under what circumstances do you think a person who has a profitable trading strategy would want to sell it versus just using it himself? Its an honest question because I fail to understand what incentive there is for the trader if a strategy is actually good and consistently profitable.
That's a fair question, and it's one that is asked of me a lot.
But it's also asked of hedge funds and CTAs a lot.
Why allow other people to benefit from your trading strategy? If it's so great, why not trade it yourself, and
only yourself?
There are a few reasonable answers.
First, selling your trading system is an (indirect) form of leverage. Essentially: you can earn more money with the same amount of your own capital. This is because market liquidity is generally very vast. Unless you have infinite capital (and no one does), or unless you are trading a strategy that takes advantage of a very small market anomaly (few people are), you won't single-handedly exhaust the opportunity that your trading strategy presents. Yes, you'll be able to make money (hopefully) with the trading capital that you have available in your own account, but you'll also earn additional amounts from
other people's capital -- either through the two-and-twenty hedge funds charge, or the monthly subscription fee you earn as a strategy publisher on Collective2.
Second, there's an opportunity to build a verifiable track record on Collective2, which you can in theory show to people down the road if you ever want to start a fund or want to raise capital. (I don't have any readily available data on how often C2 strategy developers are "discovered" by hedge funds or CTAs, but I suspect it does happen, if rarely).
Finally, I'd be disingenuous if I didn't suggest a third reason people post their good strategies on Collective2. Of course there's some desire for risk reduction. This applies to hedge funds, too, by the way. After all, hedge funds earn their 2% management fee, no matter how much they stink up the place. Something similar can happen at C2: you do well for a while, you attract subscribers, and - if you've earned their confidence - your subscribers will probably grant you a few months of runway if your performance is sub-par for a short period. But I think this is a very minor piece of people's motivations. This is because, in both cases -- hedge funds and C2 -- the grace period won't be long. Investors and traders flee very quickly when performance is sub-par.
Anyway, you can check it out more here:
https://collective2.com/landing/leader
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