4 ms·

The average retail investor has access to options and margin which is more than enough to beat the market by significant amounts.

paulpauper 10y ago
margin interest is very high though
- gaadd33 10y ago
  Interactive Brokers quotes 2.16% for amounts under 100K, that doesn't seem too high assuming you are shooting for returns in the 5-10% range
  - SirLJ 10y ago
    the problem with the margin is that it will skive your risk management especially if you have 4x (and more) buying power like in FX world...
FabHK 10y ago
What are you talking about? That gives you opportunity to gamble and speculate, not to invest. Of course, if many people gamble, some will win, and they might post somewhere about it, but it is foolish to suggest that you can beat the market by significant amounts as a retail investor with options and margins without a commensurate increase in risk (and, because the options and margins are not provided by your friendly investment banker for free, with an increase in cost reducing your expected risk adjusted return).
- vostok 10y ago
  > gamble and speculate, not to invest What is the difference between gambling, speculating, and investing? In my home country, speculant was just an epithet for a capitalist.
  - SirLJ 10y ago
    gambling is when you do not know what you are doing and only hoping you'll win the jackpot... speculating and investing are synonyms IMHO
    - vostok 10y ago
      So by this definition, buying a broad market index with 10% leverage would be investing and advantage play or skilled poker would not be gambling?
      - SirLJ 10y ago
        I do not believe in leverage, but skilled poker is indeed not gambling, if you have risk management in place
  - FabHK 10y ago
    Good question, let me give it shot: Gambling, you bet (might win or lose) on something very random (dice, roulette wheel). Speculating, you bet (might win or lose) on something "economic", "business"-like. Those two terms have a connotation of imprudence (at least for me): You might win, but that's because you're lucky, not because you're smart. And you might lose. If you invest, you try to take luck out of it as much as possible, for example, by investing in something that you have a very deep understanding of, or investing (unleveraged) very broadly in the market. It's basically a continuum, with investing on the lower return, lower variance, less luck, more prudent end of things, and speculation at the other end.
- friedman23 10y ago
  what tools do you think institutional investors use that retail investors dont have access to?
  - milesvp 10y ago
    Sub penny bidding. https://www.bloomberg.com/view/articles/2015-01-15/ubss-dark-pool-was-shady https://www.bloomberg.com/view/articles/2015-01-15/ubss-dark... Sorry if this isn't the best article on the topic, it was a quick google search. My friend got bit hard by this. He had a HFT algorithm that was essentially guaranteed to at least break even by providing liquidity in the market by doing some fancy tricks that he's used for embedded digital signal processing. Problem was, his bids weren't being fulfilled even though he'd made them hours, sometimes days, previously. Given the amount of information available to him it looked like his orders were first in line at a given strike price to have his orders filled once the price moved to him. The only thing he could figure out was that someone was able to submit subpenny orders that would fill before his. I was skeptical initially, then some weeks later it started making the news that dark pools were managing to make subpenny bids on various digital exchanges. Far as I know the SEC turned a blind eye since the dark pools already had special privelidge in exchange for being market makers and liquidity providers.

paulpauper 10y ago

margin interest is very high though

gaadd33 10y ago
Interactive Brokers quotes 2.16% for amounts under 100K, that doesn't seem too high assuming you are shooting for returns in the 5-10% range
- SirLJ 10y ago
  the problem with the margin is that it will skive your risk management especially if you have 4x (and more) buying power like in FX world...

FabHK 10y ago

What are you talking about? That gives you opportunity to gamble and speculate, not to invest. Of course, if many people gamble, some will win, and they might post somewhere about it, but it is foolish to suggest that you can beat the market by significant amounts as a retail investor with options and margins without a commensurate increase in risk (and, because the options and margins are not provided by your friendly investment banker for free, with an increase in cost reducing your expected risk adjusted return).

vostok 10y ago
> gamble and speculate, not to invest What is the difference between gambling, speculating, and investing? In my home country, speculant was just an epithet for a capitalist.
- SirLJ 10y ago
  gambling is when you do not know what you are doing and only hoping you'll win the jackpot... speculating and investing are synonyms IMHO
  - vostok 10y ago
    So by this definition, buying a broad market index with 10% leverage would be investing and advantage play or skilled poker would not be gambling?
    - SirLJ 10y ago
      I do not believe in leverage, but skilled poker is indeed not gambling, if you have risk management in place
- FabHK 10y ago
  Good question, let me give it shot: Gambling, you bet (might win or lose) on something very random (dice, roulette wheel). Speculating, you bet (might win or lose) on something "economic", "business"-like. Those two terms have a connotation of imprudence (at least for me): You might win, but that's because you're lucky, not because you're smart. And you might lose. If you invest, you try to take luck out of it as much as possible, for example, by investing in something that you have a very deep understanding of, or investing (unleveraged) very broadly in the market. It's basically a continuum, with investing on the lower return, lower variance, less luck, more prudent end of things, and speculation at the other end.
friedman23 10y ago
what tools do you think institutional investors use that retail investors dont have access to?
- milesvp 10y ago
  Sub penny bidding. https://www.bloomberg.com/view/articles/2015-01-15/ubss-dark-pool-was-shady https://www.bloomberg.com/view/articles/2015-01-15/ubss-dark... Sorry if this isn't the best article on the topic, it was a quick google search. My friend got bit hard by this. He had a HFT algorithm that was essentially guaranteed to at least break even by providing liquidity in the market by doing some fancy tricks that he's used for embedded digital signal processing. Problem was, his bids weren't being fulfilled even though he'd made them hours, sometimes days, previously. Given the amount of information available to him it looked like his orders were first in line at a given strike price to have his orders filled once the price moved to him. The only thing he could figure out was that someone was able to submit subpenny orders that would fill before his. I was skeptical initially, then some weeks later it started making the news that dark pools were managing to make subpenny bids on various digital exchanges. Far as I know the SEC turned a blind eye since the dark pools already had special privelidge in exchange for being market makers and liquidity providers.