Where Is My Capital? PC-SPAN

Every worthwhile book ever written on trading discusses capital management at some length, and this one will be no exception. We’ve touched on this topic earlier, in the notion of refusing to use the maximum leverage available to us in any market, and that’s fine, as far as it goes. We need to go further, however, for there is another thoroughly indispensable tool for proper capital management when trading futures and futures options.

This tool is PC-SPAN, the computer program developed and sold by the Chicago Mercantile Exchange. This program, using cost-free downloadable files as inputs,will keep you abreast of your current margin requirement and inform you when capital considerations indicate that a modification of your position(s) might be a good idea, and it does much more.

It offers you the ability to view your capital and margin position in the future as prices and volatilities in the markets change, the well-known “what-if” analysis. This sort of forewarning is worth rubies to any trader.At this writing, PC-SPAN version 4 costs $500.00, and it’s worth every penny and then some to the serious trader. I don’t care if you can get your brokerage’s margin department on the phone on demand (and I’d wager you can’t, these days!), without PC-SPAN, you simply cannot obtain all the information you need to manage your capital in a careful and practical fashion.

Frankly, I’ve lost count of the times that PC-SPAN has either warned me of an impending margin problem, or indicated a sensible adjustment in an existing position, or pointed the way toward the most efficient use of capital
in a new position I’m considering. It has easily paid for itself 20 times over or more, and I can’t imagine trading as profitably without it.Even if you principally trade in stock markets, you should still acquire PC-SPAN.

Numerous overseas stock markets use the SPAN model to determine margin levels right now, and more are adopting this procedure all the time. U.S. stock markets are the primary holdout to date, and their resistance is entirely due to the inertia of legislators regarding the repeal of Federal Reserve Regulation T, which prescribes allowable margin levels for these markets. Given the development of modern risk analysis and its subsequent application to margin requirements, the technique usually called portfolio margining, Regulation T is a dinosaur and the next Ice Age is on its way.

The advent of single-stock futures, which are backed by every major exchange in the United States except the NYSE, will further crank up markets’ and traders’ demand for elimination of Regulation T. Being familiar with the SPAN procedure through the use of PC-SPAN will be entirely to your advantage when the dinosaur bites the dust and the stock markets in which you trade do finally adopt portfolio margining.

Markets Are Made Up of People:The Rolodex, computerized or otherwise, is nearly the ultimate tool for the trader who intends to become and remain steadily profitable. Aside from  your brokerage’s market analysts, make a deliberate effort to acquire the phone numbers and e-mail addresses of successful traders you meet. Keep track, too, of people who write about trading, as well as industry analysts,cash market dealers, floor traders, theoreticians, and generally anyone who can provide accurate information on markets.

I’m an absolutely shameless brain-picker, and being willing to brain-pick is the only way for a profitable trader to be. If a trader needs information on a particular topic, he must go to where—which is almost always to whom, in the practical sense—such information can be found.There’s good news to be had here, too. You might be thinking something like, “I can’t impose on such people. They’re way too busy to talk to me.”

Perhaps they are busy, but write this down: traders love to talk about trading.Professors love to talk about their theoretical work, although mere mortals like you and I have to be careful in these conversations lest we find ourselves getting onto esoteric topics far removed from trading and about which we haven’t a clue. Authors absolutely adore talking about their books and articles.

People are proud of what they do, and in the huge majority of cases are more than happy to respond to serious questions concerning their respective areas of expertise. We traders would have to be stark mad not to use this feature of human nature to improve our knowledge base and our trading.

There’s a caveat here, of course. We cannot reasonably expect other people to operate on schedules convenient to us, and we must therefore learn to time our inquiries properly. Calling a trader near the opening or closing of his favorite markets is pure lunacy and will guarantee his placing you on his list of idiots-to-be-avoided.