Poker Player to Trader but spreads are a B%*$$H!

Hi there,

I'm new to the forums and to spread trading, as the title suggests I've made a living playing online poker for the last 4 years and now I've just started trading but the spreads seem prohibitively high, apologies if this is a newbie question or my way of explaining it is bad.

Example if you buy gold at Bid:1770.0 Ask:1770.4 would any of you plan on taking profits at less than 1780?

Because, to keep it simple say I had planned on taking profits at at say 1775
and putting a stop loss at 1665 it would mean I need a 54/46 edge on the market
just to Break even!Is that right!?
(As 54% of the time I win 46 units & 46% of the time I lose 54 units)

I thought you would rake it in if you a had 55/45 edge on the markets but the spread would take 80% of your profits if you were doing $5 (50 point) trade sizes on Gold if the spread is 4 points.

So my question is, is the above example correct & is it fair to say that none of you would deal in average trade sizes that are less than 20x the spread?

Thanks in advance!

Noble007 said:

Hi there,

I'm new to the forums and to spread trading, as the title suggests I've made a living playing online poker for the last 4 years and now I've just started trading but the spreads seem prohibitively high, apologies if this is a newbie question or my way of explaining it is bad.

Example if you buy gold at Bid:1770.0 Ask:1770.4 would any of you plan on taking profits at less than 1780?

Because, to keep it simple say I had planned on taking profits at at say 1775
and putting a stop loss at 1665 it would mean I need a 54/46 edge on the market
just to Break even!Is that right!?
(As 54% of the time I win 46 units & 46% of the time I lose 54 units)

I thought you would rake it in if you a had 55/45 edge on the markets but the spread would take 80% of your profits if you were doing $5 (50 point) trade sizes on Gold if the spread is 4 points.

So my question is, is the above example correct & is it fair to say that none of you would deal in average trade sizes that are less than 20x the spread?

Thanks in advance!

Click to expand...

That spread in gold is actually pretty good. Your targets are small by my standards, so i don't need to win as much of the time as you to break even.

I think you're right in saying that we stick to the products with the lowest spreads, like the majors in currencies as opposed to the minor currencies.

I think some guys on the forum actually need a much higher win ratio than that to break even, for example scalpers on the S&P looking for maybe 1 handle and paying 1 tick in spread, which is 0.25.

How did you live off playing poker? Did you play mainly tables or tournaments?

Thanks for the reply brettus!

I made /make a living multi-tabling cash games.

Look at the e mini futures like the S&P or other futures like the bund and Eurostoxx, just one tick between bid and ask. Forget about spreadbetting, theyll kill you with slippage and widened spreads, especially if you're scalping.

Thanks for the great advice pboyles!

What trading site do you use?
Unfortunately for me the all the E mini futures & the bund have a 4 tick spread on the site I use - Capital Spreads, but I still trade the 'New Nasdaq' as it seems to make big enough moves relative to spread.
The Eurostoxx does only have a 3 tick spread on my site and does seem to move alot so I'll definitely look into that one though!

Noble007 said:

Because, to keep it simple say I had planned on taking profits at at say 1775
and putting a stop loss at 1665 it would mean I need a 54/46 edge on the market
just to Break even!Is that right!?
(As 54% of the time I win 46 units & 46% of the time I lose 54 units)

I thought you would rake it in if you a had 55/45 edge on the markets but the spread would take 80% of your profits if you were doing $5 (50 point) trade sizes on Gold if the spread is 4 points.

Click to expand...

How do you figure you have a 5% edge on the market? This isn't poker, it's not like getting in your AA vs KK pre-flop and knowing that you're 82% to win.

Noble007 said:

Thanks for the great advice pboyles!

What trading site do you use?
Unfortunately for me the all the E mini futures & the bund have a 4 tick spread on the site I use - Capital Spreads, but I still trade the 'New Nasdaq' as it seems to make big enough moves relative to spread.
The Eurostoxx does only have a 3 tick spread on my site and does seem to move alot so I'll definitely look into that one though!

Click to expand...

Futures is not the same as spreadbetting. You need to understand the difference before you even start. Futures are traded through a regulated exchange eg the CME. Spreadbetting is where a company (they are registered as bookmakers actually) creates their own market and offers an instrument that you can bet on. These instruments generally mimic the price of an index or share but they are not the same thing. There is no central exchange and this results in some dodgy business at times.

Have a look at Global Futures or even the CME site.

Hi Masquerade, you're right it's not as cut and dry as it is in poker.
But in poker if you have a large enough sample (about 100 000 hands) you can pretty reliably calculate your average edge vs. your opponents at that stake level.

This is in spite of the fact that your decisions in poker are not only mathematical, i.e. your hand vs. their range of hands, but also based on understanding the psychology of your specific opponent. (the market?)

I tried to apply a similiar approach to the markets and my trading strategy had a success rate of 55%.
But given my small sample size + the fact that most people over-estimate their edge + the fact that I'm a 'fish' when it comes to everything as you hinted involved in trading I would expect my actual long term edge to be significantly lower which is why the 54/46 BE rate would be prohibitive, however I jiggled my stops and limits around in the 10x spread range.

