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There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are the

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

smabie 6y ago
The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.
- nine_k 6y ago
  That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.
  - hetman 6y ago
    I think you're right. By the time you know what everyone is buying/selling with any certainty, the boat has already sailed.
    - toast0 6y ago
      I mean, if you just want to be contrarian, watch your holdings for what's going up over whatever period, and sell that --- that's what everyone is buying. Look over the whole market for whst is going down, and buy that, that's what everyone is selling. Every finance information outlet ever tells you the day/month/year's biggest winners and losers, and most people aren't watching that and taking the contrarian position, or the winners and losers would be pretty boring.
  - klyrs 6y ago
    > you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. As in, run a day trading service and analyze anonymized trading data?
    - hcknwscommenter 6y ago
      There was an SEC enforcement action a few years ago where they went against a platform trading company that catered to especially unsophisticated and risk taking clientele. They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client.
      - webmaven 6y ago
        > They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client. Whoa. That is so elegant in it's simplicity. Evil, certainly, but elegant. And now I'm imagining more elaborate versions that incorporate the Baltimore Stockbroker scam to convince the clients to invest (and lose) even more money...
- alpineidyll3 6y ago
  You can't even take the short side of a spx put with less than a US Lifetime income of capital. No one makes money on symmetrical markets, and they therefore are unpopular.
- peteretep 6y ago
  This was interesting to think about. I think the efficient market hypothesis implies only that a random selection of stocks is equally likely to be market beating rather than market performing. $5 of imaginary internet money says this poor dude was on a Telegram group telling him what to buy and sell
- deleted 6y ago
  [deleted]
- nostrademons 6y ago
  There are firms that do exactly this. Robinhood's business model is to sell the order-flow data of its users to HFT hedge funds, who then take the opposite side of the trade. It's proven very profitable both for Robinhood and for funds that do this.
  - Ghjklov 6y ago
    Why is that okay for them to do that? Genuinely curious.
    - nostrademons 6y ago
      It's a dark pattern, but there's nothing illegal about it. Their privacy policy states "We may also share information with others in an aggregated or otherwise anonymized form that does not reasonably identify you directly as an individual." Knowing that there exists someone who is about to buy TSLA does not identify that person, and yet is still incredibly useful to a market-maker. Selling data you've collected (without identities attached) is legal and largely unregulated. And the actual transaction is an ordinary B2B customer relationship. Amazingly, a significant number of Robinhood customers are aware that they do this and don't care.
      - konamicode 6y ago
        If I am a Robinhood customer who is investing for the long term instead of day trading - should I care?
        huac 6y ago
        not investment advice: no, you shouldn't. the spreads you get can be tighter (good when you want to buy and sell), and any hypothetical front running of your order would lead to miniscule slippage over the long-run. buying SPY and TLT is more or less the same experience in robinhood as it is in schwab, TDA, etc. even as a day trader i wonder if it matters. i would be more annoyed that RH doesn't allow options on indices or futures, which leads to RH traders loading up on similar-but-not-identical products (eg USO as a substitute for oil futures or whatever VIX etf's remain standing)
- AlchemistCamp 6y ago
  The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. You also really can't ignore the spreads. Market makers win pretty consistently and everyone else is playing a worse than zero-sum game.
  - BeeOnRope 6y ago
    They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).
  - brockwhittaker 6y ago
    Adjusted for probability, upside and downside are theoretically the same with options. > Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. The converse is also true. It’s entirely possible to almost guarantee yourself a tiny profit and almost no downside risk as it is to create infinite risk. So EMH definitely maps to the options market.
    - AlchemistCamp 6y ago
      The market is (mostly) efficient but that doesn't mean that the same number of people end up ahead a certain number of dollars as behind. In a zero-sum game, it's entirely possible and common to have a small number of comparatively large winners and a large number of losers.
  - mD5pPxMcS6fVWKE 6y ago
    It's the other way around. With stocks, you can take loans and trade on margin. If something happens, like very large gap down in the morning, and they can't unwind your position quickly, you could end up in debt. It's a very rare situation in practice. With options, you can only lose what you have invested. Unless you write naked options, which I am almost sure is not allowed on Robinhood.
- pnako 6y ago
  It's trivial to lose money by trading outside of the efficient frontier.
- ohyes 6y ago
  The warren buffets and medallion funds of the world have much better information and resources that Joe Loser. EMH just says that all the publicly known information is priced in almost instantaneously... It doesn't say much about how that profit from those price changes are distributed. It also says nothing about non public information. Unfortunately you're competing with a bunch of motivated people who have access and analysis techniques that you simply do not have, and this data gets priced in by them exploiting their information and analysis to make trades which alter the price of the market to represent the true value. In a very roundabout way, EMH says, people with access to information will perform arbitrage trades based on that information as soon as it is available. If you are not those people, you will just have to ride the rising market.
- waste_monk 6y ago
  You occasionally hear of people making money by trading the inverse of what's popular on reddit's /r/wallstreetbets community. So I'd believe it.
- marketgod 6y ago
  You can easily beat the market using the wheel at a minimum but the time investment/return aren't ideal. There are posts below that will decry listen to Buffet and others however their accounts are so large listening to them is a disservice to yourself. Also the larger players have larger trades so their strategies are much different from a regular trader and there are lots of places for small accounts (under $5m) to make money.
Ghjklov 6y ago
But the possibility exists. That you can make money by simply trading stocks, without actually putting much in too much work and time (outside of research and education). I have a hunch, just a feeling, that the powers that be prefer that we normal people not know about how they make money by simply trading around stocks with excess money they have laying around.
- lazyasciiart 6y ago
  Nonsense, they advertise lotteries everywhere.
  - Ghjklov 6y ago
    Lotteries aren't really the same thing as holding shares in a company.

