We have seen downturns before on FI over the years, but this must be the most sustained one we’ve ever had.
One thing to bear in mind is that occasional chaos is normal in markets – it happens all the time and almost every market in 2020 has been rocked.
If we aren’t used to it on FI… it’s because we’ve mostly led charmed lives and the only way really has been up.
Some could be more up than others… but to lose money overall in recent years you’d have to be quite special.
Truth is though, FI has never been a real market and it’s only just starting to look like one after these changes. I think it is overwhelmingly likely that what we are seeing is growing pains rather than the doom of FI.
Even markets which are primarily traded by professionals get in a flap from time to time. So, should we really expect better from a market mainly played by amateurs and sports gamblers? Probably not.
This morning we are seeing a recovery in some players which could herald the fabled “turning point” or could just be a flash in the pan.
This looks like quite strange behaviour to me – either a market maker buying up to create optimism… or a trading group unlisting a lot of shares to try to get things going.
Seeing some of these rises is odd because I can’t think of a single reason why a rational human would click the Blue Button right now when you can get bids matched so easily. But it may just be the spark people needed to feel positive.
If we start seeing spreads closing up though outside of just the top players – that could be taken as a very positive sign.
The thing that matters most right now is confidence.
We can hope for big changes like NASDAQ etc but these are not the magic bullet that solves all our problems. The platform has never been perfect and has got on just fine for most of it’s life.
It’s primarily about belief – is FI safe? have we hit the bottom? Is it time to go back in?
With so much value available I do not believe for a second that there are not people out there just waiting to pounce.
It’s just that nobody wants to go first.
Those deposit bonuses will probably tempt people off the sidelines eventually, though.
Should we be worried?
I’ve had more than one email this week as you might expect from worried people.
It’s easy to preach the “keep calm and carry on” line.
But there are legitimate concerns and we should neither ignore them or over react to them.
The first trading decision we all have to make: “Is FI a stable place to keep my money?”.
For 5 years the answer has been, by and large, yes. And the more established the platform is the better. In the first 2-3 years it was an unproven concept that was higher risk… as it established and gained a loyal userbase and more financial wool on their back it got better.
And – all of these Matching Engine changes are designed to boost the viability of FI’s business model which up until now was, let’s be honest, a very long and generous introductory offer.
If Adam Cole is to be believed then no money is taken out of the business it’s all reinvested. Hard to verify – but one thing we can see is the credit reports on IndexLabs Ltd (the holding company).
I look at these regularly through a credit report company called Endole – it’s not expensive and anyone can do it. You can’t see everything but you do get broad numbers and a Credit Score based on their level of debt etc. That has been improving steadily – getting into “Stable” in May 2020 where as previously it was “Cautious” – due to removing a large liability from their balance sheet.
You don’t get details but one reasonable explanation for this is – when FI brought in the Matching Engine they dropped the responsibility of paying for all of our Instant Sells. They would have had to set significant money aside to pay for all this – now they do not have to.
Bad for traders? Well yes and no. In the short term it is the direct cause of a lot of this pain, although corona has been a big part too.
But it is also the reason why FI have been financially robust enough to double dividends and issue deposit bonuses.
Fundamentally – Order Books were always the plan and have been for years. I remember writing a guide on them over two years ago. Anyone who made any effort to understand the platform would have known they were happening.
So all the sour grapes we see about FI “bringing in a system traders didn’t want” or “changing the nature of our bets”. I just don’t agree – it’s a planned change that does promote the health of the platform in the longer term.
And even if I didn’t agree – where would it get me? It’s a pointless thing to obsess about. It’s happened and there is no going back.
We can expect some tweaks and FI will make them – but there is no reverse gear on Order Books and the sooner a trader accepts that the better for them.
So, should we worry that FI will collapse? Well, we should always consider the possibility. But am I really worried it will happen soon?
No – not really. For two main reasons.
The value is just there. It’s staring us right in the face and screaming. It’s established economic theory that people will not let this level of dividend yield just sit there and go begging. It’s a crazy siutation when you can make 30%+ on a player in a single match day sometimes.
The offer from FI is incredibly strong now. And really, Adam Cole must be tearing what is left of his hair out wondering what more he possibly needs to offer to bring positivity back.
There has never been more value in terms of dividends versus price after dividends doubled and many prices dipped.
And he’s giving traders a deposit bonus of over 8% on top plus not taking any commission on bids for a bit longer. It’s as close as you’ll ever get in the real world to people just giving away free money.
It may take a while but I think people will want those payouts. In my opinion, what we need more than anything, more than some grand intervention from FI or NASDAQ or whatever, is a grind of relentless match days to keep dropping these massive dividends in people’s accounts.
