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90/10 Statistic the Obvious- For New Traders
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90/10 Statistic the Obvious- For New Traders

 
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Ozquant View Post
Only brokers know the true stats of retail traders and for obvious reasons they dont make this available . 90/90/90 sounds about right to me . You enter trading as a gambler and where you end up after that is up to you . Maths is the answer

Some in the industry do share

https://futures.io/traders-hideout/43854-can-day-trading-profitable-retail-12.html#post671485

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I dont believe that for 1 second , i know guys who work in brokers and what they tell me is 100% polar to that . Get back to me with stats on 20k and less accounts , thats real newbie retail size

 
 
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Salao View Post
So if...

1. 90% of traders fail and failure is defined as a negative expectation and...
2. Futures trading is Zero-Sum (ish?)

then...

1. A very small group (~10%) drinks the milkshake of the many (IE positive expectation) and...
2. The ubiquity of failing participants create a situation that...
A. Only requires a small edge for a meaningful positive expectation and would present a wonderful opportunity for an enterprising individual or group OR...
B. The small group of winners have the game completely crushed and exist to basically destroy dreams and whatever else.

Now is the assumption of a zero-sum game correct? If it is correct and the failure rate being what it is...it would seem there is a great opportunity for anyone able to develop only a sliver of an edge. At this point I think the truth is the failure rate is most likely less than 90% and the edge needs to be more robust to make a living. Are my assumptions correct? Too narrow?

I can't comment about the 90/10 statistic. I don't really know. (Although it wouldn't surprise me.)

I would like to address the "zero sum" issue though, because it's not always clear what is meant by it.

Every contract that is held long also has a corresponding contract held short by someone else. You aren't buying and selling existing assets, you are entering into contracts to buy or sell them at a later date. To enter into a buy contract, you need someone else to enter a contract to sell. So for every long there is a short, and overall the total losses and profits for all the accounts participating in the exchange are exactly equal.

At the end of each trading day, or when a trade is closed, all accounts are "marked to market:" the profits are actually realized by having the account receive a credit or a debit. Overall, the credits and debits are always equal: every dollar of profit is someone else's dollar of loss. This is a zero sum game by definition.

The futures market allows producers and sellers of commodities (or holders or financial assets) to hedge their actual positions by holding the opposite position in futures, which means that the value of one goes down by the same amount that the other goes up, and on balance they have neither a net profit or loss from market movements. It's a mechanism to offload market risk from those who don't want it to those who are willing to take it on (those who are not hedged.) The unhedged traders will be subject to market profits and losses, and that is what they are in it for.

The futures market is zero-sum by design. This does not imply anything about how the profits or losses are distributed (except that, obviously, not everyone can be winners.) It also is not either good or bad. And it doesn't mean anyone is ripped off when they lose. It's the same as at a poker table: the winners get their money from the other people at the table.

Bob.

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@bobwest the most no-nonsense definition of zero-sum, if ever there was one

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With poker, if you play heads up against your friend at your own house it is a zero sum game.

If you play at a casino or online it is not because the casino is going to rake the pot.

Futures trading and all trading is not a zero sum game because of transaction costs.

A zero sum game has a precise mathematical definition of x loss is exactly y gain and vice versa. That is the zero sum part.

 
 
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Assuming you are trading to make money not for the thrill of watching your money disappear. (some complain that trading is boring)

First of all you have to define success. My definition is outperforming a passive index ETF.

If you cannot outperform the index you should not be trading. Or rather your money would be better off in a passive investment.

Using that definition I would not be surprised that 90/10 is fairly close to reality.

When you talk you are only repeating what you already know. When you listen you might learn something new
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The more I learn about this statistic, the more it seems like 90% failure rate is in the right ball park. That being true, doesn't it stand to reason that you only need a sliver of an edge to do pretty well? At any rate, it is certain that most people will lose lots of money.

 
 
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statistics depend on timeframe


Salao View Post
So if...

1. 90% of traders fail and failure is defined as a negative expectation and...
2. Futures trading is Zero-Sum (ish?)

then...

