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From Trash to Cash Flow

Updated: Jul 14, 2023

Today I would like to share with you an extraordinary story from a customer and friend. Lets call him Abdul. This story is about how Abdul, the car dealer, flipped his car park full of four-wheeled rust buckets for steadily growing cash generating capital - enabled via EA trading. Sounds crazy? Yeah - it is! Read on and discover the madness.


Abdul is running a used-car reselling business and after Covid hit his business, he was looking for opportunities to streighten his financial outlook. Let's simplfy: He needed cash.

One day we have been sitting together, laughing and philosophized about business and people. in general. When he started to describe his situation, the laughers stopped but my interest for a challenge was awakened. Abdul told me that during last few months he accumulated a lot of cars in his backyard. And during the Covid ciris he had no perspective to sell enough of them to pay all the bills incoming. He not even had interested customers, to who he could offer the cars for a huge discount. Nada!


So we had an idea.

To be honest, I am not sure if we had this idea with a few drinks less, but so be it.

The main concept was like this:

  1. Use one of the cars as collateral, get 10k from a pawnshop.

  2. Deposit 10k to a Forex broker and trade with an EA. Prepare for one of the three options:

    1. If balance of 8k (-20%) is hit, withdraw all the money from the broker. Since Abdul an I are friends, I offered him to restore 1k from my pocket and Abdul would leave the table with 9k in cash (1k loss). He still could decide if he want to add another 1k and to get his car back.

    2. When time is up (pawnshops usually expect you back within max 6 months) we withdraw all money from the broker, share the profits and Abdul decides if he wants to get the car back.




Step 1: Getting Money for a used Car

At that time (Mid 2020) new pawnshop businesses were born which took physical collateral items - for example a car - and gave you some money. If you would not come back within some months, they would keep the collateral. Using gold, diamonds, etc as collateral/deposit is an old concept. This concept extended to cars and houses was new at that time in Germany. The good thing is, that Abdul, as a pro car-dealer knew how to present the cars in its best light to get more money from the shops. Definetely an edge, if you see it like that.


Step 2: Trading with EA

Well, at that time we did not have a system like Ai for Gold so it was risky enough to expect 4% gain per month. That day I used mostly Dollar Cost Averaging (DCA) strategies with constant position sizes - at least no martingale in classical sense. But for this reason, the drawdown spikes were often super high. So imposing a limit of max 20% drawdown resulted in smaller profits. But it worked!


The balance after 6 months trading using 3 DCA-based EAs.
The balance after 6 months trading using 3 DCA-based EAs.


Step 3: Take Profits

Indeed, after 6 months we closed the account and shared a profit of around 1k. The most impressive message from that story is that this approach really worked out and we felt like boys running a bank.


Thoughts about Insurance and Probabilities

In case the account would have reached the Stop Loss level of -20%, we would have closed it and take the loss. In order to undestand if 20% is a lot we need to consider the probability of hitting the Stop Loss and the expected gain after 6 months.

  • Assumed probability hitting the Stop Loss: 10%

  • Assumed gain after 6 months (4% each month): 26%.

  • Expected profit: 0.9*10k*0.26 - 0.1*10k*0.2 = 2320$

So we are expected to generate 2320$ on each 10k car-collateral-operation. This could be even more profitable if we increase the time or the quality of the EA.


Assuming that we can use AI for Gold today, which generates 10% per month the expected average profit would increase to 5,470$. And if we are able to hold the money in the account for a year, the expected gain increases to 19,150$. Now take 50 cars...


If you are interested in an Excel Sheet modelling different variants, just drop me a message to funk@ this domain.



Conclusion

The main trick here is that when we deploy a strategy, which is 90% confident to be profitable after 6 months, we are in a position to structure interesting business models and to help many people in our local areas.

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2023년 7월 14일
별점 5점 중 5점을 주었습니다.

Very interesting, thank you!

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