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Is that the case? I would expect long-term investors would make more profits from the stock market than market makers. If the market-makers are making vastly m
by sokoloff 5mo ago
Is that the case? I would expect long-term investors would make more profits from the stock market than market makers.
If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?
- vcf 5mo agoIt's simpler when looking at prediction markets because of bounded payoffs and the zero-sum nature, so these are pure trading gains. In equity markets, you have both the trading and investment components to account for. Market makers like Citadel don't invest; they aim to exit positions as quickly as possible to minimize risk and capital requirements. Long-term investors commit capital to risky assets and are compensated with a risk premium (expected to be positive, but it can turn out to be negative). Usually, the "cost" of liquidity paid by long-term investors is tiny related to the overall expected returns. In prediction markets, you don't have that.
- hammock 5mo agoYes to put the other comment into different words, vast maj the excess returns (alpha as opposed to beta ), or the “slack” in markets , however you want to think of it, are picked up by market makers. Difference between prediction markets and stock markets is prediction markets on a flat road and stock market on an uphill road