Trading takeaways from the Netflix hit
1. Debt can kill you(r account)
The overarching theme of The Squid Game, of course, is about people forced into a deadly game against each other to pay back their debts.
The intense competition in the markets might not be as dramatic. But the creator of the series, Hwang Dong-hyuk, explicitly said that he was trying to make an allegory of the extreme competition associated with modern capitalism. And of course, capital markets are the most capitalist part of the free market system.
Trading involves a
risk-reward trade off, and the more rewards you want, typically the more risks
you need to take. If you are making money, this positive cash flow helps
maintain a certain amount of comfort in your trading position.
However, if your account starts decreasing, it's almost like you're accumulating
"debt" with yourself. You have to "earn back" the money
you've "lost".
Often this leads to traders taking on riskier and riskier trades in desperation to get their account back. Rather than calmly and calculatedly rebuilding their portfolio, they might end up doing an "all or nothing" bet on long odds. This would put their trading account into its own version of The Squid Game.
2. Don't throw good money after bad
One of the issues with taking risks in the markets is that when you enter a trade, you can still see that money in your account. So, you don't really realize that you've already taken the risk. This allows many traders to try to keep a losing trade, instead of cutting their losses.
The characters in The Squid Game had the opportunity to leave, and in fact did. Nonetheless, they were driven back out of desperation to win, instead of cutting their losses.
That might work for the lucky few who win. But for most? Well, most people lose money trading not because they get in the market at the wrong time, but because they don't know when to cut their losses.
Many people are attracted to trading with the allure of making a lot of money. That can happen, but most successful traders are in it for the long haul. They are slowly building a stable portfolio that generates relatively consistent returns. This means that if something isn't working - the risk to reward is too great - they just don't do it.
3. Trust, but verify
Trading is both a collaborative and competitive activity at the same time.
On the one hand, you are
trying to beat other traders to the punch, so you can get in on the action
before the market moves. On the other, you can significantly enhance your
chances of "winning" if you work with other people, pooling knowledge
and even resources.
This uneasy relationship between collaboration and competition can lead some
unscrupulous people to take advantage of others' trust.
Even if the game is
supposed to be fair, even if the regulators step in to try to keep it fair,
there can still always be a player 111. You must be careful when working with
not just other traders, but people associated with the markets as a whole. If
you trade a stock, you can usually trust that the company will report its
earnings accurately - usually. Sometimes they game the markets.
Other traders and analysts might give you great advice. They also might be
interested in pumping and dumping an asset.
You can't trade without information, so you need to carefully curate trusted sources. And compare all the information you receive among sources to make sure you have the right facts at the right time.
Bonus: Two stocks that might benefit from The Squid Game
Netflix: As the creator and exclusive distributor of the show, Netflix is obviously the company that stands the most to gain. A viral sensation like The Squid Game could drive subscribers.
Additionally, Netflix stands to gain from licensing deals. The original show was supposed to be a single series, but given the popularity, a sequel is now under consideration. You can certainly expect a bump in the Netflix stock once The Squid Game II is announced.
Roblox: Speaking of licensing, going beyond the series itself, derivative products have a chance of outperforming. Roblox was fast to get in on this trend, allowing fans to imitate the game on their platform.
Roblox itself will launch stand-alone products based on the series, which could be tied in with a potential sequel. Unlike the show, which can be binged quite quickly, a game can generate recurring income over time.
This article was submitted by Orbex.
