Wall Street = Casino. Minus Sum Game.

DionysusToast

Legendary member
5,963 1,498
I don’t see many people on these sites discussing the fact that Wall Street/The Financial Industry is basically a casino. In a casino, the more you play, the more likely you are to become a victim of the ‘house edge’. Similarly, in trading, the more you trade, the more likely you are to become a victim of the ‘Wall St house edge’.

Preposterous! I hear you say.

Wall Street, or rather the ‘financial industry’ employs masses of people: Traders, Brokers, Math Whizzes, Bankers, Fund Managers, Secretaries, CEO’s, Accountants, Receptionists, Marketing people, IT staff etc. etc. They have costs too – office rental, equipment, travel, advertising etc. etc.

The costs associated with the financial industry are huge, yet it’s still a very rewarding industry to be in. In fact, in certain areas, even if they fail, the government will come by with a big slice of taxpayer money to bail them out.

So, you have a huge industry with high costs and only 1 source of revenue. That is the investing public. It doesn’t take advanced math to figure out that the investing public AND the financial industry cannot both make money out of this game.

Consider an IPO. Your typical IPO is for a company that will no longer be in existence in 8 years time. The IPO itself is a straight transfer of cash to a company with a nice slice going into the hands of the underwriters. After that, for most trades made, there is a broker getting a fee and a market maker/specialist getting a spread and the exchange getting a fee. Obviously, when the company dies (as the majority do), it is the last people holding those shares that hold the bag, although it has to be said that they don’t take all of the losses as the price normally would have dropped gradually spreading the loss across many shareholders. In the meantime – how did the financial industry fare? Quite nicely! A fee and a spread on almost every trade.

Look at the Mutual Fund industry. They don’t like to talk in such crass terms as profit/loss, rather in terms of ‘exceeds benchmark’. Of course, the benchmark is some index maintained by another company in the financial industry that the mutual fund pays a license fee to use. Do mutual funds companies really care if their customers make money? I don’t think so, in fact they know that on the whole, because this is a minus sum game, it is IMPOSSIBLE for all of their clients to make money.

Take a close look at your broker. All of those ‘free’ training courses and seminars they offer are there for one thing only – to get you to trade more often so that they can take their fee. They don’t care if you make money or not, they just want to keep you trading.

Take a look at sites such as this. The people running such sites do so to part you with your money. They already realized that trading is an ‘almost impossible’ way to make money and that the money is made on the other side of the fence.

Take a look at all the system vendors – it’s the same story. These are 99.999% people that realized that they couldn’t make money trading, so they decided to sell systems to gullible people. Look at the sales spiel most of them use – selling you the dream of an independent life, total hogwash.

Look at the books printed – all that stuff about following squiggly oscillating lines to make money. Again money to Wiley, money to the guy writing the book (who also can’t make money trading), more trades going through the broker all at the expense of the investors.

Look at the TV shows spouting crap about the reason for the latest 1 tick move on the DOW and the latest upgrade/downgrade - it's just a big ra-ra show to keep you trading and to leech more of the money investors put in.

The whole industry is a crapshoot. It is absolutely geared around giving false hope to the investing public and leeching their money from them and it does an EXTREMELY good job of it.
 
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oildaytrader

Senior member
2,806 125
Wall street is another government for taxes.Pension is another tax designed to make the financial industry rich.50% of your pension contributions are gobbled up in costs by the financial industry.
 
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DionysusToast

Legendary member
5,963 1,498
If you feel that way join the house...
This is not the way I feel, it is the way it is.

Now - in terms of 'joining the house' - I wouldn't do that, I have scruples.

In terms of understanding intimately how the house plays - most can't be bothered, they think it's easier to follow stochastics & MACD.

In my experience, there is merit in knowing how the house plays - in the Wall St casino, they don't kick you out for card counting.
 

oildaytrader

Senior member
2,806 125
Look at all the failed mergers designed to loot the companies ,and make merril,lehman sachs and morgans rich.Most were unprofitable.The fund investors lost ie the public.
 

everyonerich

Experienced member
1,109 43
Hi DionysusToast, im interested when you say about system seller/vendor about trading course..

the situation i've encounter is this vendor, assume they give you choice either want to take up their course, or choose to do managed account.

well.. i do know previous performance does not indicate future's result, but the managed account provided by this 'vendor' is going fine, how do you justify that?

another thing i've encounter is actually there are managed account company run by experienced trader, they had been doing well for past 5 year.
 

