNs?
7. Why should I invest into ETNs?

Click questions in the list above to get to the point you are interested in.

What are ETNs?

ETNs are debt instruments. This is what you have to understand, this is what makes it different from ETF the most. ETNs are linked to the performance of a single asset (often commodity, currency) or index (for example, emerging market index). Being a debt instrument ETN do not make you a shareholder (if you buy ir), it makes you a creditor. Basically, the company which created the ETN promise you to track an index and to change the price of a ETN you got according to the index changes. For more information about ETN itself I recommend you to read another topic called “More on Exchange Traded Notes. Know the creature you hunt.”.
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Where are ETNs traded?

ETNs are listed and traded mainly in U.S. (NYSE Arca and NASDAQ list most exchange-traded notes), however you can find a lot of them in European and Asian markets. They can be bought or sold via a regular brokerage account.

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How can I buy and sell ETNs?

ETNs are listed and traded similar to other publicly traded securities. Therefore you can buy them throughout your brokerage account paying a regular fee as for a stock (of course it is usually so but not always, it is better to ask your broker about commissions). If you want to get money back you can sell it in the secondary market during trading hours, wait for the maturity date or redeem a large block of securities, typically 50,000 securities directly to the issuer.

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What’s the typical cost of an ETN?

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Do ETNs pay dividends?

Usually ETNs do not pay any interest or dividends because you, as was previously told, are not a holder of a security you are a creditor or an ETN issuer.

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What kind of risks do I have to take into account investing into ETNs?

ETNs comparing to the ETFs carry two risk categories – markets risk (as an ETF) and credit (issuer) risk which is connected with the credit worthiness of the financial institution backing the note. If the issuer’s financial condition is under the big question mark, it could negatively impact the value of the ETN, regardless of how its underlying index performs. If an ETN provider (issuer) will go bankrupt, the investor will not receive his or her investments.

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Why should I invest into ETNs?

Sometimes people say: “Good question, next question!” But I will answer. Access to some markets is very complicated or costs a lot. For example, investments into commodity futures leave a chance you will get several barrels of oil and what will you do with them? Or you want to invest into several small Asian or European countries and there is no access directly to the markets from you broker… Yeah, that’s why its better to use ETFs or ETNs. However, why ETN and not ETF? Well, ETN issuer follow the index, however it must not hold all the assets tracking index contain, therefore it allows to make ETN cheap (in the meaning of costs) and to have a small tracking error. More about ETF and ETN I recommend you to read in the article “Exchange Traded Funds (ETFs) vs Exchange Traded Notes (ETNs)”.
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Always understand what you are investing in.

Regards,

Nikita

Hello my friends. Exchange Traded Funds are quite an interesting product which became very popular during last decade. The question many beginners ask is whether ETF can be traded like a single stock or not. Although both are traded o a securities exchange they are not the same.

ETFs vs Stocks

The article will be separated into two parts:

1. What is similar between ETFs and a single stock?
2. What is different between ETFs and a single stock?

Before I start it is important to say that I will compare ETFs which are compounded from stocks not commodity futures or real estate securities.

What is similar between ETFs and a single stock?

As previously said both securities are traded on the same exchanges (for example, NYSE or NASDAQ). Both financial instruments can be bough and sold short during trading hours. In both cases you get dividends if they are paid by companies. And finally both ETFs and single stocks are exposed to market risk.
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What is different between ETFs and a single stock?

However, ETFs are structured in a bit different way. Firstly, it is a fund and management fees exist. Secondly, ETFs consist of various stocks (or other instruments), therefore buying one ETF you make in investment into several (maybe hundreds) company shares. You can follow an index, at the same time having comparably small amount of money in the account and with low commission fees.

Finally you must decide what are you looking for – a diversified, low risk investment into various company shares or you are looking for 1-2 exact stocks.
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Know what you invest in.

Regards,

Nikita

Taxation…one of the most ill-favored and complicated topics. However you have to know what you will get after taxes cause it means a lot. One side is the ETF, ETN, mutual fund or any other simple or not instrument performance on paper and another side is what you really get. Let me answer some question and reveal the fog of ETN taxation in U.S.

