Thread by @Fxflow

1/ @agurevich23 proving once again that Russian immigrants are some of the smartest people around :). There is so much wisdom in this interview with @kevinmuir that it deserves a couple of threads. So let me start with point number one : cost of carry.

2/ When traders consider a play they often overlook the cost of carry embedded in the transaction.

3/ If your position is negative carry (meaning that you need to put up capital every day to maintain the trade) - that cost can often offset and sometimes totally negate whatever directional profits you are able to realize.

4/ That’s why Paulson’s massive bet against MBS in 2006-2008 was such a heroic bet, because he was negative carry all the way and many other investors who saw the same problem coming weren’t brave enough to do it in size.

5/ Indeed there is a thin blue line between hero and zero when doing negative carry trades and as the movie the Big Short shows Michael Burry who is lauded as a genius now was effectively on his way out of business after bleeding -17% returns on his CDS marks while the broader…

6/ …market was booming.

7/ The only reason he succeeded was because he was fortunate and brazen enough to refuse to redeem his investors, locking up their capital (or holding it hostage, depending on your point of view) until the trades finally moved his way and he was able to realize gargantuan…

8/ …profits.

@agurevich23 argues that all else being equal, you always want to be positive carry in your trades ( in layman’s terms - get paid while you wait ) because not only do you collect returns, but those returns will also cushion any adverse moves in the underlying.

9/ At very minimum be sure to avoid negative carry trades or if you are going to plunge into them understand that that clock is against you every second of the day, so make it quick.

Read his book here amazon.com/Trades-March-2…

10/ Listen to @kevinmuir interview here