You say this like someone who has never had to deal with the reality of this! When all your trades move the market it's a huge disadvantage. You have to resort to all sorts of efforts to ensure you don't move the market because by definition you move it up when you're trying to buy (not to your advantage) and down when you're trying to sell (not to your advantage again). The signaling and subsequent front-running that happens is pretty much never to your advantage. Being small is actually a huge advantage, so much so that the vast majority of hedge funds, excluding folks like activist investors perhaps, would pay huge amounts of money for a system that allowed them to deploy at scale while having the same market impact as a small retail investor.
Size is edge?
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Well, I guess you just didn't get what I was saying. The trader you describe here is not the market, he's a big customer aka paper. Paper is the reason this industry is alive because most paper is dumb money, which is ok because their customers are even bigger idiots.
I am refering to making an actual market. How do you think structured product guys at GS et al have such a phenomenal winrate? Have you ever checked Goldmans annual report, the number of profitable days to be specific? You think that is because they have so much trading skill?
No, they are "inventing" a product were they are the counterparty to every trade, they are the market...and how much of an advantage do you think you get from that? Knowing every single position in the market, its entry price and it's P/L. Even when you provide liquidity in lit markets were you have a significant share of OI and volume you have this advantage.
As soon as you have everyone of your customers on the same side, you trade out of your hedge and whack em for all it's worth.
I'd suggest you find a thin market to quote to learn more about that...given the fact that you know how it's done. As an alternative try to find one of the Paul Rotter interviews...he was the market in GBL/GBM/GBS for quite a while
I'm pretty familiar with what GS does...and plenty of experience in thin market, thanks. Structured products are a very different thing than what you were describing earlier which was becoming a significant percentage of the daily trade size for a product ("But look at microcaps or OTC stocks, hell still even crypto...if you keep buying untill the shorts puke and the trendfollowers jump aboard, you got yourself a nice trade...happens all the time."). An i-bank makes consistent products in structured products because they charge a spread on the product, not because of "trading" savvy. In fact all their trading savvy is applied to trying not to move the market as they lay off risk. And they're not "whacking" anyone with a structured product trade, why bother when you're making such a consistent and large profit on simply putting together the product and laying off the risk. What you're describing is prop trading, which doubtless a few frustrated i-bankers till try to engage in post Volcker Rule under cover of structured products. But since they can no longer tie bonuses to prop trading profits, the motivation to break the law on the part of a trader really isn't there any more.
This vast conspiracy of big market players manipulating markets to profits is a convenient way to justify poor performance in the mind of a losing retail trader. Unfortunately there just isn't a lot of basis in fact for it given that they really want the opposite. They certainly have conspired on things like LIBOR fixing, but it's not where i-banks consistent profits come from.
you know dude, just stop trying to read between the lines. I'm not trying to make up or confirm conspiracy theories. And nobody here talks about manipulating the market, that's just BS anyways.
I make markets in 3 products and trade a structured portfolio in others. The advantage you get when you are one of the bigger players is huge because you just have an information advantage. And when I am ahead and the other guys need to get out, you bet I make them pay.
Like in poker when somebody tries to represent aces for three of a kind on the board and you know how slim the chances are because you have the other ace, if you have a significant portion of the open interest or float, you know the position of your counterparties.
You don't even need millions to do that, you can start making markets with 50-100k provided that you know how you get your hands on decent infrastructure (you know how to code), you know a market that hasn't a lot of competition and you know how to price things.
But I gues you have to see it to believe it...
For sure information asymmetry can provide alpha. DE Shaw, among others, engage in this type of strategy a couple layers deeper than you describe. I'd argue that being a significant percentage of float for a product has as many disadvantages as advantages and isn't necessarily the same thing. You're the one who get's hurt when a bunch of sell orders come in and you're the only buyer plus you've got a huge inventory. The fact that you have that inventory doesn't really help you. The fact that you're the only market maker or that you've studied the market for that very closely and know the players may very well help you, that doesn't require you be a significant portion of open interest or have size beyond what's needed to be a MM. If you've got a system worked out where you can use size to your advantage, more power to you, it's just not what you've described in each of the preceding posts.
BTW, curious what structured products you trade in? By their nature they're pretty much never traded, are you working some kind of reinsurance to i-banks? That would be interesting to learn about if its a thing.
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And the stock market is not a zero sum game.
However his ''15 Lies About The market ''; Lie #12 ''Emotions Are Not Allowed.'' Sounds like he may have that one right. NOT a prediction; i guessed =off his table of contents.LOL
Actually there are a lot of structured products out there that you can trade vs. OTC dealers especially in the FX world. You need to setup credit lines for yourself and you need software to trade it. As you trade against the dealers inventory, there are often mispricings because his inventory limit has priority over accurate pricing...so this can be your (h)edge for your own inventory to make markets on a lit exchange.
The difficulty is in the setup and finding the right product. Trading it is rather easy as long as you manage risk and know how the stuff is priced so you can hedge accordingly....so unfortunatly I cannot give away the products I'm trading right now.
However, I used to do a lot of NDF's in exotic currencies like the Thai Baht which was huge since the BoT limites access for financial institutions which gave the small fry huge opportunity. Not anymore tho...
Arbing currency controls has been a back burner thought of mine for a while. Did it on a personal level in Greece back in 2015 which got me thinking about it. Interesting to hear from someone who's actually done it.
It's been a free for all for a long time but now competition is too fierce for my taste.
It's actually quite ridiculous how many financial products are out there. I feel like the average retailer only sees about 5% of it. If you really want to go crazy, look over to the German warrants, bearer bonds and participation certificates. HVB One Market alone is the counterparty in over 200.000 instruments...
What doesn't appear on the platforms of IB or ToS basically doesn't exist for ETers or the general Robin Hood muppet. And if you can get creative with your synthetic hedge there is a lot of stuff you can make markets in or use as a hedge because the dealer mispriced it.
by the way...the biggest currency control related trade right now is in the CNY and crypto is the key to it
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True+ size can be king. Who would want to go against an elephant stampede or bear feeding frenzy/ red salmon run LOL.
And some of the size wasn't much of a king for long ;tech companies + a big bank ......... which i will not name today.