ETN taxation in United States

1. How are ETNs treated for U.S. federal income tax purposes?
2. Why ETN is an attractive investment option?

How are ETNs treated for U.S. federal income tax purposes?

Usually (at least iPath ETNs) agree with investors to treat ETNs as prepaid executory contracts.

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Why ETN is an attractive investment option?

ETN do not make any profit distribution (as it happens when you are a stock or ETF holder) therefore the gain/loss is calculated once upon the sale, redemption or maturity of ETNs and is equal to the difference between the amount investors receive at such time and the amount they paid when bought ETNs. Of course IRS and US Treasury may change tax treatment in future. (Some ETNs are treated in a different way, for example currency ETNs).
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Got some more specific question? Think that the tax treatment changed? Leave a comment.

The first ETN was introduced in 2006 by Barclays bank (Ipath) and became a good alternative to ETFs. ETNs are debt instruments. This is what you have to understand and always remember, this is what makes it different from ETF the most. ETNs are linked to the performance of a single asset (often commodity or currency) or index (for example, emerging market index). If you buy an ETN you do not won anything, you are a creditor of an ETN issuer

More about Exchange Traded Notes. Know the creature you hunt.

Basically, the company which creates ETNs promise you to track a certain index and to change the price of a ETN you bought according to the index movements. ETN is a debt instruments therefore it has a maturity.  Maturity periods may be as long as 30 years. You are not required to hold ETN till maturity, you can sell it anytime you want (during trading hours).

Before you buy an ETN

Before you buy an ETN you have to check the credit worthiness of the ETN issuer. First of all, check the credit rating. NB! Credit rating is a birds eye view. And of course check everything you would check thinking of investing into any instruments – costs, taxation, tracking errors, performance, market risks an etc.

When you should not invest into ETN

Of course if ETN do not fulfill your requirements on the above mentioned factors you should not buy it. But also think about your goals. If you want to invest into gold and silver in order to make part of your capital safe, ETN is definitely not the best instrument for that. During crisis you may lose your investments into ETN not save. Thanks to last crisis, which is still here, an example is the Lehman Brothers ETNs which stopped trading in September 2008. Bear Stearn’s ETNs were close to it but JP Morgan saved them when purchased the company. As far I remember, Lehman Brothers ETN holders received (or only will receive) something like 2% of their investments.

Answers on many question about ETNs can be found in “Exchange Traded Note (ETN) FAQ“.

Exchange Traded Notes were first implemented only in 2006. Therefore this product is not well known, however it provides some advantages for investors, at the same time it has some specifics which you should know before investing into them. Are ETNs an alternative to Exchange Traded Funds?

Exchange Traded Funds (ETFs) vs Exchange Traded Notes (ETNs). Are they alternatives?

ETFs and ETNs has some similarities, but they also are totally different products cause they are structured in a very different way.

ETN and ETF similarities

Both ETNs and ETFs track a certain index, they can be traded throughout the trading hours and are traded like a single stock. That’s it.

ETN and EFT differences

When you buy an ETF you become a shareholder of the underlying assets. When you buy an ETN you become a creditor because the ETN issuer only promise to track the underlying product. In a simple way we can assume that ETF is like a stock but ETN is like a bond. Therefore when you invest into an ETF you are exposed to market risks. In case of ETN you are exposed to market risks and credit risk (ETN depends on the credit worthiness of the issuer).

Because ETN track the underlying INDEX tic by tic is almost has no tracking errors (of course there is a tracking error due to some management fees).

Taxation

In United States ETFs are subject to make yearly capital gain and income distribution which means you have to pay taxes yearly. In case of ETN they do not pay any interest and therefore investor pay taxes once – when ETN is sold or matures. More on taxes read ETN taxation in United States and ETFs and taxes.

Here is a short summary:

1. ETNs are more like bonds. ETFs are more like stocks.
2. ETNs are more risky because they are exposed both to market and credit risks. ETFs only to market risks.
3. ETNs track indexes exactly. ETFs only try to track indexes and outperform them.
4. ETNs are taxes once. ETFs on a yearly basis.
5. ETN are registered under Securities Act of 1933. ETFs are registered under Investment Company Act of 1940.
6. Both ETN and ETF can be sold and bought during trading hours.
7. Both can use leverage.

And here you got it, the ETF and ETN differences and similarities.