Paul71

Senior member
2,056 412
Wall street is another government for taxes.Pension is another tax designed to make the financial industry rich.50% of your pension contributions are gobbled up in costs by the financial industry.


Exactly, look at the way the banks operate, they create to make. Mortgages, pensions what a big con they are, designed to give the poor man hope and the rich men better lifestyles.
 

DionysusToast

Legendary member
5,963 1,498
everyonerich...

I am not saying that no-one makes money. In fact, the financial industry always makes money.

For every money manager that has made money for the past 5 years, there are hundreds that failed. By the laws of probability there will be some that make money forever just by sheer luck.

The thing is - those that failed are out of business, are no longer trading. A lot of what you see with succesful money managers is simply the survivors. Also by sheer luck, these people may continue to make money for decades or suddenly stop. It's the nature of survivorship bias that it appears that a higher percentage of people are making money because there's no sight of the losers.

Now - of course there will be people making money because they are skilled. The problem you have is in determining those that made it through skill and whose methods are still relevant and those who made it through sheer luck.

For someone to manage my money, I would want to know:
- how they manage it in detail
- what kind of risks they think they are taking and why
- what changes have gone on in their organisation in terms of mangers
- why they are managing other people's money instead of their own

It is unlikely that they would provide this information in sufficient detail to satisfy me.

Then you could make an assessment (albeit a bit crude) on whether you think this bunch of people, following the same methods have a chance of continuing to make money. You also have to look at how they assess risk as there have been some stupendous mistakes in risk analysis of late.
 

Xeno

Active member
244 34
I don’t see many people on these sites discussing the fact that Wall Street/The Financial Industry is basically a casino.

Preposterous! I hear you say.

So, you have a huge industry with high costs and only 1 source of revenue. That is
Did you lose some money?

It is proposterous actually. While the trading game might be harder for individuals (and in one or two ways easier), it has a fundamental difference with a casino, and a very important one. The house can be beaten. That has been proved.

Also, you say it only has one source of revenue. Again, simply not true. Here are a few sources of revenue that are not individuals:

corporations (commissions, fees, bond coupon, M&A, hedging, interest)
governments(bond coupon)
other investment banks (swaps, trade losses, treasury loans, stock loans, forex, cds)

While there are undoubtedly departments (probably automated) which cream off money from retail traders, do you think they really care like you say when they have trillions in exposure to banks, governments and corporations? The profits and losses on those trillions don't come from the retail trader either.

Minus sum? Want a simple example? I sell 20 contracts of oil and an airline buys them. Oil goes down. I make money, the airline will break even or make money if they've hedged well, the exchange makes a bit. Where's the negative sum for any of us involved?
 

everyonerich

Experienced member
1,109 43
fair enough.. :)

i agreed with you, many left the trading afterwhile..
 

robster970

Veteren member
4,566 1,389
Minus sum? Want a simple example? I sell 20 contracts of oil and an airline buys them. Oil goes down. I make money, the airline will break even or make money if they've hedged well, the exchange makes a bit. Where's the negative sum for any of us involved?
I think the point is that the market and trading in a market, as a mathematical system, is a -ve sum game. That's how I read it.
 
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oildaytrader

Senior member
2,806 125
Just a few trillion in pension shortfalls, pension misselling , endowment misselling and worst .the maxwells of this world joining forces to rob the funds themselves.

US public pensions 'facing $2,000bn shortfall'
http://www.ft.com/cms/s/0/13053120-f999-11de-8085-00144feab49a.html

Pension shortfall 'passes £100bn'
http://www.channel4.com/news/articles/business_money/pension+shortfall+passes+100bn/3472577

vast majority of pension funds fail investors
http://www.citywire.co.uk/personal/-/blogs/money-blog/content.aspx?ID=353674

The pension schemes are a con!ONLY ONE THING IS GUARANTEED !ROBBERY IN FEES AND COMMISIONS.
 

DionysusToast

Legendary member
5,963 1,498
Did you lose some money?

It is proposterous actually. While the trading game might be harder for individuals (and in one or two ways easier), it has a fundamental difference with a casino, and a very important one. The house can be beaten. That has been proved.

