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

[sle]

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)

It's a skill, there is nothing "professional only" about it. People retire and keep trading their own capital successfully (heck, I did it some years ago, from a hospital bed). There are numerous examples of people here that did not come from a finance background and managed to research and create profitable strategies. Some have made 8 figures for themself over the course of time.

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).

LOL, more capital is not an edge. It's curse. Alpha that has capacity is very hard to come by (ask me how I know). It's pretty easy to produce nice returns on 500k, trying doing it on 500 million and get back to me. Smaller trader that is equipped with the same skill-set as a professional money manager can produce much better return on capital, at the very least by virtue of choice.

Take any strategy, let's say merger arb - if you are running a billion, you have 10-20 deals to pick from, if you are running a 100 million you have maybe 100-200 but if you are trying to deploy a million you have the pick of about 2k of pending deals. Guess who will have the 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.

A retail trader with say 500k of capital has access to portfolio margin, lower cost execution platform and yet he's not required to "deliver" the way a 500 million dollar PM does. That alone is a huge plus. Add to it lack of mandate and many other things.

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.

First of all, I'd recon most people here have day jobs and trading is a hobby for them. If you don't have to live and die by your PnL like yours truly, it's a pretty awesome hobby. Once someone is thinking of turning pro and can't find an institutional gig, yes, there are other professions that might have better risk-reward. Not sure if anything else out there properly caters to a "pure traders mindset", at least not in an obvious way.

 

[LS1Z28]

I guess I'll toss my 2 cents in on the original question.

Look at the typical career path. First you go to college for 4-8 years to get a degree. It's very common to amass a large amount of student loan debt in the process. Then you have to work your way up for a few years before you get the job you want. It isn't uncommon for someone to work for a solid decade before they get to where they want to be.

My guess is that most people study for less than a year before trading a live account. Then they trade way too aggressively before they've gained any experience. They get destroyed, and they become a part of the 90% that fail. I've always wondered what the success rate would be for traders that have devoted at least 5 years to trading.

I wouldn't advise anyone to take the retail trading route out of high school as a primary career path. You can do everything right, and still fail. In comparison to a traditional career path, it probably would be considered a bad trade. That doesn't mean you shouldn't trade on the side if it's something your passionate about.

 

[SimpleMeLike]

Ok, Everybody go watch something funning or listen to Lil Baby. It's time to chill out.

"Drip too hard, don’t stand too close
You goning fuck around and drown off this wave"

 

[cityboy12]

Last time I checked, Einstein didn't graduate from a top university in the US or Europe, he wasn't teaching at a top university when he published his theory of relativity. In fact he was working in the patent office as a patent clerk.

That was in the 1940s (also he had a high IQ) As another example, the Baby Boomer generation of the 1960s left school with a high school diploma and bought a cheap property. Often had a job for life and a defined benefit pension. You cannot use the same paradigm of success in 2019 as they did in 1960.

Welcome to 2019. A number of reasons (including progressive credentialism, global competition for jobs, shortage of quality jobs due to outsourcing, federally created asset bubble, student loan bubble, the Baby Boomers pyramiding off of the young etc) means that you need a much much higher level of skill and credentials than the past. Some sectors of financial services are mature markets now with high levels of competition. The mistake people make is that they point at people from the 1980s or 1990s as examples (in your case 1940s) ...the market was completely different then. George Soros established his fund where there were almost no funds around in competition. This is 2019. A lot of the 'market wizards' who people quote as legends established their operations/careers in far less competitive times and would fail today (in fact, a lot have).

Read the job adverts for top hedge funds again and my post. I never said that it was impossible, I just said that the odds of success are greatly diminished if you do not fit a profile to the point that it isn't a good trade.

 

[cityboy12]

I guess I'll toss my 2 cents in on the original question.

Look at the typical career path. First you go to college for 4-8 years to get a degree. It's very common to amass a large amount of student loan debt in the process. Then you have to work your way up for a few years before you get the job you want. It isn't uncommon for someone to work for a solid decade before they get to where they want to be.