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

smabie 6y ago

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

nine_k 6y ago
That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.
- hetman 6y ago
  I think you're right. By the time you know what everyone is buying/selling with any certainty, the boat has already sailed.
  - toast0 6y ago
    I mean, if you just want to be contrarian, watch your holdings for what's going up over whatever period, and sell that --- that's what everyone is buying. Look over the whole market for whst is going down, and buy that, that's what everyone is selling. Every finance information outlet ever tells you the day/month/year's biggest winners and losers, and most people aren't watching that and taking the contrarian position, or the winners and losers would be pretty boring.
- klyrs 6y ago
  > you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. As in, run a day trading service and analyze anonymized trading data?
  - hcknwscommenter 6y ago
    There was an SEC enforcement action a few years ago where they went against a platform trading company that catered to especially unsophisticated and risk taking clientele. They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client.
    - webmaven 6y ago
      > They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client. Whoa. That is so elegant in it's simplicity. Evil, certainly, but elegant. And now I'm imagining more elaborate versions that incorporate the Baltimore Stockbroker scam to convince the clients to invest (and lose) even more money...
alpineidyll3 6y ago
You can't even take the short side of a spx put with less than a US Lifetime income of capital. No one makes money on symmetrical markets, and they therefore are unpopular.
peteretep 6y ago
This was interesting to think about. I think the efficient market hypothesis implies only that a random selection of stocks is equally likely to be market beating rather than market performing. $5 of imaginary internet money says this poor dude was on a Telegram group telling him what to buy and sell
deleted 6y ago
[deleted]
nostrademons 6y ago
There are firms that do exactly this. Robinhood's business model is to sell the order-flow data of its users to HFT hedge funds, who then take the opposite side of the trade. It's proven very profitable both for Robinhood and for funds that do this.
- Ghjklov 6y ago
  Why is that okay for them to do that? Genuinely curious.
  - nostrademons 6y ago
    It's a dark pattern, but there's nothing illegal about it. Their privacy policy states "We may also share information with others in an aggregated or otherwise anonymized form that does not reasonably identify you directly as an individual." Knowing that there exists someone who is about to buy TSLA does not identify that person, and yet is still incredibly useful to a market-maker. Selling data you've collected (without identities attached) is legal and largely unregulated. And the actual transaction is an ordinary B2B customer relationship. Amazingly, a significant number of Robinhood customers are aware that they do this and don't care.
    - konamicode 6y ago
      If I am a Robinhood customer who is investing for the long term instead of day trading - should I care?
      - huac 6y ago
        not investment advice: no, you shouldn't. the spreads you get can be tighter (good when you want to buy and sell), and any hypothetical front running of your order would lead to miniscule slippage over the long-run. buying SPY and TLT is more or less the same experience in robinhood as it is in schwab, TDA, etc. even as a day trader i wonder if it matters. i would be more annoyed that RH doesn't allow options on indices or futures, which leads to RH traders loading up on similar-but-not-identical products (eg USO as a substitute for oil futures or whatever VIX etf's remain standing)
AlchemistCamp 6y ago
The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. You also really can't ignore the spreads. Market makers win pretty consistently and everyone else is playing a worse than zero-sum game.
- BeeOnRope 6y ago
  They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).
- brockwhittaker 6y ago
  Adjusted for probability, upside and downside are theoretically the same with options. > Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. The converse is also true. It’s entirely possible to almost guarantee yourself a tiny profit and almost no downside risk as it is to create infinite risk. So EMH definitely maps to the options market.
  - AlchemistCamp 6y ago
    The market is (mostly) efficient but that doesn't mean that the same number of people end up ahead a certain number of dollars as behind. In a zero-sum game, it's entirely possible and common to have a small number of comparatively large winners and a large number of losers.
- mD5pPxMcS6fVWKE 6y ago
  It's the other way around. With stocks, you can take loans and trade on margin. If something happens, like very large gap down in the morning, and they can't unwind your position quickly, you could end up in debt. It's a very rare situation in practice. With options, you can only lose what you have invested. Unless you write naked options, which I am almost sure is not allowed on Robinhood.
pnako 6y ago
It's trivial to lose money by trading outside of the efficient frontier.
ohyes 6y ago
The warren buffets and medallion funds of the world have much better information and resources that Joe Loser. EMH just says that all the publicly known information is priced in almost instantaneously... It doesn't say much about how that profit from those price changes are distributed. It also says nothing about non public information. Unfortunately you're competing with a bunch of motivated people who have access and analysis techniques that you simply do not have, and this data gets priced in by them exploiting their information and analysis to make trades which alter the price of the market to represent the true value. In a very roundabout way, EMH says, people with access to information will perform arbitrage trades based on that information as soon as it is available. If you are not those people, you will just have to ride the rising market.
waste_monk 6y ago
You occasionally hear of people making money by trading the inverse of what's popular on reddit's /r/wallstreetbets community. So I'd believe it.
marketgod 6y ago
You can easily beat the market using the wheel at a minimum but the time investment/return aren't ideal. There are posts below that will decry listen to Buffet and others however their accounts are so large listening to them is a disservice to yourself. Also the larger players have larger trades so their strategies are much different from a regular trader and there are lots of places for small accounts (under $5m) to make money.

Ghjklov 6y ago

But the possibility exists. That you can make money by simply trading stocks, without actually putting much in too much work and time (outside of research and education). I have a hunch, just a feeling, that the powers that be prefer that we normal people not know about how they make money by simply trading around stocks with excess money they have laying around.

lazyasciiart 6y ago
Nonsense, they advertise lotteries everywhere.
- Ghjklov 6y ago
  Lotteries aren't really the same thing as holding shares in a company.