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Retail traders vs professional traders
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Retail traders vs professional traders

  #1 (permalink)
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Retail traders vs professional traders

Some questions which I were thinking about.

I had always heard that 95% of traders loses their money and the remaining 5% take money from the 95%.

The 95% are mainly retail traders and the 5% are the "smart" money - professional traders

I am thinking for every $100 that enters the market, how many percent belongs to the 95% and how many belongs to the 5%?

Will not the retail traders consolidate to form an influencing force in the market direction since most of us react in similar way for our entries and exits. Sell at resistance, buy at support, follow the trend etc etc

Do the 5% manipulate the market to get their money or they are just smarter with their trading? If the 5% moves the market; eg to run all our stops, they must have a larger percentage of every $100 which enter the market? If they are the majority of the money entering the market will not there be less and harder for them take out of the market?

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  #3 (permalink)
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jonc View Post
Some questions which I were thinking about.

I had always heard that 95% of traders loses their money and the remaining 5% take money from the 95%.

The 95% are mainly retail traders and the 5% are the "smart" money - professional traders

I am thinking for every $100 that enters the market, how many percent belongs to the 95% and how many belongs to the 5%?

Will not the retail traders consolidate to form an influencing force in the market direction since most of us react in similar way for our entries and exits. Sell at resistance, buy at support, follow the trend etc etc

Do the 5% manipulate the market to get their money or they are just smarter with their trading? If the 5% moves the market; eg to run all our stops, they must have a larger percentage of every $100 which enter the market? If they are the majority of the money entering the market will not there be less and harder for them take out of the market?


If 95% of traders lose, this does not mean that their money ends up with the remaining 5% of the traders. Trading is not a zero-sum game, but a sucker's game. Your expectancy without an edge is negative. It is zero minus the commissions, exchange and regulatory fees.

This means that a large fraction of the money of the losing traders goes to brokers and exchanges. Only part of the accounts of the losing traders are being transferred to the winning traders.

The more you trade, the more of your money will end up with brokers and exchanges.

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It's like playing Red/Black on a roulette wheel with two zeros. Each time one of the zero hits your money goes to the Casino. This is the house edge. A trader is like an advantage player always trying to find a bias wheel he can exploit.

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trendisyourfriend View Post
It's like playing Red/Black on a roulette wheel with two zeros. Each time one of the zero hits your money goes to the Casino. This is the house edge. A trader is like an advantage player always trying to find a bias wheel he can exploit.

But at least, with Roulette everybody has the same losing probability.

And there is a best strategy to play Roulette. Only play once and put in everything you own. If you win, you have doubled up and leave the casino. Well, if you lose, you are left with nothing. But this is what is going to happen anyway, if you play all evening.

With a game like Roulette the best option is not to play, unless you do not play to win but for entertainment.

How many traders trade for entertainment only, and how many really focus on winning the game?


Last edited by Fat Tails; October 7th, 2010 at 01:10 PM.
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Fat Tails View Post
But at least, with Roulette everybody has the same losing probability.

...

How traders trade for entertainment and how many really focus on winning the game?

Maybe we could trick the casino out of high-value comps if you and I, who pretend to be strangers, play at the same table and make offsetting bets. Remember, let's focus on winning the game

P.S.provided the dreaded zeros don't hit too often.

Now, let's play with REAL random numbers going from 0..36 (single zero wheel, more safe) and see what we can win:
http://www.random.org/integers/?num=100&min=0&max=36&col=5&base=10&format=html&rnd=new

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trendisyourfriend View Post
It's like playing Red/Black on a roulette wheel with two zeros. Each time one of the zero hits your money goes to the Casino. This is the house edge. A trader is like an advantage player always trying to find a bias wheel he can exploit.

Even a single zero has a house edge and it is large.

It is the winners, not losers, who pay the vigorish to the casino. Why? Losers only lose the entire amount they wager, but the winner wins an amount that is less than the true odds he should have received if the game were fair.

In trading, everyone pays commissions and fees. There is no discrimination between the punters.

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Zoethecus View Post
Even a single zero has a house edge and it is large.

It is the winners, not losers, who pay the vigorish to the casino. Why? Losers on lose the entire amount they wager, but the winner wins an amount that is less than the true odds he should have received if the game were fair.

In trading, everyone pays commissions and fees. There is no discrimination between the punters.


The big guys have much lower commissions, but they have much higher operating costs. Our edge: only trade, when we have an edge. We do not need to cover overheads.

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Going back to the title of the thread, I define a professional trader as a sole proprietor who makes his day-to-day living from trading. He can be a big bettor or small. By definition, the professional has an edge, lest he'd be a loser.

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The big guys have much lower commissions, but they have much higher operating costs. Our edge: only trade, when we have an edge. We do not need to cover overheads.

Edge is simply to beat the vast majority of your peers. And there are a lot of foolish people out there...

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