My guess is that most people study for less than a year before trading a live account. Then they trade way too aggressively before they've gained any experience. They get destroyed, and they become a part of the 90% that fail. I've always wondered what the success rate would be for traders that have devoted at least 5 years to trading.

I wouldn't advise anyone to take the retail trading route out of high school as a primary career path. You can do everything right, and still fail. In comparison to a traditional career path, it probably would be considered a bad trade. That doesn't mean you shouldn't trade on the side if it's something your passionate about.

Again, this is the paradigm that worked from the 1960s...get a degree, corporate ladder, mortgage etc. Ask any millenial how times have changed. Nowadays, only STEM or professional degrees give you any leverage and increasingly only from elite universities. A lot of young people have been fed this line and ended up working in a coffee shop with a worthless degree.

Applying the same concept, I would argue that, as a retail trader you have to be several orders of magnitude more skilled than those who were in the game in the 1990s or even 2000s. Mathematics, programming skills etc. Without this you will fail.

 

[Robert Morse]

Applying the same concept, I would argue that, as a retail trader you have to be several orders of magnitude more skilled than those who were in the game in the 1990s or even 2000s. Mathematics, programming skills etc. Without this you will fail.

I would not say that there is more skill required today, just a difference skill adapting to the time. I traded activity from 1985 to 2010. I have a BS-MBA from NYU business school and took 3 computer classes- BASIC, FORTRAN and COBOL. I did use BASIC to print my option sheet each morning using the BS model in the early days but there were no automated traders in 1985. I took one course in Grad school on the pricing of Options. Other than BASIC and that class, school did not help me trade but all those years of grade school, University and then Grad school taught me how to learn. That helped me trade too.

 

[zenostiffler]

Wrong. If you're fed the wrong information by a supposed authority, it will be very damaging intellectually -- not to mention the loss of money and time.

I still firmly believe no active trader spends time mentoring for pay, he shouldn't need the money and has better things to do with his time. I know of someone who was mentored but that was a friend doing the mentoring and I think no money exchanged hands. Very different.

Agreed. When I strayed into systematic trading I took a lot of notice of others but that was by way of studying their code and using examples to develop my own ideas.

Which is why I recommended Quantopian and a few other forums to somebody above. Wonderful free education.

 

[SimpleMeLike]

Wrong. If you're fed the wrong information by a supposed authority, it will be very damaging intellectually -- not to mention the loss of money and time.

I still firmly believe no active trader spends time mentoring for pay, he shouldn't need the money and has better things to do with his time. I know of someone who was mentored but that was a friend doing the mentoring and I think no money exchanged hands. Very different.

d08,

We can agree to disagree on this.

Mentoring is different from providing a trading course. Either way I do not see nothing wrong with buying a trading course(s) for a trader. How else should someone begin or continue to learn, besides staring at the charts all day. The problem is finding quality trading course. Everyone trading journey is different.

 

[Robert Morse]

d08,

We can agree to disagree on this.

Mentoring is different from providing a trading course. Either way I do not see nothing wrong with buying a trading course(s) for a trader. How else should someone begin or continue to learn, besides staring at the charts all day. The problem is finding quality trading course. Everyone trading journey is different.

I agree with SimpleMeLike. I do think that anyone that pays for a mentoring program or course can't expect to just copy what they are taught. The point should be to learn a process. Take from it what works for you and learn from there forward.

 

[SimpleMeLike]

Agreed. When I strayed into systematic trading I took a lot of notice of others but that was by way of studying their code and using examples to develop my own ideas.

Which is why I recommended Quantopian and a few other forums to somebody above. Wonderful free education.

zenostiffler,

With all due respect, programming and systematic trading is a complete waste of time if the trader has no actual manual trading experience. Where will he/she get trading ideas from?

systematic or algorithm trading is tool, not an art or skill to making money trading.