Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 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