Reality for an Individual Trader
- Thread starter drader77
- Start date
I am in no way talking about anything illegal.
There is plenty of legal ways to access info not talked about over and over on the newswires.
Close Observation of how the real world of commerce works -- is one simple way then the complexity and need for info arbritrage goes up from there-- speaking in very broad terms
Stock market is basically zero-sum. During the entire life, many trader spend 50 years.
Wrong: The stock market in NOT a 0 sum game - when price rises that does not mean an equal amount of losers are required, in fact nobody has to lose for price to rise - the stock can gap up on good earnings - price rises yet not one short had to cover to create the gap. In a trending period you often have virtually everybody winning - since not many retail short the market. Ask anyone with a 401k if they are down over the last 8 years or last 3 months, etc,
Derivatives are the 0 sum game.
Wrong: The stock market in NOT a 0 sum game - when price rises that does not mean an equal amount of losers are required, in fact nobody has to lose for price to rise - the stock can gap up on good earnings - price rises yet not one short had to cover to create the gap. In a trending period you often have virtually everybody winning - since not many retail short the market. Ask anyone with a 401k if they are down over the last 8 years or last 3 months, etc,
Derivatives are the 0 sum game.
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I should accept it was WRONG partly.
Suppose the index rise for the last 10 years, then of course most EQUITY traders wins in his account.
However there might be price down in the next 10 years.
I mean long-run behavior of stock market is close to 0-sum, with dividend and inflation.
Equity is similar to real estate market, while derivative like future is close to Baccarat in Las Vegas.
There are no zero sum games in trading/investing.
Of course, since many traders pay 500K for the last 20 years, trading cannot be a 0-sum game. (daily $100 cost makes 24K per year)
For example, poker is 0-sum game if there is no rake(collection).
Trading on material non-public information is not always illegal. If you overhear about a possible merger while in a restaurant, it's material and non-public, but it's in no way illegal to trade on this information. Also, given how gray (and publicity-focused) the whole insider trading law is, a retail investor can get away with way more then a billion-dollar hedge fund.
Any normal human can come up with his own version of information mosaic, you just need to invest time into it. If it is a small stock, you can personally drive to the factory and observe the trucks coming in and out, count the boxes being loaded etc.
BuySell2 -There are no zero sum games in trading/investing.
With stocks & ETFs it is not a 0 sum game. This is a myth often cited in some trading books written by misinformed author's.
With futures and options it is a 0 sum game. Someone takes the other side of your trade - one wins and the other loses.
http://www.investopedia.com/terms/z/zero-sumgame.asp
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JK90029: I mean long-run behavior of stock market is close to 0-sum, with dividend and inflation.
A $1,000 investment in the S&P 500 Index just before the crash in October, 1929 would be worth approximately $750,000 today (assuming these
stocks or similar S&P 500 stocks are held through thick and thin, reinvesting the dividends in the same stocks). An increase of 750 times in 74 years
. Perhaps a more recent example is useful: From August 12, 1982 through September 30, 2003, the S&P500 Index, with dividends reinvested, turned $10,000 into approximately $160,000.
http://www.investopedia.com/terms/z/zero-sumgame.asp
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More precisely, equity and ETF are 0-sum with respect to index, with additional dividend.
Of course, it is true if there is NO comm+tax. Actually it is minus-sum since most pay lots of comm+tax as long time as 50 years.
Who can be a winner if he pay 500K for his entire life?
If he steal 600K from his neighborhood(other trader), then his account is plus 100K.
Trading may NOT be a game against other trader, but a game against cost like comm+tax.
In conclusion, find a trading logic with as small life-time cost as possible.
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Futures and Options are negative sum games.