The international break has disrupted that. But this is going to be the busiest season ever and that grind of matches is coming thick and fast.
Do FI have the muscle to survive a few months of low prices before people mentally recover? It would be incredibly surprising if they did not as a 5 year old successful company. They aren’t a start up anymore.
Secondly, whisper it… but this isn’t a real market.
Unlike in the FTSE100 or whatever, FI have some heavy handed powers to put a break on things if they need to and we have seen them do it before this year to avoid a panic.
Eventually they will have to stop intervening. Particularly if they want a licence to trade under spread betting rules rather than gambling rules (And no, that does not mean we will start paying tax – good grief). But if it really came down to it? FI could take drastic action to pause things and provide time to set things right.
They aren’t stopping the market now or directly intervening (as far as we know) because in a way – the market does have to right itself and FI can’t slam the breaks on at every crash.
It is we traders if anyone that will turn this around in the end. We have to decide whether we have recovered our confidence. And slowly but surely as some people do more will join them. That is what turns this around – I don’t think waiting for some grand FI gesture (yet again) really helps us.
Certainly – people going off half cocked on social media really just poisons our own well. I’m all for realism as people should know by now but when we criticise we should be responsible and do our homework first. There are some awful rumours and half truths being pedalled right now and I don’t think FI twitter has ever looked worse. But there are good voices out there too to be fair.
Oh and I have a third reason. The new Matching Engine model is something of a closed loop system. If I decide to sell up – someone else has to buy now. FI take some money there in commission and bank it. But they aren’t paying me anymore when I cash out which makes a huge difference to their balance sheet.
I could withdraw my cash but someone elses has to fill that gap – someone bought those shares off me. There will be an on paper drop if the bid was lower but… I would imagine FI do not do their accounting based on Blue Button values!
In this way – FI are less vulnerable to the fluctuating market prices than ever because they are no longer picking up the tab for failed trades. They are only really vulnerable if people stop trading and I don’t think people have. We can’t see prices rising as much but lots of money will be changing hands on bids without us even knowing.
Traders may not like this – it was easier when FI did pick up our bad trades. But this was never sustainable – and it is this change which puts FI in a financial position where they can double the dividends and compensate us for the added risk.
I think it is good for traders overall and I embrace the Order Book system. But that’s not to say it was ever going to get implemented without any pain. And we are probably seeing more pain than any of us expected.
FI have also foregone commission for an even longer period as another gesture they are making to soothe the market – although people on social media spreading misinterpretations of what this means ended up causing as much damage as good which is unfortunate.
Main point is – If they were in need of immediate cash – I don’t think they would do this. This is a move you make if you want to set things right for the long term.
(And no this should not discourage blue button buys – this was one of those rumours that got out of control. If you want blue button buys what you first need is spreads to close – only a fool would pay full price in this market when cheap bids are available so freely. Once spreads close and lots of the obvious value is eaten up – that’s when the blue button price rises will really come.)
So overall, I won’t pretend that seeing these recent losses didn’t cause me some worry. I think anyone who says it didn’t would be a liar but… when I sit down to rationalise it the odds of this downturn being the doom of FI seem very low.
It seems much more likely that this is another of those mood swings we see on the market, where things are doom and gloom one month then rockets and champagne the next. It may be an extreme example – but experience tells us that the mood on FI can change very quickly.
Sure, you can cash out as a “safe” option but that is not without it’s own risks. With many bid prices so low you are taking a huge hit – a definite loss in order to avoid a possible loss – the risk of which actually happening I consider low for the above reasons.
And, you also potentially miss any possible bounce back and recovery later on too.
So, I’d never say there is no chance of anything going really wrong with FI. But the cost of taking ourselves completely out of that risk is very high in itself, and I don’t judge the risk of a collapse to be high enough to make that worth it.
It takes some thought but when I get to the end – it’s an easy decision for me to stick with it and stay calm.
For others… maybe if for some reason you are in a financial position where you can’t stomach any risk at all… or if you just aren’t enjoying the platform… maybe it is the best thing to call it a day?
It really depends on the individuals circumstances – and I’ll share some thoughts at the end on how to put ourselves in a strong position to best weather any storms on FI, now and in the future.
Should we attempt to "time the bottom"?
So, assuming we have ruled out selling up and leaving, we’re all going to be in one of two places.
Either we’ve got 95%+ of our money invested already, or we’re sat with significant money on the sidelines waiting to put it in at the right moment.
The easiest one of those to deal with is probably “if I have money waiting to go, should I try to time the bottom? And if so, when will it be?”
