Is Trading Itself a Bad Trade? I Analyzed the Industry- Prove Me Wrong

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sle said:
LOL. I am doubt you ever actually worked outside of back office if you believe that Nav Sarao actually caused the flash crash. You preoccupation with Steve Cohen is not indicative of an adult understanding of the industry either. Or, for that matter, that fact that you believe anything printed in the Daily Mail. :p

Back to the topic, here is the breakup in a bullet-point form:
  • Do people in professional risk-taking seats play the same game as the retail traders? No, not really. It's a very different mindset that centers on the research process (anywhere, from global macro to HFT)
  • Do all professional risk takers cheat all the time? No, not really. It's an illusion perpetuated by the media - there aren't enough opportunities to cheat to make a living.
  • Is the finance industry rather predatory towards the smaller guy? Yup, it sure is. So real estate (much worse, actually), yet people eagerly participate.
  • Can a retail trader play the same game as the pros if he so desires? Sure, the actual barriers to entry are pretty low.
  • Do they need specialized knowledge to do so? Yes, for sure. That is the key problem - a retail trader has better ROC expectation due to lower capacity requirements, but rarely has the skill to use that to his advantage.
  • Could you be a successful hobbyist trader? Yes, and that is probably the most favorable outcome for a retail participant
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Apologies...first time on this forum....

I didn't put a dozen links up to a similar story. I am not pre-occupied with Steven Cohen either - his name was raised by one of the posters here. And no...I always have worked in the front-office.

Back to the topic, here is the breakup in a bullet-point form:
  • Do people in professional risk-taking seats play the same game as the retail traders? No, not really. It's a very different mindset that centers on the research process (anywhere, from global macro to HFT.
  • I would argue that they 'play a game' which is more in their favour. Businesses have to make a profit and, in general, the professional risk takers would be out of a job or their company would shut down very very quickly if they took the same risks at the same risk/reward ratio as a retail client. I can imagine 100 day traders from ET setting up a hedge fund next month. Each given $10m to trade. How long would the business last? Instead, professional risk takers make a profit precisely because they do not trade as retail clients do (I have outlined some examples - insider dealing and spoofing not being the only ones)

  • Do all professional risk takers cheat all the time? No, not really. It's an illusion perpetuated by the media - there aren't enough opportunities to cheat to make a living.
I was not referring to 'cheating' per se. Rather, the more successful ones appear not to be play by the same rule book as the 'hunted.' Some of the strategies they use may seem 'unfair' or 'unethical' by an average person (which is why they never occur to him). Many are illegal. I have given many examples of this. HFT, for example, is not illegal but it is, in essence, front-running orders (unfair? unethical?). Somebody, who 'plays be conventional rules' would lose against a HFT fund.
  • Is the finance industry rather predatory towards the smaller guy? Yup, it sure is. So real estate (much worse, actually), yet people eagerly participate.
I totally agree. That was my original premise.
  • Can a retail trader play the same game as the pros if he so desires? Sure, the actual barriers to entry are pretty low.
No they are not. I disagree. To set up even a small hedge fund necessitates compliance, regulatory and legal fees. Also, to hire and retain analysts and professionals requires capital which automatically excludes the majority of the population of day traders. Also, once you have some purchasing power you generally have access to better research, to better deals and obtain better access (remember the film Big Short and the ISDA the small guys were trying to obtain? And they had millions under management). Don't forget also that you can buy politicians/ secure your cartel if you are big enough. As an example, none of the big investment banks went bankrupt post financial crisis...in fact, they lobbied for and received both government printed money and received taxpayer money from the tax donkeys at the bottom of the social pyramid in the US. Afterwards, even received bonuses. A retail trader, unfortunately, has to go bankrupt as he does not have that level of access. Maybe because he has been brainwashed into thinking capitalism exists in America?
  • Do they need specialized knowledge to do so? Yes, for sure. That is the key problem - a retail trader has better ROC expectation due to lower capacity requirements, but rarely has the skill to use that to his advantage.
Once again, I disagree. A retail trader has almost no leverage with regard to direct access to market, access to advanced software/analysis or research or reducing his commissions/fees. He is a minow swimming in a sea of sharks and whales. You seem to forget that having more capital than your competition can be an 'edge' in and of itself (but, of course,it is one factor in a multi-variate analysis of success). Knowledge capital is also a form of capital. I would agree, however, that in some certain very limited circumstances a retail trader might have an edge in the form of knowledge capital (for example, in a niche area of the market)
  • Could you be a successful hobbyist trader? Yes, and that is probably the most favorable outcome for a retail participant
If you read my posts. I agree that, statistically, a very very tiny percentage of traders succeed. Of these, a smaller percentage do so consistently and over a long period of time. Of these, perhaps an even smaller percentage would be better off than a plumber.

The premise is that, there are other better 'trades' out there if you are truly a trader and apply a pure trader's mindset to the game. In other words, a real trader would not day trade like a retail client he would 'trade' other trades.
 
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To add to this discussion...I worked for a while within a UK CFD and Spread-betting platform. I wanted to learn this part of the industry from the inside out.

The regulated platform (in the top 5 in size in the UK) would routinely identify profitable traders (there were very very few). Then they would 'game' them by slowing down the execution of their orders (clients would press the 'sell button' on their screen and a spinning icon would show that their order was being executed- in fact it was a programmed delay). If they were still somehow profitable after this they would close down their accounts using an obscure part of their service agreement. Of course, if a leveraged position went against a client then they would instruct debt collection agencies (although this aspect changed recently due to regulations.). I know of a number of case where people have lost homes, cars, relationships and life savings. Other shady practices included misquotes of prices (which only a tiny minority of clients ever spotted).