1. A very small group (~10%) drinks the milkshake of the many (IE positive expectation) and...
2. The ubiquity of failing participants create a situation that...
A. Only requires a small edge for a meaningful positive expectation and would present a wonderful opportunity for an enterprising individual or group OR...
B. The small group of winners have the game completely crushed and exist to basically destroy dreams and whatever else.

Now is the assumption of a zero-sum game correct? If it is correct and the failure rate being what it is...it would seem there is a great opportunity for anyone able to develop only a sliver of an edge. At this point I think the truth is the failure rate is most likely less than 90% and the edge needs to be more robust to make a living. Are my assumptions correct? Too narrow?

The zero sum game theory is not really correct, you must take into consideration that everyone in the market has a different time frame, so not all transactions are opened and closed during the trading day. The zero sum assumption would be correct if trading was don only on one instrument and all traders were forced to liquidate the positions at the end of they day.....but then probably market would spin / around and go up and down and then come back to the opening value.

You actuvally see this this in very rotational days, in which there are no market partecipants with a longer timeframe, moving the market. Zero sum game is like the random walk theory, or Black Sholes model....it's just a math simplification. Mathematicians that never really traded made a lot of false assumptions on the market, that allow them to develop closed formulas for everything. For instance they modeled price movements are Wiener processes..... which is just BS.

Forget about trying to understand market as a science, it's an art....there is a rythm in it, there are sensations and emotions. Imagine playing piano, you can put all the notes in a computer.... but you would always recognize Bach played by Glenn Gould and Bach played by a computer. It's the same.

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SamJames View Post
The zero sum game theory is not really correct, you must take into consideration that everyone in the market has a different time frame, so not all transactions are opened and closed during the trading day. The zero sum assumption would be correct if trading was don only on one instrument and all traders were forced to liquidate the positions at the end of they day.....but then probably market would spin / around and go up and down and then come back to the opening value.

I don't want to beat this to death, but....

I think the argument that both traders on both sides of a trade can win if they have different timeframes is valid for trading an existing asset, such as stocks. Suppose I were long, and you were short, and then price did whatever it did -- depending on when we closed out, we can both be happily profitable. You may take a short-term profit, I took my long-term profit, I can have a profit and so can you, and the sum is not zero. We can both win.

In futures trading, which is not the same as stock exchange trading, zero sum is not some mathematical abstraction about no one being able to win or something. It's how accounts are marked to market in real time, with cash, at the end of every trading day. If you are short and your instrument went up in price, your account is debited real money at the end of that day and you realize the loss right then (which is why you're required to maintain a minimum margin in the account -- to allow for possible losses due to daily price fluctuations.) If someone else was long that instrument, his account is credited cash money (money that is taken from the shorts ) that day and he realizes the profit. The money that goes to the credited accounts, exchange-wide, comes from the money taken from the debited accounts. These are actual cash transactions, and are not abstractions at all. All this happens through the clearing brokers and impacts every account. They are true cash flows.

So long as you leave at least the maintenance margin in your account, you can withdraw the credited funds that day without having to liquidate the position. It's cash in hand. Anyone who was short, in this example, has a cash loss, and will need to add cash to his account if he went below the minimum margin requirement.

Not all transactions have to be closed and not all positions have to be liquidated. The accounts are evened up and profits and losses are realized, whether the positions are closed or not. This is not some mathematical abstraction or some theory or some cynical idea about most traders not being able to win, it's arithmetic. Each losing account, in any instrument, exchange-wide, is charged the amount of its loss. Each winning account is credited for its profit. The cash that goes from the profiting accounts, on aggregate, comes from the cash taken from the losing accounts.

(No, it's not exactly even, because there are also transaction costs, so the exchange and the brokers and the data and trading service providers have also taken a piece too. But the mark-to-market process is even and balances out.)

This is different from trading other instruments, but it's how things are implemented for futures contracts. There are reasons for this, but I've beaten this horse more than enough already and will stop now.

Also, it does not have anything to do with whether small (or large, or any size) traders can make money trading futures, or whether most traders lose, which I think was the original question.

