Derivatives are the key to the rabbit hole

[BrandNewTrader]

I've been a market addict since 2006. I naturally have an addictive personality and have had my run-ins with other recreational activities. Never in too deep, and luckily the market is a healthy addiction once GREED has been eliminated even via unpleasant means if the Universe deems necessary.

It's recently become apparent to me that the more you learn about derivatives and leverage, the closer you get to the event horizon of all speculator ambition. That point at which you can produce a risk-free return on a periodic basis. You become a defacto bank.

Is this type of success a myth? I don't believe so. There are individuals throughout modern trading history (70's forward?) who have produced returns that transformed their lives within 5 to 10 years. I believe that there are individuals on this forum who have also found risk-free return methods but shy away from discussing it because it is a lose-lose situation. Were you ever to proclaim "YES! I can make 10% a month guaranteed!" you would be laughed at, ridiculed, insulted and finally challenged to produce ALL OF YOUR RESULTS AND PARAMETERS. Obviously, if you do in fact have some type of abomination of a guaranteed profit system, you wouldn't publish it publicly because that would probably destroy the inefficiency that gives the system life. Besides, if it's real and you talk too much, maybe the (conspiracy theory alert) financial elites and intelligentsia will come after your black box and your life.

Anyway. It is in fact possible. This entire financial system is made of rules constructed by humans. We apply laws of nature, but we use our own logic to govern this application. Nature is perfect in its self-sufficiency, but we are not. The markets are our attempt to regulate natural behavior with artificial rules. Inefficiencies will always exists as long as a critical mass of final decision-makers is human.

The markets are the modern-day gladiator pits. A common man can arrive in desperation and fight to his death day after day and emerge a Champion/God amongst men and win his freedom and elevated social status for his family for generations to come. Think Spartacus (I recommend that tv-series BTW. cheesy cgi but writing and story is PERFECT for market psychology). Or he can die honorably with his blood and guts staining the sand.

Anyone care to shed some light on any personal experiences along the lines of this theme? Risk-free profits? Are they possible? Do they last long enough to build substantial wealth?

I am a witness. The current state of the financial system has left us with an opportunity to exploit the leverage loopholes within our system. Once gone, they will have only existed for 30 or so years!!! I fear the end of this decade will bring an end to widespread financial leverage enabled by debt-inflation based on fiat compound interest perpetual growth dynamics.

A philosophical inquiry aimed at my fellow (Elite) traders and speculators

 

[VTS]

You mentioned the words "Risk free" an awful lot in that post. So to be clear, there is no such thing as risk free. Sure there are ways to trade options safely with a high expected success, but risk free doesn't exist my friend.

But in general I agree with the sentiment. Option trading is really where it's at if people have the time and patience to learn correctly.

 

[Javier]

"Risk-free profits? Are they possible?"
-I would say, if you are able to move the price, is almost sure people will join. Then that is a free risk profit.
- If you take the counterparty, and hold for 1 tick, I would say the other is 1 tick offside and you could breakeven.

 

[BrandNewTrader]

I use risk-free in the context of having a system of rules and triggers than when followed results in a guaranteed profit within a calculable standard of deviation. You sleep late? Power and UPS fail and algo goes down? Drink and trade? These are all risks that can only be eliminated with common sense and self control. Let's be practical here VTS (Virtual Trading System?)

 

[BrandNewTrader]

"Risk-free profits? Are they possible?"
-I would say, if you are able to move the price, is almost sure people will join. Then that is a free risk profit.
- If you take the counterparty, and hold for 1 tick, I would say the other is 1 tick offside and you could breakeven.

Forget institutions and these highly capitalized HFT's. These edges are well known but accessible to only a select few with the resources and connections to mount such an endeavor. Barriers to entry in favor of the very wealthy.

I am speaking of a common man's discovery of a jewel within the desert of valuable trading knowledge found among us common folk.

 

[Fundlord]

The guys you are referring to who came from nothing and raised above their social status by trading took on big risks. They didn't listen to risk 1-2% of their account, they went for the juggler when they knew they were right. Accounts of some of these guys show them making 10x on a trade due to volatile market conditions that aren't really seen today.

If you want to make millions from thousands you need to take pretty massive risks like risking 10-20% of your account on a futures trade or buying way out the money options close to expiry and being right your account could appreciate monstrously.