Also, you say it only has one source of revenue. Again, simply not true. Here are a few sources of revenue that are not individuals:

corporations (commissions, fees, bond coupon, M&A, hedging, interest)
governments(bond coupon)
other investment banks (swaps, trade losses, treasury loans, stock loans, forex, cds)

While there are undoubtedly departments (probably automated) which cream off money from retail traders, do you think they really care like you say when they have trillions in exposure to banks, governments and corporations? The profits and losses on those trillions don't come from the retail trader either.

Minus sum? Want a simple example? I sell 20 contracts of oil and an airline buys them. Oil goes down. I make money, the airline will break even or make money if they've hedged well, the exchange makes a bit. Where's the negative sum for any of us involved?
Good post. Let me take this point by point.

1 - I am not losing money, merely pointing out why most will.

2 - The house cannot be beaten. The financial industry ALWAYS makes money. It is impossible for all investors to make more money than is put in. Now - can a single individual make some money - yes - but not by following the methods put forward by the financial industry.

3 - Governments as a source of revenue is a poor example. This is simply tax payer’s money being filtered into wall St. Wall St always gains on these transactions.

4 - corporations pay wall st. Again, this money comes from their customers and possibly shareholders in the form of dilution. In the main, whenever a publicly traded company does business with wall st., it devalues the company and shareholder value in the process. Wall st. always gains on these transactions.

5 - Other banks - well - banks can make money from other banks but we all know where the 'other banks' got their money from too.

6 - It is not just retail traders getting creamed but institutional too - guess where the funds money comes from... Don't just think it's retail traders getting creamed by MMs/specialists/brokers/algo's - it's all traders institutional & retail. It's just that it is all the investing public’s money being traded.

7 - Hedging does indeed leave 2 parties feeling satisfied. The airline in your example will indeed save money by making that one trade. Don't confuse that with actually making money though. Just like insurance, it's the insurance companies that win overall. Just because a single hedge trade works out well, don't think that the house doesn't have an advantage overall and don't think the house doesn't make money overall. As single trade may not be minus sum but the totality of all trades is
 

timsk

Legendary member
7,139 1,914
2 - The house cannot be beaten. The financial industry ALWAYS makes money. It is impossible for all investors to make more money than is put in. Now - can a single individual make some money - yes - but not by following the methods put forward by the financial industry.
Hi DionysusToast,
Broadly speaking, i agree with your 'in the round' view. However, Xeno's point - as I understand it - is that as individual retail traders, we have the potential to be the thorn in the thigh of the Wall St Casino and beat the 'house'. You're macro and Xeno is micro, so both of you are correct, I think. Be that as it may, having painted this somewhat gloomy picture, other than to suggest that we give up the game, I trust that you're going to provide some clear direction so that we can all avoid being fodder for the Wall St casino?
;)
Tim.
 

DionysusToast

Legendary member
5,963 1,498
Hi DionysusToast,
Broadly speaking, i agree with your 'in the round' view. However, Xeno's point - as I understand it - is that as individual retail traders, we have the potential to be the thorn in the thigh of the Wall St Casino and beat the 'house'. You're macro and Xeno is micro, so both of you are correct, I think. Be that as it may, having painted this somewhat gloomy picture, other than to suggest that we give up the game, I trust that you're going to provide some clear direction so that we can all avoid being fodder for the Wall St casino?
;)
Tim.
Tim - DT will do - no need to type that in Doiwhatever....

It is indeed a gloomy picture. Painting it rosy is what the financial industry does to part you with your money.

Today one of the stocks I was looking at had some good news. It opened up $1.50 - which for this stock was a fair jump. The open was a single trade of 100 shares. No other trades followed for 3 minutes. This was WITHOUT DOUBT the market maker buying share off himself to set the tone of the market. The news was good but the market maker set the tone of the market by opening high. No doubt the MMs intention was to stop a flood of buying at those prices as there were few people lined up to sell and the MM would have had to be seller of last resort in a rising market.

Now - with this information in hand. How would such a situation be played (if at all) in comparison with the statistics found in the much mystified Tony Crabel Orb book ? How would some guy using pure technicals have intepreted this move ? As a strong open ? A breakout of previous resistance ? A trend continuation ?

There could be many ways that a TA purist would have interpreted this in part based on what had happened on prior days. If there was resistance on the chart where the MM decided to open the stock - then it may have been a breakout.

Obviously, in many cases, there is a healthy order book on both sides at the open, the MM doesn't always set the open - the inside bid/ask does. In this case though - the MM dictated the open and a TA purist would not have seen this at all. This is all about understanding the players & the game IMO.
 

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