It's just the mechanics of the exchange. (But if someone is going to disagree, they will need to explain how they think the exchange works instead.)

Bob.

------------------

Edit: the last sentence sounds like a challenge, and I don't mean it that way. But I'll keep it in, because this does describe how the CME actually does work, and it is not the same as, for instance, the stock exchanges. So, I am not meaning to be confrontational, but the actual details of futures trading are what they are.

No criticism meant or implied to anyone.


Last edited by bobwest; February 22nd, 2019 at 08:30 AM.
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bobwest View Post
I don't want to beat this to death, but....

I think the argument that both traders on both sides of a trade can win if they have different timeframes is valid for trading an existing asset, such as stocks. Suppose I were long, and you were short, and then price did whatever it did -- depending on when we closed out, we can both be happily profitable. You may take a short-term profit, I took my long-term profit, I can have a profit and so can you, and the sum is not zero. We can both win.

In futures trading, which is not the same as stock exchange trading, zero sum is not some mathematical abstraction about no one being able to win or something. It's how accounts are marked to market in real time, with cash, at the end of every trading day. If you are short and your instrument went up in price, your account is debited real money at the end of that day and you realize the loss right then (which is why you're required to maintain a minimum margin in the account -- to allow for possible losses due to daily price fluctuations.) If someone else was long that instrument, his account is credited cash money (money that is taken from the shorts ) that day and he realizes the profit. The money that goes to the credited accounts, exchange-wide, comes from the money taken from the debited accounts. These are actual cash transactions, and are not abstractions at all. All this happens through the clearing brokers and impacts every account. They are true cash flows.

So long as you leave at least the maintenance margin in your account, you can withdraw the credited funds that day without having to liquidate the position. It's cash in hand. Anyone who was short, in this example, has a cash loss, and will need to add cash to his account if he went below the minimum margin requirement.

Not all transactions have to be closed and not all positions have to be liquidated. The accounts are evened up and profits and losses are realized, whether the positions are closed or not. This is not some mathematical abstraction or some theory or some cynical idea about most traders not being able to win, it's arithmetic. Each losing account, in any instrument, exchange-wide, is charged the amount of its loss. Each winning account is credited for its profit. The cash that goes from the profiting accounts, on aggregate, comes from the cash taken from the losing accounts.

(No, it's not exactly even, because there are also transaction costs, so the exchange and the brokers and the data and trading service providers have also taken a piece too. But the mark-to-market process is even and balances out.)

This is different from trading other instruments, but it's how things are implemented for futures contracts. There are reasons for this, but I've beaten this horse more than enough already and will stop now.

Also, it does not have anything to do with whether small (or large, or any size) traders can make money trading futures, or whether most traders lose, which I think was the original question.

It's just the mechanics of the exchange. (But if someone is going to disagree, they will need to explain how they think the exchange works instead.)

Bob.

------------------

Edit: the last sentence sounds like a challenge, and I don't mean it that way. But I'll keep it in, because this does describe how the CME actually does work, and it is not the same as, for instance, the stock exchanges. So, I am not meaning to be confrontational, but the actual details of futures trading are what they are.

No criticism meant or implied to anyone.

Yes that's true, honestly I never thought about it that way. The "vision" I have of futures, is more like the description of what you did of stock trading. Technically what you say is correct... but I think that you might lose the perspective of how people think if you think in terms of "cash adjustment" at the end of the day.

Suppose that I am a long term investor in "oil" for instance: I have a price in my head, based on my analysis let's say 56,20 USD (If I remember correctly that's the level where there was a lot of accumulation in /CL for 3 days until the 19th of February).... I buy everything I can at 56,20USD because I will keep my position for weeks or month.
Then you are a short term trader, you will sell after the rally on Thursday and make some money during the liquidation that took place on Tursday 21st.
So you will think that I lost money because I did not sell at the top on Thursday, but the reality is that I don't care because I am willing to sell above 60. So in my perspective I haven't lost money.
I think a lot of people see futures as in the case of stock, because they just hold it to hedge or invest.

Anyway I understand what you say: if you take a daily "cash snapshot" it's a zero sum.

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