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Can they be bad at trading? https://xkcd.com/2270/ https://xkcd.com/2270/
by mixedbit 7y ago
Can they be bad at trading? https://xkcd.com/2270/ https://xkcd.com/2270/
- chipperyman573 7y agoWow, I'm not sure if it was intentional but the alt text can be interpenetrated to be the same as GP's idea
- ipnon 7y agoI learned a new word today https://www.wordnik.com/words/interpenetrate https://www.wordnik.com/words/interpenetrate
- chipperyman573 7y agoHahaha I meant interpret
- rhizome 7y agoThere should be a sniglet for this situation.
- Majromax 7y agoWhile amusing as hell, the answer to the question posed by that XKCD is 'yes'. It's trivial to give away arbitrage opportunities, so the average expected loss – especially net of transaction fees – can be substantial.
- titanomachy 7y agoThat can't be done just by buying shares at market price, right? Would require some combination of options or short sells. Or setting stops on a highly volatile stock in a way that basically guarantees you lose money.
- Majromax 7y agoGiven buy/sell spreads, you can lose arbitrary amounts of money simply by buying and selling the same stock hundreds of times.
- zelly 7y agoI wonder why this wouldn't work. If 90% of retail traders lose money, then why doesn't Etrade and Robinhood bet against its worst performing customers? Is there some law against this?
- cameronh90 7y agoConsider that even if you're right 75% of the time, if you bet all your money each time, you're going to go broke pretty quickly. Their biggest losers are probably making essentially random bets in such a stupid way that they lose all their money.
- zelly 7y agoThe Kelly criterion provides the optimum bet size given the chance of winning. The adversarial brokerage could use the Kelly criterion and only make a wager commensurate with the likelihood of the trader's failure. It should be profitable. Suppose the brokerage just puts 5% of their cash toward this. It could be a nice profit center without risking everything.
- imtringued 7y agoThey could also just keep your money since you lost it on bad trades.
- lmm 7y agoIIRC there was a scandal not so long ago with a forex broker that was just not executing trades from dumb clients, sitting on the other side of them itself instead. I don't know if it's exactly illegal in a direct way, but it's a bad look, and I think there was a fine in this case.
- sireat 7y agoBasically a bucket shop: https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) Those are considered illegal in US. CFD and like skirt the law here. The big problem with bucket shops is that they tend to not honor the bets once you start winning too much as Jesse Livermore found out in late 1890s. Still common today with all the fake forex exchanges. The rare winners have trouble getting money out.
- volkl48 7y agoThis was actually addressed in one of Levine's columns last week (scroll to the second heading, titled "Efficiency") https://www.bloomberg.com/amp/opinion/articles/2020-02-20/morgan-stanley-trades-trading-for-e-trade https://www.bloomberg.com/amp/opinion/articles/2020-02-20/mo... Worth a read. Short version is that a lot of the ways people lose money are hard to just do the inverse of.
- jayrot 7y agoThanks for this. That particular section was definitely apropos.
- shadowprofile77 7y agoI don't see how the weird corollary the comic mentions could work. if you were to pick stocks that consistently underperform the market and someone used your choices as a metric of what NOT to pick (with the idea of thus outperforming the market with their choices) they'd be much more likely to simply pick a majority of mediocre to average stocks instead of special winners, since the selection of stagnant or only modestly growing stocks is much bigger than either the selection of underperformers or major growth choices.