Saturday, May 5, 2018

A boring story...

This is going to be a boring story...about making money.
If you do not manage finances in your home, or you are all set for retirement, or simply don't read long boring stories, just move on to something else.

Those who want to read more, grab popcorn :)

It all started about 3-years ago. With money market rates, CD-rates and saving accounts paying practically nothing, I've started looking closely at alternatives.
I already had large diversification in stocks, some real estate, but what used to be monthly bank interest dried up up years ago.
I was looking at Forex for many years, even picked up a book once at the library, but ended up returning, and not even opening it. I guess it was not a right time then.
This time, around summer 2017, I've decided to pay a close attention and started reading...thanks to Google.

Going in that direction, I knew nothing about trading currency. I mean, I knew about buying low, selling high, but common, I knew nothing about it. Not even about US dollars. But, I quickly discovered something that picked my interest - yes, the interest.
It is actually not called that way, but essentially that is what is paid to you when you hang on to those currencies. The interest comes to you daily, whether you are working, sleeping, on vacation or whatever. Passive income. I liked to hear that.

I learned that by buying one currency that pays higher interest and at the same time selling another that hopefully paid nothing or very little, and you've got enough difference between the two for passive income - aka - "carry trade".  All I had to do was find that kind of pair and execute.

So, in early December 2017, I've opened a Forex trading account, sent about $2,100 into it and started searching. The opportunity presented itself very quickly. There were announcements all over that US interest rates were going up, and in 2018, there would be at least three interest hikes.
Well, I figured, with rates going up, US Dollars is something I know well. Now, I had to find the counterpart. Being cautious, by nature, I've decided to pick something solid...and something that barely moves.

Swiss Francs - these "guys" are going nowhere!
Or, at least, that's what I thought at the time.
I had my pair! - USD/CHF

This pair, I've read at the time, does not move much, and Swiss did not pay much interest - no wonder they are there forever!
So, in mid-December, I executed my first trade buying 10K US dollars and selling same equivalent of Swiss francs.
The best part of it - you don't really invest all $10K. I paid only $500 and became the temporary owner of $10,000 in US currency. 20:1 ratio was applied since both USD and CHF are commonly traded currencies and you are buying essentially virtual currency.

Here is the beauty and the music to my ears - "the interest" is paid on the whole $10K, not on my $500 initial investment. So, I wired more money...of course. $20K landed in my account within minutes.

Hey, but I was cautious guy, remember. So, I've started watching my account daily and not making any snap decisions.
I liked my $20K...and my spouse was not informed had just happened so fast.
So, I watched it for a week. It did not move much, but that retirement started dripping in daily...42-cents....50-cents...45-cents
After a week, I bought another 10K in USD...another $500 investment.

So, my interest started accumulating...$15 in interest for about 1/2 of the month of December.
Just to compare, in December 2017, you would have to have close to $400,000 in your saving account to make that kind of interest for 1/2 of month.
I did it with $1,000 and with my $20K+ sitting idle in the background...earning nothing.

Early January 2018, as soon as everyone stopped partying, USD actually moved slightly higher. So, I was up about $100 + all that daily interest I was already making.
Then, came an announcement for interest rate increase....and hey, according to all I knew from school economics, that daily interest should have been increasing even more.
But, US dollar took a dive.
I don't know, maybe Trump twitted something about tariffs, maybe someone up there had a bad day, but the dollar started dropping.
It was dropping daily and my daily interest could not keep up with the drop.
I started reading more. And, I've realized that they did not teach us any of this in college. But, they should have. It would have helped.
I've learned about what moves the currencies, what affects the currencies, what makes a difference, what does not.

I've learned something about these sneaky Swiss guys too. They are smart. Super smart. They live on easy street...
They want to sleep at night, so those Swiss bastards tied their currency directly to Euro (I think like 1:1.2 ratio) and were sitting and enjoying their smelly fondue.
So, while euro was jumping up, US dollar was falling, and Francs just following the Euro....
Wtf? I did not sign up for the USD/Euro... trade. That's the most traded pair in the World. I wanted only peace and daily interest.

So, now, I needed protection. Margin call is a scary thing. I was not near one, but, suddenly $20K backup belonged where it was.
Dollar did not fall much, by any major standard, just about whole 2-cents. Yes, I freaked out...a little.
Two of my ($10K+$10K) trades falling by 2-cents landed me $200 least on paper.

But, I was not new to trading in general. What our famous investor Buffett said - "be greedy when everyone is scared; Be scared when everyone is greedy".
He also says to invest in Index funds...but that's a different topic.

So, I invested another $30K....but the dollar continued its fall.
Another 2-cents...and I was down even more...still on paper.
I bought another $20K about 4.5-cents cheaper than my first investment.

At some point, my potential loss was as high as $3-$4K.
But, dollar can't fall matter what Trump tweets.
Dollar went down another 4-cents and stopped!
At least my daily interest was coming...on $70K it was about $4.50/average each and single day, even on the weekends.

Then, something happened again. Mountain collapsed in North Korea, maybe bombing in Siria, maybe snow stopped falling....who really knows...
But, the dollar started going up and up and up.
Nobody could explain why...all these analysts did not know...they were predicting it was a was bound to stop and reverse any minute
A week went by and the tone had changed. Dollar was on its greatest recovery.... They still did not know why, but now analysts claimed it go even higher.

This is a long story... I warned you.
If you are done with your popcorn...good, we are almost there.

The dollar recovered and ended up higher than my original investment. Today, I sold it all....
And, with it, I've lost a piece of my daily dripping interest.
Next week, I will begin searching for my next pair...I just hope it's not those Swiss guys again.

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