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Can Day Trading be profitable for retail?

  #97 (permalink)

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I don't want to be splitting hairs about whether @artemiso's cash FX data applies to other traders in other markets. After all, it doesn't have to be the same to make a point: that smaller traders generally do less well, as a group. I think that's a general perception, and this data just gives a precise result for one group of small traders. It's probably reasonable to extend the general result to other small traders as well, to some extent at least, and it doesn't have to be exact to be meaningful.

Certainly there can be differences between markets. But the argument of "no arbitrage" is essentially that if there were big differences between how easy it is to make money in one market compared to another, then everyone would abandon the hard one and go to the easy one. (I think that is worth a "Duh." )

This implies, to a degree, that any existing markets will tend to be similar in terms of opportunity, when all factors affecting opportunity are considered. (There may be more liquidity in one market, etc., and this may matter, as @artemiso mentioned):

artemiso View Post
Otherwise, you usually have to trade off something to get that higher win rate, be it a higher cost of entry (market data, connectivity), higher operational risk, higher regulatory burden, lower liquidity, and so on.

The players are probably about the same, however.

If we take traders who are:
1) Not well-capitalized,
2) Are trading short time horizons (mainly day-trading) -- I am assuming this is mostly true of these FX traders,
3) Are heavily margined,

then you've got a lot of similarity between them, no matter what markets they are in. Will futures traders fitting this profile do well, while similar cash FX traders do not? Really?

That is possible, I suppose, but it would be a surprise and would take some proof. It is more likely that most (certainly not all) traders with this profile would tend to do about as well, or poorly, in most markets.

For example, it would be a big surprise if many equity traders who fit this profile (low capitalization, day trading, heavily margined) do very well either. Yes, I know there has been a big equity bull market (until recently, perhaps ), but the question is about highly leveraged day traders with very little money. I have watched ES (S&P futures) traders losing money in their FIO journals during this entire market cycle, during an equities bull market. It's very easy to lose money. It also helps if you can't sustain a very big loss and you are using maximum margin and are doing fast in-and-out trading.

So, I suppose I did split some hairs, but I think there is bottom-line significance to the data that has general importance. Until we have something like it for other groups of traders, I think it helps to flesh out the overall picture of how small traders generally do in the markets.

Bob.

Edit: We're also obviously dealing with traders in the aggregate. A particular individual may do better or worse than the average, and may find one market more suited to him/her than another, for any number of reasons.


Last edited by bobwest; February 18th, 2018 at 12:11 PM.
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