97% Spread Betters lose their money!

anley

Senior member
2,730 229
Rainmaker

You make a very good point about the prop desks at all the banks. This is what I've been saying for a long time but nobody seems to realise. 95% of the prop traders simply make their money by a) having the bank's cheap capital behind them and b) basically buying bids and selling offers. Sure they do a little bit of punting here and there, but in the end why bother too much?

Take either edge away from them and most of them are in the same 97% bracket as that article on spread betting.
 

donaldduke

Experienced member
1,665 257
Take either edge away from them and most of them are in the same 97% bracket as that article on spread betting.

Nick Leeson is the best example of what happens when they let
one of these 'traders' loose on the markets..
 

Rainmaker

Active member
201 3
Anley

I recalled seeing a study a couple years on the trading activities of investment banks. Adjusting for all sorts of things like cost of capital, etc, their combined return over a 30 year period was zero.
 

donaldduke

Experienced member
1,665 257
The Bill Lipschutz interview in New Market Wizards discusses
this point.

Written back in 1991, Bill says he read a study that
Citibank make $600 million a year buying bid selling offer,
however they only made $400 million from their trading.
The $200 million difference is probably due to net loses from
the directional trades they do.
 

stevespray

Experienced member
1,289 154
So what peeps are suggesting is that traders for the banks aren’t really that successful either which is also I point I have read on several occasions in various books etc. It’s interesting to note that in interviews with most of the successful traders most seem to indicate that most of their success is often down to just a few really big winners spread out across their whole trading lifetime. It might then be sensible to suggest that it is quite hard to trade in a manner where you make a regular earning from the markets, by this I mean take money from the markets in the same way an employer pays you if you do a regular job. The most successful traders all seem to indicate the importance of backing a winning run almost to the max. This, of course, doesn’t sit nicely with most peoples psychology and hence why most people fail in trading, essentially they make the same proportion of losses as everyone else but they fail to make the big wins which will ultimately leave them with and overall profit. Until people can develop the ability to run winners and cut losses quickly then most will fail in this game if they choose a strategy where they are directly exposed to any market movement simply because human nature is not suited to this kind of activity.
Some people will of course argue that someone who trades with someone else’s money might develop a better psychology but I cant comment as I have never done that.
Someone previously mentioned Nick Leeson, I read somewhere that if he had managed to carry on trading in the manner that he had before it all went tits up then he alone would have made more for Bearings than the rest of the operations put together. That in essence is why nobody really bothered to check what he was doing, he was making loads of money and they didn’t want to disrupt that. Of course what happened ultimately is a lesson for all on the laws of probabilities which exist in the world of leveraged derivatives. Basically, if it appears that you are making lots of easy money one minute then you can be sure that you will lose more than you’ve made the next.

Steve.
 

mully

Established member
967 3
There is an interesting comment on banks trading their own capital in Bill Lipschutz's interview in "The New Market Wizards" published in 1992.

He referred to a study on the trading operations of Citibank. He said that they made about $300 to $400m a year in their trading operations. However, the study concluded that if Citibank traded only for the bid/ask spread and never took any position trades, they probably would make $600m a year.

The study implied that they probably lost $200m a year on their actual directional trades.

Lipschutz comment on the study:

The argument within Citibank would probably be" We doubt that's (study findings) true, but if it were, if we weren't in the market doing all that proprietary trading and developing information, we wouldn't be able to service our customers in the same way."
 

