From the futures trading pit to CFDs: A lifetime of trading with IG Asia’s CEO, Tony Lim
Any experienced investor who has been investing for the last 20 or 30 years could probably talk about the different changes they had seen in the industry during this period. But, few investors would have lived through it like Tony Lim, IG Asia’s CEO.
Lim started his career from the back offices of a local brokerage firm counting scrips, and worked his way through the futures trading pit of SIMEX to becoming the CEO of the Singapore branch of the world’s largest CFD provider today.
ZUU Online sat down with Lim in IG Singapore’s office to get a glimpse of what investing means to someone who has basically, invested in it all.
Interestingly, Lim’s key emphasis is on the ability to sleep peacefully at night, regardless of how his investment looks like. “Trading or investing should never have impact on your professional or on your private life,” Lim said stoically.
Witnessing the evolution of investment
Lim’s professional life certainly had no lack of variety. His first job out of the army was in the back office of a securities firm doing settlements, and counting physical scrips. His tools of trade were a humble thimble and a stapler.
The restless young Lim decided that he had enough of counting scrips after 6 months, and took a $10 pay raise to work in the open outcry futures pits at SIMEX, the Singapore International Monetary Exchange. Even today, Lim still fondly remembers the chaos and the essential hand signals needed to work in the pit.
When the futures market moved into the electronic trading space, so did Lim’s career. Lim was handpicked to spearhead SIMEX’s electronic trading initiative for futures trading, making use of the electronic stock trading platform from the Stock Exchange of Singapore (SES). The eventual merger of SIMEX and SES in 1999 into the current Singapore Exchange opened another door for Lim, to train both futures and stock traders to use the exchange’s trading platforms.
His next stint took him into the derivatives space with a local broking house, where he got his MAS dealing licence. Subsequently, he moved to the local arm of one of the largest forex brokers globally, and finally landed with IG Singapore.
What was even more colourful than his work experience, was his trading and investing experience, that closely mirrored his professional career.
“When I started, I started with stocks, just like any Singaporean. Then I ventured into futures and options which were listed products on margin. They felt safer because price discovery is set up in a marketplace and there is a clearing house where novation takes place, so you’re guaranteed your profits as well as your losses.
“But the OTC market, that’s where the excitement really kicks in, where it goes 24/6 from Sunday to Saturday. The OTC market never sleeps, so anytime there is news and opportunity, you can trade,” he said excitedly.
“Then that evolves again and you learn about shorting with CFD trading,” he said. “Stock investment is only about profiting from ups not downs, now I can profit from ups and downs.”
Like most investors however, his trades were not always profitable.
The same storyline
When Lim was 30, he lost $8,000 in a single trade. The memory was burned into his consciousness as he was between jobs at the time and could not afford to lose any money.
“A lot of people venture into trading not out of passion, but out of the lack of choice thinking that they can go into trading to earn their next paycheck,” he said thoughtfully. “But trading is not that easy, and when you are under stress, when you are under financial trouble, and you disregard the risk, that’s when things go haywire.”
For Lim, the storyline for many investors he has encountered had been exactly the same. Their trades appeared to be going well at the start, and then it took just one trade to wipe out all of their gains and more.
It was that one experience, reinforced by the bad experiences of those around him, that made Lim determined to keep his eye on one thing – Risk.
Risk & Return – Not the other way around
“Everyone starts with a Risk and Return profile, no one starts with a Return and Risk profile. Why is that? Because risk must always be your first priority,” said Lim.
“If you don’t take care of your risk, your return will never be enough to cover your risk. If your focus is only on your return and not on your risk, then you’re really going the wrong way. So your management of risk will actually determine the longevity of your returns.”
Risk management boils down to having a proper exit strategy, according to Lim. He noted that a lot of retail investors have no idea how much they want to profit from a trade, or when they plan to exit from a trade.
“They might tell you they want to profit as much as possible, and allow the trade to continue for as long as possible. But how long will that be? And how much is enough?”
Lim continued to explain. “Those are questions that we do not ask, and those pose a risk. Because if you don’t have an exit strategy to take profit, or to cut your losses, then you’re basically going in without a game plan.”
Risk management, Lim believes, is even more essential for those trading in the leveraged and margin space, where clients have been known to lose hundreds of thousands of dollars in a matter of days.
“Over the 24 years. We’ve seen people go boom and bust. The financial crises hit the largest wave of people, when all asset classes were pummelled. If you were invested in something at that time, you would be suffering. But the thing is, to what extent is your pain?”
“If you had risk management in place, you could sleep peacefully at night. And you live another day to trade again,” he said.
