• Sick of getting stopped out? There’s a solution
  • Gardening tips from a hedge-fund billionaire
  • First feedback from beta-testers

The life of a hedge-fund billionaire is not as easy as you might think.

Poor old Louis Bacon or Moore Capital Management has had his Caribbean home buffeted by hurricane Sandy… plus he hasn’t exactly been swapping composting tips over the garden fence with his neighbour.

In fact, he has a long-standing feud going on with neighbour, fashion lethario Peter Nygard. When he’s not topping up his tan or getting his teeth whitened, Nygard allegedly throws loud parties on his Mayan-themed estate.

And Bacon has retaliated by turning his loud speakers up to 11 (yes, readers, his speakers go up to 11 – what do you expect, he is a hedge-fund billionaire?)

But Louis Bacon can’t even find sanctuary when he goes to work… the hedge fund industry isn’t what it was.

In the summer, Bacon returned 25% of his largest fund to investors.

And then last month, his one-time protégé Greg Coffey stepped down from the world of hedge funds, claiming that the demands of the job were too onerous.

Is something amiss in the world of investment?

Or are hedge-fund managers struggling to adapt to the demands for lower-risk investments from their clients?

There is definitely a change in the air.

And traders I talk to, who used to brag about their huge profits, are instead bragging about how well they can manage their risks.

How traders manage risk

The spread-betting “standard” for managing risk is to use a stop loss.

And don’t get me wrong, a stop loss is a very useful thing.

But stop losses have one huge flaw …

… they get hit.

The idea of a stop loss is that it’ll protect our funds if we “got it wrong” and the markets go the wrong way.

However, in volatile markets, all you need is an unexpected blip (which happens often enough) and you’re left out of pocket.

And, of course, the markets will almost always hit your stop loss, then turn tail and sail through your profit target!

But there are ways to put these kinds of frustrations behind you …

In fact, there are a number of alternatives to using stop losses, and over the coming weeks I’ll be hunting out the best of these.

Top of that list for investigation is the new binary betting tool that’s currently being put through its paces by beta testers.

Binary betting has a huge amount of potential for getting around all the problems associated with stop losses – you simply don’t need stop losses with binary bets.

A binary bets are based on an “outcome” that you specify. If you say that the markets will end above X, then, in the meantime, the markets can crash for all you care.

It won’t affect the risk on your trade. And it won’t affect whether or not your trade wins. All that matters is the outcome that you stated in your bet.

However, despite the obvious benefits of binary betting, again and again it runs into problems with the low level of returns it delivers …

You may have come across this problem before … You get a payout of a couple of quid, on a stake of £20.

Sure, it’s low-risk, but it’s also low-reward.

Which means that a handful of losers can wipe out weeks of hard work.

The upshot of this is that I’m not easily impressed by binary betting strategies.

So, when I heard that beta testers were getting returns greater than 1:1 (i.e. over £20 pure profit on a £20 stake), I thought I must have heard wrong.

Here’s a little of what they’ve been saying …

“… 5 wins out of 9 trades within the space of two hours, ALL at good odds [range between 1.90-2.87] resulting in £65 profit overall – at which point I stopped (until later today, early evening PERHAPS) to enjoy a coffee & other activities for the bright remainder of today.” Trevor Lewis

“…overall in the space of a week, I have increased my account by almost 60%.” Keith Gravestock

Definitely enough to pique my interest!

Which is why I’m now following this one very closely, plus I’ll be grilling the beta testers directly – and will be in touch over the next couple of weeks with a full report on it.

In the next seven days …

The Wall St index has climbed convincingly (if not steadily) for the past four years, so it’s a bit tough to call market events this week “the Obama effect”.

Why have the markets been shaken?

Perhaps because of the expectation of conflict in the House of Representatives over tax hikes?

Perhaps because the promise of fiscal stimulus just doesn’t give the buzz it used to?

Or perhaps just because the election party is over, and now there’s the realization that it’s time to get down to work?

With that thought in mind … the US will be taking a day off on Monday, for the Veterans Day holiday.

The main figures for the US next week will be retail sales on Wednesday, where we expect to see a modest rise, and Friday’s industrial production numbers, capital flows and Philly Fed survey.

In the UK, we have inflation figures out on Tuesday. These could show that inflation has risen, in part due to price falls last October dropping out of the equation, but there’s also increased pressure on inflation coming from utility bills.

Wednesday sees the release of unemployment figures, which have been puzzling economists as employment levels keep growing, despite a lack of productivity.

European data next week includes the German ZEW survey on Tuesday and the French, Italian and German GDP figures on Thursday.