Edit: & Thanks Pboyles I'll have a look at those sites!

I'd disagree, 100k hands is not a significant sample size in many variants of poker. Playing PLO or heads up the standard deviations are huge and you need more than 100k hands to get a better idea of true winrates. Isn't the psychology of your opponent factored into the range of hands you assign your opponent and their value range and also how you believe your ranges are represented coupled with game flow, all combined to assign a range? So I don't really see why you made the two statements independent. (But i'll stop there as we don't want this to become a poker thread.)

Over what sample do you have that success rate? I'd bet a good amount that you don't have a 5% edge on the market, if so you should go and speak to someone in liverpool street/moorgate/docklands about this. I'm always very sceptical of people who say their edge is x%. Poker and trading are very different things and you have to appreciate that in trading you won't know the odds of success for a trade as the odds aren't quantifiable in the same way they are at a poker table.

Hi Masquerade,

Sorry if my previous post seemed arrogant or confrontational in some way.

On the main topic of the trading...
My sample size is so small that I don't want to disclose it!
You're also right that it's super unlikely that I have anywhere near a 5% edge which is answers my question that it's almost impossible to use average trades of around 10x the spread & be profitable.

(On the side topic of poker, sorry again, I was just being general as I didn't realise how much you knew. Regards the sample size I was referring to 6max NL ((& yes even for that you can argue for a larger sample size than 100k)) and regards the seperate ranges, I was implying that the strength of your hand vs. the hands in your opponents range gives you a very calculatable % but then when you add in player tendencies & as you mentioned gameflow it gets alot harder to be accurate.)

I actually agree with everything you've said so far, sorry if it didn't come across that way and thanks for your input!

Masquerade said:

I'm always very sceptical of people who say their edge is x%. Poker and trading are very different things and you have to appreciate that in trading you won't know the odds of success for a trade as the odds aren't quantifiable in the same way they are at a poker table.

Click to expand...

Exactly right.

Noble007 said:

Hi Masquerade,

Sorry if my previous post seemed arrogant or confrontational in some way.

On the main topic of the trading...
My sample size is so small that I don't want to disclose it!
You're also right that it's super unlikely that I have anywhere near a 5% edge which is answers my question that it's almost impossible to use average trades of around 10x the spread & be profitable.

Click to expand...

It's fine, I didn't interpret it that way.

The thing about trading is most people have insignificant sample sizes to draw conclusions from. Even if a person has a system which has worked for a year or so, the market changes and systems which work for years suddenly stop. Some position traders may only trade a few times a year. So over 10 years they could yield a profit and have no more than 50 trades to their sample. Does this mean the sample size is too small or the fact they've been profitable for 10 years means they're consistent? I'll leave that for you to decide.

I just don't feel it's worthwhile trying to quantify an edge in a market because firstly there's no way of definitively knowing and secondly, the % chance of success in a trade can vary from trade to trade and unfortunately we have no real way of putting a number on this aside from taking into account the degree of risk we take when taking the position. Ultimately, your goal should be to get in the right direction and take profit whilst minimising your exposure to risk.

The smaller your targets and more frequently you trade the more significant spread becomes in your trading. It's like short stacking with 20bb and trying to turn a profit despite the rake. So you really have to be sure you have something which has positive expectancy over thousands of trades, or you could do the alternative and trade less frequently with slightly bigger targets (but that should probably be determined from trade to trade) the other option of course is to trade an instrument where spread is lower. But it really comes down to what style you want to trade.

My 2c

The spread is a fact of life but you do not necessarily need to pay it. If the bid is 1250.25 and the offer is 1250.50, you have a clear choice on a buy. You can either place a market order and buy at 1250.50 OR you can join the bid, risk not getting filled and buy at 1250.25.

This works differently in different markets.
US Treasuries - pretty good chance of a fill if you join the bid/offer
E-mini S&P - pretty low chance of a fill if you join the bid/offer
Crude - pretty good chance of a fill if you put in a bid below the inside bid - purely down to the volatility of the instrument.

For me, it's a rare trade that sees me entering AND exiting with market orders. Most of the time, at least one side is a limit order.

In terms of how this impacts your percentages, it obviously does as you say. How much depends on the size of moves you chase. If you are scalping 2 tick trades, you can't pay a 1 tick spread.

The other thing to consider is the fees. If you pay $4 per r/t on an instrument with a $12.50 tick, that also needs to be considered.

There's instruments where there's a $4 r/t and $5 tick but generally speaking these instruments will have a higher tick range. Other instruments $2 r/t and a $30 tick range but are less volatile.

The common theme with fees, tick size, range is that they all seem to be set at a level affordable to your average patsy, a term I am sure you are accustomed to.

Thanks for the reply Dionysus.

Using the smallest $ tick and trading a 50 tick move what would you estimate (general ballpark figure) that your costs are as a % of the trade. (mine are currently 8%)