zigglewigler

Well-known member
346 50
Bracke-UK Banking, Oil&Gas, Pharmaceuticals, Mining etc. Look at D4F selection, some spreads better than others, Pharma spread is a high 30, can't be traded on 60 min charts easily, but daily charts good, 500 point monthly ranges common, so you can live with the 30 spread. The big advantage of these sectors is that they're not traded 24 hours, no overnight runs tied to the SP500 futures for example as is the case with any bet on the Dow. D4F trade these 08.15 -16.30, the markets start 08.00, the first 15 mins protect D4F from gap openings, so you need to pre-empt such moves towards close previous day. I use 60 min candle and kagi charts for convergence between Woodies CCI and Stoch of RSI signals, Bol Bands for targets, Ma of Roc and AD% for timing, watch bigger timeframes too, you'll see these sectors have a rational ebb and flow on the dailies. 13 min charts useful for more exact entry point. Also daily pivot very important, sometimes indicators go flat, as was the case on Mining sector the last couple of days, so had to time entry after second failure y'day to recover to pivot, last hour showed weakness and probable gap down following day, so took short at 7515(yes a requote after asking for 7521-those damn evil SB firms, they're out to rob us all, they have no conscience)':LOL:', it gapped t'day, currently around 170 points up. Dailies suggest this move might have another 100 or so in it, haven't decided yet where to pull down stop. I look to trade the swings in the ranges. Candle charts are the only way I can read the pace in the market, you might have a different preference, whatever works. Maybe this should have been another thread. But anyway Bracke, research through the markets offered, compare ranges to spread and find value.

Darrenf-Lord who? And no, I don't predict the future, I just read the charts.

FetteredChinos-The avatar is the closest likeness. How do I get a wolve as an avatar?

Some people will of course argue that someone who trades with someone else’s money might develop a better psychology but I cant comment as I have never done that.

Stevespray, absolutely true. With someone else's money you have less fear, that typre of environment would allow new traders to develop the only skill you can bank on, psychology. For most SB's they're wiped out before they've learnt the lesson.
 

fastnet

Well-known member
305 1
This is incredible really - we are all agreeing that it is virtually impossible to make money trading even with the brain, capital, hardware that investment banks pay for. . . . what chance do we have - really?

I can't remember which interviewee said in the Market Wizards book : everyone gets what they want from the market.

This doesn't have to be the conscious, outwardly acceptable/explainable and logical goal of net financial gains. It could be any number of psychological needs relating to ego and esteem etc. . . . . . same sort of reasons that draw punters back into the betting shop after they have lost everything maybe?
 

fastnet

Well-known member
305 1
Thanks Mully -

On a more positive note: are there niches that a small, lone trader unencumbered with bank policies and compliance can exploit? What advantages do we have over the the big guys and their human, financial and automated assets? Linda Bradford Raschke thinks there are - or at least she did when she wrote Street Smarts. So does my own choice for a guru Alex Elder - of course their book sales to the general public do rely absolutely on the perpetuation of this belief.

If there aren't then we should all pack up and go home - that is unless what ever we get from the market is more valuable to us, in what ever way, than the money we lose trading.
 

mully

Established member
967 3
there are lots of advantages. An obvious one is Patience . We needed/shouldn't be in markets the whole time. This allows us to only select the best opportunities

Of course that assumes that one is well capitalized so that one doesn't have to deal daily to live etc . ( 3/6 months of living expenses available in cash)
 

TheBramble

Legendary member
8,394 1,170
I don't think this is a case of 'how do we as independent traders have an edge over prop traders'. Although I've never seen any empirical research results (could there ever be?) - I'm comfortable with the proposition that less than 5% of all traders make a profit.

Now, does that mean there is a bunch making all the money all the time from all the other traders that always lose? Or does it mean traders will at some point lose their money (perhaps more than once) and come back and then make a profit?

Are all the 'winning' traders currently in the winners 5% going to be there in 6 months time? Have they aways been there?

The point is (of this thread anyway) that 97% of traders using SBs lose money. My point is 97% (-ish) of traders trading ANY method/system/broker - whatever - are losing money.

Us independents, the prop traders, the money managers etc. - 97% of them all will ultimately end up losers.

It isn't about IMHO what edge me may or may not have over other traders, MMs etc. It's what edge to we have over the market as a whole.
 

stevespray

Experienced member
1,289 154
As smaller volume dealers you do of course have a slight advantage over the bigger players simply because there is a much higher chance that a particular market will be able to support a price at a level you want to trade it at. Depth of market becomes a much bigger factor for larger banks if they are actively looking to trade stocks in any kind of volume.

Steve
 
 
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