A manager at an Investment Bank has a story to tell you.
Once upon a time in a village, a man announced to the villagers that he would buy monkeys for Rs 10. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at Rs 10 and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at Rs 20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms.
The offered rate increased to Rs 25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at Rs 50! However, since he had to go to the city on some business, his assistant would now buy on his behalf of him.
In the absence of the man, the assistant told the villagers, “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs 35 and when the man returns from the city, you can sell them to him for Rs 50.”
The villagers squeezed up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!
This is how sometimes market makers make the markets or even some companies doing business in real life! In one way or another, you have to be prepared for these kinds of scenarios as a trader or investor.
Let me know, how you are going to manage these situations, or so-called black swan events and protect your capital in a fair manner?
Send your answer to firstname.lastname@example.org, best 100 answers (in the form of your past performance or the technical know-how) will receive free funding from betonbrains suitable for your strategy, starting from $20,000 or more via our Tyro Account. As you manage our capital while respecting the risk management parameters, we will gradually allocate more capital to you, and there no upside limit as long as you can deploy the capital considering real market conditions.