Another option is to trade a prop firm or hedge fund make 20% on 50m per year and get a decent sized bonus.

Risk free is BS unless you have inside information or a time machine.

 

[BrandNewTrader]

Risk free is BS unless you have inside information or a time machine.

I disagree. A time machine isn't accessible to the common man. inside info is on a case by case basis. The wildcard is a combination of talent, ingenuity and anti-sheep thinking that allows you to explore theoretical boundaries where most others stay within the white chalk lines. the bullshit white chalk lines.

Those guys who went for the jugular when they were right, as you attempted to say, were they gambling? Or were they betting the farm on a 99% sure bet based on the variables they were looking at? If I can get 99% probability every month I should throw my entire account at that same trade every month.

 

[Fundlord]

I disagree. A time machine isn't accessible to the common man. inside info is on a case by case basis. The wildcard is a combination of talent, ingenuity and anti-sheep thinking that allows you to explore theoretical boundaries where most others stay within the white chalk lines. the bullshit white chalk lines.

Those guys who went for the jugular when they were right, as you attempted to say, were they gambling? Or were they betting the farm on a 99% sure bet based on the variables they were looking at? If I can get 99% probability every month I should throw my entire account at that same trade every month.

Nothing is 99% sure all you can have is decent confidence in a move there are no ways to calculate probabilities in markets. Risk free profits are a pipe dream outside T Bills. LTCM said that the chance of them blowing up was once in billions if years, yet they blew up in just 4 months, only 4 years after inception.

As someone who has achieved exponential returns in the past (over 10x returns in a couple months taking huge risk shorting eur and gbp when they were in a sustained downtrend). The only way to make extraordinary returns is extraordinary circumstances.

By that I mean a 30% down move in the eur/usd over a few months, a large down move in oil where 4-6% daily drops are not uncommon or a 10% sell off in the sp500.

I took advantage of one of those events, had I paid attention to the other two I would have more money.

Risk free is pipe dream unless you want to make 2% per year.

 

[BrandNewTrader]

Nothing is 99% sure all you can have is decent confidence in a move there are no ways to calculate probabilities in markets. Risk free profits are a pipe dream outside T Bills. LTCM said that the chance of them blowing up was once in billions if years, yet they blew up in just 4 months, only 4 years after inception.

As someone who has achieved exponential returns in the past (over 10x returns in a couple months taking huge risk shorting eur and gbp when they were in a sustained downtrend). The only way to make extraordinary returns is extraordinary circumstances.

By that I mean a 30% down move in the eur/usd over a few months, a large down move in oil where 4-6% daily drops are not uncommon or a 10% sell off in the sp500.

I took advantage of one of those events, had I paid attention to the other two I would have more money.

Risk free is pipe dream unless you want to make 2% per year.

We disagree. You're talking about getting lucky using leverage on high probability trades. This is a desired posture for most traders. But I'm talking about finding the loopholes that make money regardless of what the market is doing. Vol spike, vol crash, sideways, up, down, etc. Everything except suspension of markets and massive power outages and exchange breaking-of-trades is tolerable and will result in a risk-free gain.

This is possible. It is not a pipe dream. The fact remains that individuals will on occasion find loopholes in the market because the market was created and is maintained by humans. Nature is perfectly self-sustaining and regulating, humans are not. We have not designed a perfect system so therefore there are inefficiencies to be exploited. It doesn't necessarily take rocket science to figure them out. Just some heavy meditation and social alienation.

 

[Fundlord]

We disagree. You're talking about getting lucky using leverage on high probability trades. This is a desired posture for most traders. But I'm talking about finding the loopholes that make money regardless of what the market is doing. Vol spike, vol crash, sideways, up, down, etc. Everything except suspension of markets and massive power outages and exchange breaking-of-trades is tolerable and will result in a risk-free gain.

This is possible. It is not a pipe dream. The fact remains that individuals will on occasion find loopholes in the market because the market was created and is maintained by humans. Nature is perfectly self-sustaining and regulating, humans are not. We have not designed a perfect system so therefore there are inefficiencies to be exploited. It doesn't necessarily take rocket science to figure them out. Just some heavy meditation and social alienation.

Care to give an example of what is a risk free loophole outside of inside information and front running ? You have been in the market 10 years so you must have found a few over the years if what you are saying is true.