In fact, because he had his risk management strategy in place, Lim’s biggest investment opportunities arose from the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008 when Lim invested in property that was going at rock bottom prices.
“I suffered in terms of my stocks portfolio, in terms of property prices going down, but on the other hand, I had a buffer which allowed me to go into other asset classes and to diversify, and to pick up things that were cheap as well,” he said.
“You cannot avoid risk if you want return. but the key to having steady returns and a longevity in your returns, is to always manage your risk. To have a downside cap to how much you can lose.”
IG’s emphasis on risk management
While most brokerages offer stop loss orders, traders sometimes face slippage, where their stop loss order is filled at a worst price than they had intended, resulting in a much bigger loss. IG guarantees the price that a guaranteed stop is placed. What’s truly unique, is that there is no cost to the investor until the stop loss order is triggered.
“Have you heard of an insurance where you only pay the premium when you get into the accident?” Lim asks ZUU Online poignantly. “No? That’s what we do here.”
“We can attach a guaranteed stop to your position, without you paying a premium,” he explains. When the accident happens, or when the stop loss order is triggered, then the premium will be realised.”
Taking it one step further, IG even created a limited risk account (LRA) for customers who are very risk adverse. Every trade placed within the LRA, will have a guaranteed stop attached to it.
“It is what we call a double lock account,” Lim continues explaining. “Every single order will have a guaranteed stop, attached to it, and it makes sure that even if every trade gets blown out of the water, you will not lose more than what you have in the account.”
“It is good for new and inexperienced clients, who would like to have a taste of the trading of CFDs but without the risk of losing everything that they have,” he added, noting that he has seen a 30% to 40% take up for the LRA from new customers.
“IG takes the risk management of our clients very seriously. So we not only want to educate our clients on the awareness of risk, we also want to be sure that we equip them to manage the risk as well.”
In fact, Lim believes the biggest endorsement of IG’s efforts lies in its ability to attract clients who incidentally also work for their competitors. “We are quite proud of the fact that a lot of our competitors use us. It’s a vote of confidence and testament to the product that we offer.”
So how does Lim invest now?
“I like to time the market,” says Lim, smiling. “I don’t think I am a person who will speculate for the sake of speculating. I like to buy things, and get into the thick of the action when things are at the worst.” He explains that he does not invest through regular savings plans or relies on dollar cost averaging like most value investors.
“I’m more of a ‘let’s wait for the right opportunity and then get into the thick of the action’ kind of investor.”
Interestingly, one asset class that Lim tried to get involved in 8 years ago, was Bitcoin. Back then, a Bitcoin was valued at US$250, and Lim tried to purchase a mining computer for US$4000. Unfortunately, the computer was backordered for months, and Lim was eventually given a refund. “Looking back, I should have insisted on getting the machine. Right now, with Bitcoin at US$7000, I would have made a 30-fold return on one Bitcoin.”
In fact, Lim admits he would never have expected Bitcoin to reach US$7000. Even if he had successfully mined for Bitcoins, he expects he would have sold them at a much lower price.
“I would have sold. I would never imagine that it would have come to US$7,000. But at least I would have enjoyed that ride, I would have been part of that history, part of that wave.”
Fortunately, he has a second chance of getting into cryptocurrency, as IG offers Bitcoin and Ethereum trading with CFDs. Lim is now learning more about the digital currencies together with his team, by engaging external experts to educate them about the technology behind it.
“Some people think cryptocurrency is a MLM, others think it is a scam. There are many misguided interpretations of what cryptocurrency is, but it’s a learning curve for everyone. Even for us who are in the industry, we are on a learning journey to get a better appreciation of what all this is about.”
What tips does Lim have for a newbie in CFD trading?
1. Understand shorting
“Singapore clients are very used to trading stocks. When investing in stocks, you always begin with a long position – you have to buy first. Hopefully you buy at the bottom, not at the top, or at least somewhere in the middle and you still have some profit to make.
So we have this mentality of buying, just like in commerce, you always have to buy before you sell. But I think what we are missing out from this whole trading scheme is understanding the ability to short.
CFDs allow you to short when the market is overvalued. This is not available in stock trading. Thus the ability to sense a shorting opportunity, and the ability to grasp the concept and principle of shorting, is very important to a local trader, coming to CFDs.”
2. Respect market trends
“Another key message that I want to bring across is to respect the market trends. A lot of people are very contrarian. Some may choose to short just because the market looks overvalued, but it may or may not happen. Even if the market was coming off, if you don’t know when to exit, the market may resume again.
Always have a plan. Always have a TP (Take Profit) position and a SL (Stop Limit) position. Have a plan to exit either at a loss or at a profit.”