My answer to that is no – I don’t think we should try to “time the bottom” and we shouldn’t try too hard to predict when it might be either. That’s for this simple reason – nobody knows.
The far more important question is “Am I getting fantastic value on a high quality player?”. We have a much better chance of getting that right, using Scouting information and our knowledge of rational values (Now on the members Dashboard).
There is simply so much slam dunk value available that, in my opinion, if we’re going to spend money we should just go for it rather than waiting around. Things can change fast on FI and you never know when a recovery could gather pace.
If I see a target has dropped sharply already, and they are £1 but I think the rational value is £3… I’m just signing that up. I’m not going to sit and hope he goes to 90p first. We’re over tinkering there in my opinion. There is just as much chance someone else puts a bid in and he goes to £1.10 – particularly if they are a high quality player. There will be other savvy traders out there.
If £1 is a price I am happy with and I’ve got the money – I’ll just go for it at this stage.
Alternatively we could tie ourselves in knots trying to predict when this miracle “turning point” will exactly occur but… guessing when the hivemind suddenly decide it’s go time? Who knows. It could be another FI announcement. It could be the steady drip drip of dividends over the next month or just the return from the international break.
Perhaps a more difficult conundrum is for the trader who is already fully committed.
We probably have some players we want to shift. Early season is unpredictable and we’re finding out new things in Scouting every week – in an ideal world we’d be able to react to that quickly but that isn’t always the case right now.
If I decide I want to drop a player it may not make good sense to do so. Griezmann from scouting yesterday would be a good example. If I paid £1.70~ and given his lacklustre opening under Koeman if I could drop him for £1.60 or £1.50 I’d do that.
But will I drop him for £1.28? No. He may yet come good and even if he fails outright – he’ll likely get rumours of a move and if it was somewhere like PSG? That could be fantastic. He also has the France involvement to fall back on where he’s one of the best international performance players with the Euro’s in mind.
Whilst we all want the perfect portfolio the reality is low bids are going to hamstring us in a lot of cases.
Where we have really lost confidence in the player and think there is very low chance of them bouncing back in any kind of acceptable time frame (3 months?) then taking even a 50%+ hit may be the right call.
But, if we are dealing in high quality players most will have some kind of reason they can bounce back. They might have some difficulty now like being out of the team but they may play their way back in or they may get a January transfer.
Fact is – if we want to make very large changes to our portfolios – we can only really do that cheaply when the market is bouncing. In tough times – sometimes sticking to small tweaks can be the best thing.
Practical Thoughts on Staying Calm
The ability to stay calm isn’t just about “growing a pair” or seeking inspiration in the quotes of a Japanese Zen master.
Good traders establish strong foundations which gives them rational reasons to stay calm when things are tough.
I’ll share a couple of thoughts on this. For the veterans, this may be familiar already but I also have a lot of newer traders on the site who may find this useful.
This is less about the psychology and more about the practical things we can do that will help anyone maintain a good mentality:
1) Our emotions are directly tied to how desperate we are.
I’m a trader who has what I consider to be a very weighty chunk of my money invested in FI. But it’s not all the money I have in the world. And I long ago withdrew my relatively modest opening stake – giving a nice mental boost that everything I am using is money I’ve made on FI anyway.
And if that money disappeared tomorrow I’d be deeply disappointed. But it wouldn’t be a disaster that would change my life. The bills would get paid and life would go on.
That puts me in a position where it is possible for me to stay relatively relaxed whilst things have gone a little crazy.
If however someone had over extended and losing any money on FI puts them in serious financial difficulty… I don’t care how strong anyone thinks they are mentally they should never put themselves in this position. That trader would be forced into decisions they don’t want to make because they cannot tolerate any risk.
This is trading 101 – never put in more than we can afford to lose. It sounds like nagging fatherly advice I know but there are extremely good reasons why this is a classic. It’s impossible to stay objective if we’re relying on the numbers on the screen to pay our mortgage.
2) Stay within touching distance of a rational value.
Lots of people probably think they do this – but it’s easier said than done because it requires two things which are hard to get.
Firstly, a reasonable accurate judgement on the players real dividend potential. And secondly at least a basic understanding of what a rational price is for players of various ability levels.
The majority of people, being brutally honest, don’t have those things.
Through the site I strive to help members with that as much as possible through Scouting and the regular pricing discussion of what “rational value” (what they are really worth) is and also the “market value” (what people are actually paying right now).
It’s hard for most though because even if a trader had the ability to judge those things – I know for a fact I couldn’t do it properly if I still worked my traditional job – I may know how but I just would not have the time.
But because of members contributions I do have the time – spend almost 10,000 hours doing it like I have over the years and you’ll probably get better and better. But without site members I couldn’t do it either.
