Ok Ok what edge
- Thread starter jrlvnv
- Start date
Here are some examples of edge:
1) Somehow overhearing fed chairman X give his leanings on the next rate meeting, which are contrary to market expectations.
2) An insider seller of a company whose earnings have been consistently "stretched" to meet the analyst average.
3) Having a network of contacts overseeing real-time conditions of major cocoa "plantations" in the Ivory Coast.
Etc.
There is no absolute edge greater than that of receiving or obtaining information yet to be discounted by the market.
Now, those of us without regular access to such advantages need to use less "robust" methods to fall back, for example, statistical analysis.
(Guys, I'm kidding -- sort of
)
1) Somehow overhearing fed chairman X give his leanings on the next rate meeting, which are contrary to market expectations.
2) An insider seller of a company whose earnings have been consistently "stretched" to meet the analyst average.
3) Having a network of contacts overseeing real-time conditions of major cocoa "plantations" in the Ivory Coast.
Etc.
There is no absolute edge greater than that of receiving or obtaining information yet to be discounted by the market.
Now, those of us without regular access to such advantages need to use less "robust" methods to fall back, for example, statistical analysis.
(Guys, I'm kidding -- sort of
)I am an options market-maker. The term edge as it is used in market-making refers to the difference between the price you pay for a contract and your theoretical values. So if you have something priced at 10 bucks and you are able to buy it (on the bid) for 9.80 your edge is .20 cents. The theory is that if you only buy and sell when you have enough edge to cover transaction costs, exchange fees, etc. you will make money as long as order floor continues.
And a great edge it is, especially in SPX options where you have a huge spread between the B/A. Equity option market making is much harder, although I guess the back months or OTM options offer some juicy spreads too.
Of course, you/your firm pay a pretty penny to make two sided markets, but don't have cancel fees and pay close to nothing on comissions. Plus, you have access to firm capital and can lay off risk by hedging and/or locking in profits almost instantly and extremely cheaply. All those put together is the "edge."
nitro
Clearly experience is an 'edge'.
And I think most will agree that the following also have a positive impact on attaining and maintaining some form of statistical advantage;
a) access to sufficient capital resources,
b) reliable direct-access, low cost execution broker
c) fast, efficient real-time market data and good analytic software
d) high quality real-time news service(s)
e) good trading setup and environment - computers, network, phone, fax, coffee machine
I'm sure there are others, too - more specialized, and specific to an individual's personal style and the type of markets that are being traded.
And I think most will agree that the following also have a positive impact on attaining and maintaining some form of statistical advantage;
a) access to sufficient capital resources,
b) reliable direct-access, low cost execution broker
c) fast, efficient real-time market data and good analytic software
d) high quality real-time news service(s)
e) good trading setup and environment - computers, network, phone, fax, coffee machine
I'm sure there are others, too - more specialized, and specific to an individual's personal style and the type of markets that are being traded.
here is an edge that I consistently made money with. Doesn't work any more.
Go to quote tracker. pick a high volume, tight spread like intel was and put up the chart from my broker and the quotes from Island.
When the bid on island exceeds the ask on broker, buy from broker. Go long only. 100 to 200 trades per day scalping.
Two losing days in 2 months. No broker fees. Low broker fees are definitely an edge.
Go to quote tracker. pick a high volume, tight spread like intel was and put up the chart from my broker and the quotes from Island.
When the bid on island exceeds the ask on broker, buy from broker. Go long only. 100 to 200 trades per day scalping.
Two losing days in 2 months. No broker fees. Low broker fees are definitely an edge.
Go buy a book on blackjack and read about card counting. This is the best example of an "edge" that I know of. Take those concepts, along with the information in the other posts on this thread, and think about how it all relates to the markets. If you can figure it out yourself, then you understand the idea of "edge". Good luck.
This is one of my old posts about edges...
There are two kinds of traders imo.
The first are those who find an "edge" or "niche" where they know consistent money can be made. These are usually the prop traders (vs. retail) on ET. For someone to consider a niche to be borderline illegal is insane. 99% of everyone who has actually made a living in the market knows that you have to find an edge that gives you a better chance than the next guy. It could be better information, technology, strategy, trading skill etc. This includes ALL legal strategies...pennying, rebate trading, OPG or whatever. I know of many profitable traders using some form of this trading.
The second is someone who bets on market direction either using intuition/experience, or some form of indicator. I personally know of only a couple guys that can "shoot from the hip" and still make big money, but I have seem MANY losing traders burn out with this method. xxxxx seems to think he can make money based on "humanistic traits" which create market movements. If so that's excellent...but for someone like that who is not currently making money, they have a looong road ahead of them (or possibly a short trading road).
These reasons account for so few profitable traders in markets like ES,NQ,F/X etc. There is hardly an edge to be found. They are highly efficient markets. You have to bet on direction which is one of the hardest ways to make a living in this business. Anyone making a good living in these markets is a great trader imo.
There are two kinds of traders imo.
The first are those who find an "edge" or "niche" where they know consistent money can be made. These are usually the prop traders (vs. retail) on ET. For someone to consider a niche to be borderline illegal is insane. 99% of everyone who has actually made a living in the market knows that you have to find an edge that gives you a better chance than the next guy. It could be better information, technology, strategy, trading skill etc. This includes ALL legal strategies...pennying, rebate trading, OPG or whatever. I know of many profitable traders using some form of this trading.
The second is someone who bets on market direction either using intuition/experience, or some form of indicator. I personally know of only a couple guys that can "shoot from the hip" and still make big money, but I have seem MANY losing traders burn out with this method. xxxxx seems to think he can make money based on "humanistic traits" which create market movements. If so that's excellent...but for someone like that who is not currently making money, they have a looong road ahead of them (or possibly a short trading road).
These reasons account for so few profitable traders in markets like ES,NQ,F/X etc. There is hardly an edge to be found. They are highly efficient markets. You have to bet on direction which is one of the hardest ways to make a living in this business. Anyone making a good living in these markets is a great trader imo.
I don't agree with a lot of you guys about what's an edge. To me, your edge is what allows you to make a profit, not things that maximizes your profit.
For example, my edge is that I can predict with about 60% certainty how the market will react to certain types of news. This is what gives me positive expectancy. Sure I also moved to a different broker to reduce slippage/commissions, but reducing slippage/commissions is not an edge, it's just fine-tuning, maximization. You can never make any money in the market with just low commissions alone without something else which gives positive expectancy.
For example, my edge is that I can predict with about 60% certainty how the market will react to certain types of news. This is what gives me positive expectancy. Sure I also moved to a different broker to reduce slippage/commissions, but reducing slippage/commissions is not an edge, it's just fine-tuning, maximization. You can never make any money in the market with just low commissions alone without something else which gives positive expectancy.