My answer to the question of the thread is that it is all gambling. The difference is whether you are able to put yourself in the position of the house, and get systematically favorable odds in exchange for offering liquidity. Temperamentally, I agree with another participant who pointed out that the uncertainty in all commercial activity was such as to bring it within most dictionary definitions of gambling, save those which explicitly mention that the bet must be a game. Further, the fact that by opening a position in the market you acquire an asset that can be liquidated puts some difference between you and the person who puts his money on red in the casino.
But, of course, all these slightly different equi-legitimate definitions generate a hypercube of concepts of gambling, and you have to follow your intuitions which quadrant matches the concept you have in mind, and whether the activity falls inside it or not.
More concretely, Electric's pool-cleaning strategy is interesting. Many of us must have experimented with the idea that the correct way to play the markets is to establish a risk budget together with a methodology such that the only trades that get closed are either profitable or required to meet margin calls. The unsolved problem is whether the currency pairs pool-cleaner strategy is more likely over the long run to generate more realised profits than unrealised losses. If it is like other similar pairs strategies that I have tested in walk-forward simulations, the answer is that it will generate long periods when it is throwing off cash and long periods when it is in draw down. My hunch is that there is no way of knowing, ahead of time, whether an intolerable losing streak lasting a year or two will appear before a comparable profit streak (enabling you to retire). There are very large scale precedents for going bust as a result of systematically running a long volatility position.
Compare the Vegas version of 1-card Klondike, where you pay $52 for a deal, and get back $5 per card that is safely placed on the suit stacks. Seems to me that the $5 refunds play the role of realised profits, and the accumulation of $52 stakes plays the part of the unrealised. Strangely, there is no known mathematical solution to this game, so nobody truly knows its expectation. Empirically, the game seems to balance with a realised profit around $7 per card (which is why those terms of trade are not available in casinos), and to have long winning and losing streaks. The equilibrium is thus unstable. Probability of ruin and of becoming rich are both significant.
But, of course, all these slightly different equi-legitimate definitions generate a hypercube of concepts of gambling, and you have to follow your intuitions which quadrant matches the concept you have in mind, and whether the activity falls inside it or not.
More concretely, Electric's pool-cleaning strategy is interesting. Many of us must have experimented with the idea that the correct way to play the markets is to establish a risk budget together with a methodology such that the only trades that get closed are either profitable or required to meet margin calls. The unsolved problem is whether the currency pairs pool-cleaner strategy is more likely over the long run to generate more realised profits than unrealised losses. If it is like other similar pairs strategies that I have tested in walk-forward simulations, the answer is that it will generate long periods when it is throwing off cash and long periods when it is in draw down. My hunch is that there is no way of knowing, ahead of time, whether an intolerable losing streak lasting a year or two will appear before a comparable profit streak (enabling you to retire). There are very large scale precedents for going bust as a result of systematically running a long volatility position.
Compare the Vegas version of 1-card Klondike, where you pay $52 for a deal, and get back $5 per card that is safely placed on the suit stacks. Seems to me that the $5 refunds play the role of realised profits, and the accumulation of $52 stakes plays the part of the unrealised. Strangely, there is no known mathematical solution to this game, so nobody truly knows its expectation. Empirically, the game seems to balance with a realised profit around $7 per card (which is why those terms of trade are not available in casinos), and to have long winning and losing streaks. The equilibrium is thus unstable. Probability of ruin and of becoming rich are both significant.
