4 ms·

The financial system is rigged in the favor of bigger players; especially stock market. Big players with a lot of capital can easily add “insurance” to their in

The financial system is rigged in the favor of bigger players; especially stock market. Big players with a lot of capital can easily add “insurance” to their investments via hedging strategies that a small investor would not be able to utilize due to the high capital requirements currently in place. They are other regulations that make it tough for small players to get into the game such as the mark to market feature which abolishes/ makes one exempt from the “wash sale rule”; the requirements to get this is an uphill battle for a small investor. On the surface wash sale rule seems to make sense but in reality it limits the amount of trades you can do especially in times of high volatility. And as Nassim Taleb mentions in his book “Antifragile” things that are harmed during times of high volatility are extremely “fragile”. The technology is already there to make proper investing available to the masses; unfortunately regulations heavily hinders the feasibility for a small company to roll something like this out.

marvin 7y ago
Hell, even some rich Western nations' currencies are fragile by this measure. I thought I was being smart by anticipating the coronavirus crash and selling half my global funds as an hedge. Timed it almost perfectly, a week and a half before the crash. But it ended up being a complete wash! The funds were settled in Norwegian Crowns, which fell 30% relative to other currencies along with the stock market. And during the recent recovery, it has recoved in lockstep with the US stock markets, so the returns of my fund holdings measured in Crowns have been pegged at -5% to -10% throughout the whole crisis. Turns out in retrospect that some big NOK-denominated bond funds investing international bonds were margin called on their currency insurance. They were therefore forced to sell a crapload of NOK bonds into the drop, in sum causing a 20-30% crash in two days. Let's just say I did not see that coming!
- whoisjohnkid 7y ago
  Yeah it’s def tough to perfectly anticipate what the market will do next. What I’ve learned on my end is just simply be prepared for the following outcomes: 1. Market doing what you want 2. Market NOT doing what you want 3. Market volatility spiking 4. Market volatility decreasing
quickthrowman 7y ago
What do you mean by “high capital requirements in place” for hedging a portfolio? Do you know what options are? They can be used for hedging, and the bid/ask is the same for an institution or an individual. You or I could’ve followed the 50 cent VIX call trader and made several thousand percent, all for 50 bucks a contract. Hedges cost a percentage of a portfolio, it doesn’t matter whether it’s 100,000 or 1,000,000,000 dollars, if the overall composition is the same, the hedge will cost the same percentage of the portfolio. You and I can trade mark-to-market assets too, CME micro futures have pretty cheap margin requirements. It sounds like you have a lot of theoretical knowledge, but don’t actually have a practical knowledge of trading/investing. All of the stuff you complain about not existing actually exists. Sure, you and I aren’t going to be able to put on a hedge like Ackman did, but only because the notional value of the derivatives used is so high. Use the tools available to the average investor, there are plenty.
- whoisjohnkid 7y ago
  Wow thanks for the response really appreciate it. I’m actually dabbling in trading atm, very familiar with bid ask spread and would def consider myself a practitioner, and not an economist/only thinking of things from a theoretical point of view. I have a trading bot that trades crypto at the moment. Anywho, what I was trying to convey in my initial post is that regulations make it tough for the little guy; especially on the stock market side. My knowledge on options is definitely lacking, plan on learning more about that eventually, but when I referenced “insurance” I was def alluding to options / inversely correlated positions. Any who what I mean by large capital requirements is to safely trade equities and crypto you typically want to trade based on a position sizing algorithm. Which reduces your position size based on the risk you’re exposed to. In crypto the capital requirements are very low in the sense that you can buy a fraction of a share for as little as a few cents or even less in some places. In stocks fractional shares are now becoming more and more accessible to people. But the problem there is you can’t actively trade a single stock unless you register as a active trader with the IRS. Also in most places fractional shares are $1. I would like to see this be even lower to truly allow anyone to run sophisticated strategies without needing a lot of capital. $50 might not be a lot to me or you but it’s def a lot to others. Just wish system was designed in a way where you could trade sophisticated strategies with as little as $5 or heck 50 cents.

marvin 7y ago

Hell, even some rich Western nations' currencies are fragile by this measure. I thought I was being smart by anticipating the coronavirus crash and selling half my global funds as an hedge. Timed it almost perfectly, a week and a half before the crash. But it ended up being a complete wash! The funds were settled in Norwegian Crowns, which fell 30% relative to other currencies along with the stock market. And during the recent recovery, it has recoved in lockstep with the US stock markets, so the returns of my fund holdings measured in Crowns have been pegged at -5% to -10% throughout the whole crisis. Turns out in retrospect that some big NOK-denominated bond funds investing international bonds were margin called on their currency insurance. They were therefore forced to sell a crapload of NOK bonds into the drop, in sum causing a 20-30% crash in two days. Let's just say I did not see that coming!

whoisjohnkid 7y ago
Yeah it’s def tough to perfectly anticipate what the market will do next. What I’ve learned on my end is just simply be prepared for the following outcomes: 1. Market doing what you want 2. Market NOT doing what you want 3. Market volatility spiking 4. Market volatility decreasing

quickthrowman 7y ago

What do you mean by “high capital requirements in place” for hedging a portfolio? Do you know what options are? They can be used for hedging, and the bid/ask is the same for an institution or an individual. You or I could’ve followed the 50 cent VIX call trader and made several thousand percent, all for 50 bucks a contract. Hedges cost a percentage of a portfolio, it doesn’t matter whether it’s 100,000 or 1,000,000,000 dollars, if the overall composition is the same, the hedge will cost the same percentage of the portfolio. You and I can trade mark-to-market assets too, CME micro futures have pretty cheap margin requirements. It sounds like you have a lot of theoretical knowledge, but don’t actually have a practical knowledge of trading/investing. All of the stuff you complain about not existing actually exists. Sure, you and I aren’t going to be able to put on a hedge like Ackman did, but only because the notional value of the derivatives used is so high. Use the tools available to the average investor, there are plenty.

whoisjohnkid 7y ago
Wow thanks for the response really appreciate it. I’m actually dabbling in trading atm, very familiar with bid ask spread and would def consider myself a practitioner, and not an economist/only thinking of things from a theoretical point of view. I have a trading bot that trades crypto at the moment. Anywho, what I was trying to convey in my initial post is that regulations make it tough for the little guy; especially on the stock market side. My knowledge on options is definitely lacking, plan on learning more about that eventually, but when I referenced “insurance” I was def alluding to options / inversely correlated positions. Any who what I mean by large capital requirements is to safely trade equities and crypto you typically want to trade based on a position sizing algorithm. Which reduces your position size based on the risk you’re exposed to. In crypto the capital requirements are very low in the sense that you can buy a fraction of a share for as little as a few cents or even less in some places. In stocks fractional shares are now becoming more and more accessible to people. But the problem there is you can’t actively trade a single stock unless you register as a active trader with the IRS. Also in most places fractional shares are $1. I would like to see this be even lower to truly allow anyone to run sophisticated strategies without needing a lot of capital. $50 might not be a lot to me or you but it’s def a lot to others. Just wish system was designed in a way where you could trade sophisticated strategies with as little as $5 or heck 50 cents.