What most people know is that such bucket shops, in fact, take the opposite side of the trade and are incentivized for retail clients to lose. However, they are unaware of the other tactics that they use.

It is not a 'level playing field'...in my experience by any means. However, if you are under-capitalized you do not have access (in the vast majority of cases) to true DMA because you have no ability to negotiate it for yourself. Neither do you have access to other things such as analysis, people or information.
 
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There are aspects to the mechanics of short-time-frame trading using limit orders via the typical retail broker that virtually guarantees the trader who attempts this particular brand of trading will not make money. Yet every retail broker I am aware of promotes short term trading using limit orders. This is an unsavory part of Wall Street that is well covered-up with pancake make-up. Before I die, I may write the book that uses plain talk to wash away this make-up. It wouldn't be a long book. I wouldn't be a popular book. The devastating reviews from Wall Street would be enough to bury it. But it would give me some personal satisfaction.
 
cityboy12 said:
To add to this discussion...I worked for a while within a UK CFD and Spread-betting platform. I wanted to learn this part of the industry from the inside out.

The regulated platform (in the top 5 in size in the UK) would routinely identify profitable traders (there were very very few). Then they would 'game' them by slowing down the execution of their orders (clients would press the 'sell button' on their screen and a spinning icon would show that their order was being executed- in fact it was a programmed delay). If they were still somehow profitable after this they would close down their accounts using an obscure part of their service agreement. Of course, if a leveraged position went against a client then they would instruct debt collection agencies (although this aspect changed recently due to regulations.). I know of a number of case where people have lost homes, cars, relationships and life savings. Other shady practices included misquotes of prices (which only a tiny minority of clients ever spotted).

What most people know is that such bucket shops, in fact, take the opposite side of the trade and are incentivized for retail clients to lose. However, they are unaware of the other tactics that they use.

It is not a 'level playing field'...in my experience by any means. However, if you are under-capitalized you do not have access (in the vast majority of cases) to true DMA because you have no ability to negotiate it for yourself. Neither do you have access to other things such as analysis, people or information.
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Sounds like the people you worked for should be in jail and the UK regulators, just like the UK police are a joke.

You don't need to be a whale to use DMA. DMA access is not reserves for the rich, despite you making it seem that way.

But you do have a point that most of these shady brokerage firms should never be used by anyone. You have to do deep due diligence before wiring your funds to any broker and keep an eye on them afterwards. Many people do not seem to understand this, whether they are gullible or brave, I believe the former.
 
piezoe said:
There are aspects to the mechanics of short-time-frame trading using limit orders via the typical retail broker that virtually guarantees the trader who attempts this particular brand of trading will not make money. Yet every retail broker I am aware of promotes short term trading using limit orders. This is an unsavory part of Wall Street that is well covered-up with pancake make-up. Before I die, I may write the book that uses plain talk to wash away this make-up. It wouldn't be a long book. I wouldn't be a popular book. The devastating reviews from Wall Street would be enough to bury it. But it would give me some personal satisfaction.
More...

Thank you for adding to the thread. Maybe contribute some examples here?. I would disagree with you about popularity. There are usually enough intelligent people out there to make your future book popular. You don't have to appeal to the mass market. This thread has had thousands of views. I have had emotional attacks but I tend to trust the silent majority.
 
d08 said:
Sounds like the people you worked for should be in jail and the UK regulators, just like the UK police are a joke.

You don't need to be a whale to use DMA. DMA access is not reserves for the rich, despite you making it seem that way.

But you do have a point that most of these shady brokerage firms should never be used by anyone. You have to do deep due diligence before wiring your funds to any broker and keep an eye on them afterwards. Many people do not seem to understand this, whether they are gullible or brave, I believe the former.
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About these people getting punished...the operative word is 'should' (for a normal ethical person with a certain mindset who is idealist...the word 'should' is often used a lot). But they aren't and this is my point about having a 'prey' mentality. You have to see the world as it really is and the real world is different to the 'should' world. They pay fines (which go into business costs) and then go on to make further profits. A guy at the bottom of the pyramid, however, may go to jail for years for a minor transgression.

Please refer to my example of the US investment banks post financial crisis (nobody went to jail and they even awarded themselves huge bonuses after spending heavy money on some strong lobbying. In fact, they used printed money to continue to lobby politicians in the future). The evidence is that this is not a level playing field and neither is it true capitalism. If it was, then the investment banks should have been treated no differently than any other small business and should have gone bankrupt.

As traders...'we trade what we see...' and not what 'should' happen.
 
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cityboy12 said:
To add to this discussion...I worked for a while within a UK CFD and Spread-betting platform. I wanted to learn this part of the industry from the inside out.
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Oh, which one? I've been spreadbetting for maybe 25 years.
 
I can't tell you, unfortunately, and you can assume the reason why. One of the top 5. The point being is that this happened with one of the largest firms in the industry with the UK regulator being very strict (in comparison with other countries) so what chance do you have with others?

The smaller or offshore ones are much much worse. I won't even mention the cryptocurrency ones...now that is a total cesspool. No regulation, no central clearing, unregulated sales tactics ....
 
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