To be confident in our holds we need to apply our Scouting knowledge and our knowledge of what kind of prices players can rationally have. There are tons of benefits of this aside from the obvious.
First of all – if I am holding a player demonstrating very strong performance numbers in the here and now – I can say “Ok, lots of traders are writing this guy off – but I think they are wrong. I’m sticking with my bet and I have a good chance this player wins and gets a big rise and a fat dividend”.
I can sensibly disagree with the market here because I’ve done the homework. I won’t really care what other people are doing at all because of that.
And, worst comes to the worst, if my player gets dropped, hits awful form, is injured… I can still say it’s a 3 year bet and the chances of him recovering and coming back into fashion later are decent. Winners are always in fashion eventually.
If I hold a player who looks nowhere near winning performance scoring, especially if they are at a high price… I’ve got nothing. No reason that makes it ok for me to disagree with the market if people start selling – I’ll be forced to sell too if I’m sensible.
Worse, if I’m stubborn or don’t really know that player is poor I’ll continue holding in blind optimism. Occasionally, you get lucky this way but the vast majority of the time you will lose.
Overall, if we’re playing with money we can afford to lose (even though we don’t want to lose it!) and we have enough confidence in our players that we can withstand a bit of bad news – we’re giving ourselves the best possible chance of staying cool in a crisis.
Final Thought
Rough times on FI no doubt.
But we also know that the mood can change so, so quickly.
It’s perfectly sensible to question the viability of FI at the moment. Stupid not to, in fact. But for the reasons above – I remain confident in it even if all this change is taking a while to bed down.
I feel like waiting has been a theme for much of 2020.
When covid settles down and football comes back… we’ll get a bounce.
When bids come in… we’ll get a bounce.
When the seasons start again… we’ll get a bounce.
If FI do a deposit bonus for a 5th birthday… we’ll get a bounce.
Did we though? Well sometimes but it was always temporary and stop start at best.
What’s the next magic pill that will take us to the promised land? NASDAQ?
More likely it isn’t further changes that turn things around but probably the opposite – a little bit of stability to let all the events of this crazy year settle.
We need a constant grind of matches more than anything to make people truly appreciate just how big the dividend rewards on offer really are.
Fortunately, that is exactly what is coming up once this international break is out of the way.
I think the overwhelming likelihood is that this cloud will lift and we now have the best value proposition ever on FI as a basis for trading. Plus a deposit bonus on top. And deposit bonuses have a way of pulling money that is on the fence into the market.
There are rational reasons for believing a massive period of growth is ahead – the dividends certainly support much bigger prices than we are seeing now.
And you can rely on people to be greedy – the value is there and people will come in for it. The question is whether FI are robust enough to weather the storm until traders get their confidence back.
I think they are for the reasons above – they are an established company now with a good credit rating. And in terms of the market mechanics they are less vulnerable to swings in market prices than ever before.
One of the things people will struggle with is that we have a way to go before we see traditional “Blue Button” price rises.
We need spreads to close first – and this is not very visible.
How do people usually get their cue that everyone is investing and it’s time to put money in? They see a nice list of risers. That doesn’t happen right now because most of the business is happening on invisible bids.
Perhaps the single best thing FI could do is a technical thing – showing players whose spread has closed up on the Market to show that traders are bidding and that there is some momentum.
At the minute… if you think of traders like a herd of sheep and many do… they currently have no idea where all the other sheep are going! They are used to logging into the app and seeing 24 hour rises and following them – but right now there is nothing to follow.
And a solitary sheep is an anxious sheep. (ok enough about sheep).
All people have are the much lonelier bids where you don’t have any reassurance that other people are piling in too.
This is an awful trading mindset obviously but it is a common mindset. And it’s the mindset that oils the wheels of FI trading.
Either FI can come up with some way of providing better information about what’s happening on bids, and NASDAQ will genuinely help there, that’s positive. But it may be that traders need to adapt and find new signals to follow.
Overall, I think we can wring our hands and hope for FI to save the day all we want but it won’t do much good. That will happen or it won’t.
Our success will be depend a lot on how good our decision making has been over the last 6 months. And how much we can make skillful tweaks in a tight market right now.
If we’ve got that confidence in our portfolio that comes from good selections, we’re going to have reasons we can weather this storm.
When will things feel more positive? Hard to say. I’d guess by a couple of weeks or a month if I had to.
Maybe a tweak or two from FI. Deposit bonuses coming in. International break over. More match days. Time for traders to recover themselves emotionally which may be the most important part.
And the thing is, whilst prices can drop fast in the Matching Engine, they can go up quicker than ever before too.
Nobody can say FI in 2020 is boring.