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The stops won't always help you. You can easily trade right through the
stops, and if you are lucky, you can get filled at not too painful
levels if the markets move fast against you. We all know how currencies
trade. With synthetics, you may need multiple stops for the legs and
you could get filled on pieces, rather than the whole position.
Also, if you are trading such that your reaction is to try to tighten
the stops too much, you should probably get out.
Nick
> -----Original Message-----
> From: TOM142@xxxxxxx [SMTP:TOM142@xxxxxxx]
> Sent: Thursday, October 01, 1998 10:49 AM
> To: RealTraders Discussion Group
> Subject: Re: Long term capital
>
> Scot,
>
> You are basically right, the only problem is if you trade synthetic
> derivatives, instruments they made up themselves, there is no stop and
> quite
> probably no exit as there is no liquidity and just nobody to take the
> other
> side. I think, this was their main problem, they created such
> complicated
> investments which such incredible leverage that nobody else understood
> what
> they were doing. And if you have no controls who can truly supervise
> your
> operations, this is a sure way for disaster too. As for Niederhofer,
> that was
> another story and exactly the way you described it.
>
> Thomas
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