Trading Places Question... (1 Viewer)

[Dean Kousoulas]

FUNNIEST DAMN MOVIE EVER. Just about every scene has a big laugh in it.

"MONKEY??? I'M A FUCKING GORILLA YOU CLOWN!"

September 24th can't come any sooner. Any word on special features? Is it in widescreen, and Dolby Digital?


Dean

 

[Matt Stone]

"Yeah, we got to kill the motherfuckers we got to kill em!

"MERRY NEW YEAR!"

 

[Tim Glover]

"Once you have a man with no legs, you never go back, baby!"

 

[David Rogers]

David,

I appreciated your detailed explaination very much. I knew basically what they were doing, but enjoyed reading your account quite a bit.

And that flick is classic, just classic. Can't wait to own a disc!

 

[David Rogers]

David,

I appreciated your detailed explaination very much. I knew basically what they were doing, but enjoyed reading your account quite a bit.

And that flick is classic, just classic. Can't wait to own a disc!

 

[Vince Maskeeper]

Like David said- the whole thing is based on selling short- which is the part that few people understand (How can they sell something they don't own?) Even Alex's explaination above assumes they had bought the shares ahead of time.

They basically spent the first half of the scene selling "vouchers" for stuff they planned to buy back at the end of the scene. They "sold" when the price was mega high (essentially meaning they had a negative number of shares) and then when it dropped they bought those vouchers back. At the end of the day they essentially ended up buying back their promises at a profit.

-Vince

 

[Todd_B]

Thread printed..folded..and ready to go into the case on the 24th.
Thanks guys!
Todd B

 

[Tim Glover]

Clarence Beeks: "Back Off! I'll rip out your eyes and piss on your brain!"

 

[Tim Glover]

Ok. I know this is becoming a funny quote thread but this movie is just too funny. This can help us pass the time until 9-24!

Police Officer: "Strip you little shit, before I tear you a new asshole!"

 

[Bill Buklis]

The main rule in trading is that you buy low and sell high. But it doesn't matter in what order you do it in. This is especially true in the commodities (also known as the futures) market.
Selling short (selling without buying first) basically works like this:
In Stocks, you "borrow" shares from a broker which you later give back when you repurchase the stock.
In futures, you can sell or buy futures with the expectation that you will be able to cover at a later date. You can complete the transaction by closing out your position (buy back or sell off) or by providing the physical asset (if you sold) or receiving the physical asset (if you bought).
Generally in trading you close out your position instead of dealing with the physical assets (unless your are a farmer or a grocery chain).
Perhaps the main difference between stocks and futures trading is the concept of daily settlements. Unlike with stocks you do not have to put up any money to buy or sell futures products (at the time of transaction). Instead all transactions are "settled" at the end of the trading day. What this means is that at the end of the day if you lost money, you must provide the amount you lost (not the amount for the whole transaction, just the difference). Conversely if you gained money for the day, that money is deposited into your account.
Quick example:
You buy some FCOJ that at the current price is worth $100,000. You do not need to provide $100,000 for this transaction. But, you do need a certain amount of margin money (used for potential lossses). At the end of the day the value of your FCOJ goes up to $125,000. $25,000 is automatically deposited into your account. If the value had gone down to $80,000, then from your account $20,000 would be automatically subtracted.
There is no concept of settlement like this with stocks. In stocks, you don't actually gain or lose money until your transaction is completed. (You have both bought and sold your stocks). But because of this you must provide the whole purchase amount up front.
Now for trading places, remember that Winthorpe, Ophelia, Valentine, and the butler pooled together as much money as they could beforehand (this was to cover their account margin). Margin money (in futures) is money in your account to cover the settlement for any potential losses for that day. If it looks like you might lose more money than you have in your account, they will ask you for more immediately.
Winthorpe and Valentine were sneaky in that they let the Dukes drive the price up while they were selling and then bought back (covered) their positions when the price dropped. The Dukes were forced to start selling (or at least tried to) when the price dropped because they couldn't cover the margin (their losses).
Hopefully between David, others, and I that explains more than you ever wanted to know about trading.

 

[Bill Buklis]

all I know is, the Stock Market looks like nothing but legalized gambling

This is kind of true. Especially when you consider that a trading exchange is like a casino overseeing a poker game. The contestants play with their own money while the exchange takes a fee for every transaction. Some contestants go home ahead and some don't.

 

[Alex Spindler]

Bill, thanks. That actually set me straight as well.

 

[Seth Paxton]

Hopefully between David, others, and I that explains more than you ever wanted to know about trading.

No it doesn't. No one answered my question.
I undertand commodities enough, but I just don't see how transactions are kept track of by paper and shouting as is always depicted in film/news.
It just looks like a madhouse of shouting. How are these paper vouchers verified and filled out? Are these things handwritten on the spot? Do you have to get vouchers with your account printed on them before hand? What if you drop some vouchers?
And how does the Exchange know if you are in risk of losing more than your margin call cash if the exhanges are going on in such a crazy manner?
Heck, how is the current price updated? Are people auctioning against each other in the pit? Like "I'll buy for $10", "well, I'll buy for $12" - "okay, sold at $12 to this guy".
That's what confuses me, how the actual transactions occur.

 

[Seth Paxton]

This is kind of true.

