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While I agree that day trading anything is an extremely poor idea- why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? (Or if isn't

While I agree that day trading anything is an extremely poor idea- why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? (Or if isn't profitable, why do they do it?) Is it just the massive informational advantage that they have? I'm not advocating for trading per se (I certainly don't do it!)- just curious about how large financial institutions presumably turn trading profits in light of EMH

o_nate 7y ago
The type of trading that is consistently profitable at banks is mostly market-making, which is not a strategy available to a day-trader.
neaden 7y ago
A big part of it is that on average the stock market goes up, so even if you are randomly buying stocks you'll come out ahead over the long run as long as fees don't eat it up. Another significant portion is that they have access to a lot of information you don't, and are able to buy stocks and derivatives that you cannot. This comes as a benefit of their size.
dan_mctree 7y ago
In addition to what the others said, stock trading fees often don't scale with the cost of these stocks. If you're investing with low amounts, these static fees eat up a lot of any potential gains of day trading
Havoc 7y ago
>why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? Not a level playing field. It's exactly because you're going up against guys like GS that's the reason for day trading being suicide.
pembrook 7y ago
Goldman Sachs isn't profitable because of prop trading. They charge fees for services. It's that simple.
- hash872 7y ago
  So then why do they trade at all then? I'm not arguing for trading, I'm just curious. It seems like the existence of 'trader' as a job at all of these financial institutions kind of disproves EMH if you have enough market data
  - pembrook 7y ago
    They don't. After the Volcker rule the big banks had to close their prop trading groups: https://en.wikipedia.org/wiki/Proprietary_trading https://en.wikipedia.org/wiki/Proprietary_trading The idea that investment banks are filled with human "traders" is Hollywood nonsense. Most trading activity (and even filling of retail order flow) is now done by quant-driven funds.
    - hash872 7y ago
      According to LinkedIn there are 573 people with the job title 'trader' at Goldman Sachs. I'm scanning through the list now- titles like Fixed Income Trader, Mortgage Trader, Rates Trader, Oil Trader, Equity Sales Trader, FX Trader, Emerging Markets Trader, Base Metals Trader, Interest Rates Trader, Investment Grade Bond Trader, Equity Derivatives Trader, Commodity Trader.... I found all of these on the first page of results (25 people)
      - NovemberWhiskey 7y ago
        There are not a lot of equity cash traders left in Wall Street firms; but it's not like equity cash is the only thing to trade.
      - pembrook 7y ago
        By contrast, about 37,000 people work at Goldman. Those people with the name “trader” in their title are simply executing client trades as a service for fees—-not speculating with the banks own money. I stand by my point, the idea that Goldman is full of traders in the Hollywood sense is nonsense.
    - 7y ago

o_nate 7y ago

The type of trading that is consistently profitable at banks is mostly market-making, which is not a strategy available to a day-trader.

neaden 7y ago

A big part of it is that on average the stock market goes up, so even if you are randomly buying stocks you'll come out ahead over the long run as long as fees don't eat it up. Another significant portion is that they have access to a lot of information you don't, and are able to buy stocks and derivatives that you cannot. This comes as a benefit of their size.

dan_mctree 7y ago

In addition to what the others said, stock trading fees often don't scale with the cost of these stocks. If you're investing with low amounts, these static fees eat up a lot of any potential gains of day trading

Havoc 7y ago

>why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? Not a level playing field. It's exactly because you're going up against guys like GS that's the reason for day trading being suicide.

pembrook 7y ago

Goldman Sachs isn't profitable because of prop trading. They charge fees for services. It's that simple.

hash872 7y ago
So then why do they trade at all then? I'm not arguing for trading, I'm just curious. It seems like the existence of 'trader' as a job at all of these financial institutions kind of disproves EMH if you have enough market data
- pembrook 7y ago
  They don't. After the Volcker rule the big banks had to close their prop trading groups: https://en.wikipedia.org/wiki/Proprietary_trading https://en.wikipedia.org/wiki/Proprietary_trading The idea that investment banks are filled with human "traders" is Hollywood nonsense. Most trading activity (and even filling of retail order flow) is now done by quant-driven funds.
  - hash872 7y ago
    According to LinkedIn there are 573 people with the job title 'trader' at Goldman Sachs. I'm scanning through the list now- titles like Fixed Income Trader, Mortgage Trader, Rates Trader, Oil Trader, Equity Sales Trader, FX Trader, Emerging Markets Trader, Base Metals Trader, Interest Rates Trader, Investment Grade Bond Trader, Equity Derivatives Trader, Commodity Trader.... I found all of these on the first page of results (25 people)
    - NovemberWhiskey 7y ago
      There are not a lot of equity cash traders left in Wall Street firms; but it's not like equity cash is the only thing to trade.
    - pembrook 7y ago
      By contrast, about 37,000 people work at Goldman. Those people with the name “trader” in their title are simply executing client trades as a service for fees—-not speculating with the banks own money. I stand by my point, the idea that Goldman is full of traders in the Hollywood sense is nonsense.
  - 7y ago