Really true when you think about it. Think of paramutual betting at a horse track. Now you can look at what a horse has done previously, you can look at it's stats (weight, trainer, parents, etc). You can look at the current conditions. Analyze to the point of being "safe".
Just like stocks. People like to pretend it's different, but here is why it's not.
In both cases the "price" (odds at the horse race) is set BY THE OTHER BETTERS. If everyone agrees with you then you get bad odds on your pick. If everyone else thinks your stock is going to go up then the price does go up even as you try to buy it.
In fact, the horse race is actually "safer" because if the horse wins, it wins. But even if company A reports earnings, a merger, layoffs, etc. it's price performance still depends completely on the demands of the other "betters". You are actually betting on what other people will think of the stock in the future.
Obviously a company's performance has an effect that appears direct, but situations like the tech bubble of a few years ago can still defy standard stats like the P/E ratio. Sitting around saying "the price shouldn't have gone up" is just like saying "that horse had been running the fastest times all week, it shouldn't have lost".
Now I agree that a smart better can improve their odds, but the best position to be in is to be the bookie or broker where you get a percent whether the person wins or loses.
And of course it's a lot harder to diversify to the point of having guaranteed decent returns in horse racing. One thing stocks have going for them is that they are generally tied to inflation and market growth, so there is a constant long term trend of growth.
You can wait all you want with your 5th place ticket but it won't ever pay off more than zero in the future.

 

[Eric Fisher]

A question I had regarding the ending. After the Dukes were forced to sell at incredible loss, the exchange guy says they are going to take their personal assets as well. Is this correct? I thought the trading would be done through a corporation of something which actually shields some of their personal value. Can anyone of your trading knowledgeable people address this? thanks

 

[Allen Hirsch]

Commodities futures are a lot more like the horse-race betting analogy than the stock market is, Seth.
There's a point of expiration on your futures contract, the same as the betting slip for the 5th race at Pimlico - profits and loses get settled by then, no matter what (or you would take delivery of the underlying commodity at that point, if you hadn't settled the contract before). With a stock, you can hold for a long time (unless the company is de-listed) and you have more control over when/how to take your gains or losses.
Regarding keeping track of trading - that's why it's an exchange, not just a private transaction between a buyer and seller. Somebody from the exchange itself is tallying all those trades, cross-checked with/by the buyer and seller of each contract. Those slips of paper are tallied and taken by "runners" to their firms' stations on the floor, and entered into their trading databases. The exchange also enters all the trades, which is how you see a "ticker" that shows what's happening to the price of any particular futures contract at any particular point in time (similar to the stock ticker we're more familiar with, perhaps).
There are hand signals that go along with the slips of paper for the traders to follow each trade in the trading pit - it looks like disorganized chaos, but it's actually organized chaos.

 

[Gregory E]

Coleman dressed as a priest: "I've always said religion is a fine thing...taken in moderation."

 

[Bill Buklis]

Heck, how is the current price updated? Are people auctioning against each other in the pit? Like "I'll buy for $10", "well, I'll buy for $12" - "okay, sold at $12 to this guy".

In a way this exactly how it works. Pit traders announce their best bids (offer to buy, known as the "bid price") and/or best offers (offer to sell, known as the "ask price"). Someone else willing to trade accepts their bid or offer and the trade is transacted. A pit recorder nearby records the transaction and the trade price is put up on the board. Some exchanges also transmit bid and ask prices as well.

Each trader on the exchange floor has to wear a badge with a 3 letter code. This code identifies the trader and the company he/she works for.

As for paying your debts, it goes like this. If the trader or trading company he works for can't pay, then the responsibility falls on his broker (sometimes these are one and the same). If the broker can't cover the debt, then their clearing firm has responsibility. If they can't do it, then the exchange itself is forced to cover.

So you see at each level, they do their damndest to make sure the money is there. They will freeze your assets if they have to. But, it takes time. Generally what happens is one of the companies handling your account will handle the loss in the meantime while they strip you down piece by piece afterward.

It has happened where a trader has skipped town after assuming some unreasonable losses. The manhunt begins soon after.

One rather extreme case not too long ago was a trader (named Leeson) working for Barings Bank of England (one of England's oldest banks), that accumulated losses while trading in Singapore to the tune of a billion dollars. One day after the biggest hits were discovered, Leeson skipped the country. Barings Bank had to cover the losses which it couldn't really. As a result the Bank was sold to ING Bank (in Amsterdam) for only one pound (£1) (but also assumed the debt). Leeson was eventually found in Germany and is still in prison I believe.

 

[Bill Buklis]

It is indeed a madhouse on the trading floor. Yet, somehow it is an orderly mayhem.

Although I don't trade, I have been on the exchange floor of both the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) both during trading hours and at the end of the trading day.

It's a frenzy of activity, but it goes in spurts. There are calm periods as well. Usually when the exchange opens and just before the close are the busiest times.

You should see the floor after the close. It is a complete mess of paper. Paper is littered everywhere. The cleaning crews spend hours afterward picking it all up.

Note: One thing about the recording trades. You might wonder about mistakes. Yes, sometimes it happens. Sometimes the recorder enters either the wrong price or the wrong size. These are called out-trades and a correction is sent out later.

 

[Dennis Nicholls]

"You guys are a couple of bookies."

Pretty sharp guy to figure that out so quickly.