Difference Between Poker and the Stock Market
 

In poker, you're betting on cards; in the market, stocks.

Can anyone come up with another? I can't.

Re: Difference Between Poker and the Stock Market
 

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In poker, you're betting on cards; in the market, stocks.

Can anyone come up with another? I can't.

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Stocks generally go up (even if you don't study the market), where as poker players generally lose (especially if you don't study the game).

Stocks make you money even if you are out fishing. Poker only makes you money if you are actively participating in it.

At small stakes, you can win more at one time at poker than stocks. At large stakes, you can win more in the market at one time than at stocks.

The bad thing about stocks, is it takes a much bigger bankroll to get significant returns, but at the same time is less risky.

The good thing about poker is you can quickly build a small to medium bankroll (if your good), but most players will quickly reach a plateau they can't overcome. At that point, your excess profits should be invested in the market.

Re: Difference Between Poker and the Stock Market
 

Here's one that Barrons screwed up when they wrote about me and other poker players.

They suggested that investors should take a hint from poker players who realize that they should quit a game when they are losing, ignoring ego and realizing their results might indicate that they are an underdog .

But the analogy is badly flawed. Because your losses only tell you that you might have made a mistake when you SAT DOWN. In poker that usually means you should quit. But in the market it very often does not. Reason being, of course, that the "bad" buy, could have turned into a good hold, at the new lower price.

Re: Difference Between Poker and the Stock Market
 

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In poker, you're betting on cards; in the market, stocks.

Can anyone come up with another? I can't.

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You're kidding right? We can beat this subject to death again but one is a zero sum game more or less while the other isn't. Honestly I don't see too many similarities.

Re: Difference Between Poker and the Stock Market
 

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[ QUOTE ]
In poker, you're betting on cards; in the market, stocks.

Can anyone come up with another? I can't.

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You're kidding right? We can beat this subject to death again but one is a zero sum game more or less while the other isn't. Honestly I don't see too many similarities.

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If OP is refering to stock trading then there are many similarities.

They are both negative sum games. Poker has the rake and stock trading has commissions and spreads. Both are very difficult to overcome for the vast majority of people.

There are also similarities with psychology, variance, risk management, position sizing (stakes in poker), EV plays, knowing when to push your edge, taking shots and calculated risks.

There are so many similarities (IMO) but they've already been widely discussed.

I believe there'd be distinctly fewer similarities between poker and investing than poker and trading.

Re: Difference Between Poker and the Stock Market
 

Why do people insist on comparing the two? The stock market significantly affects/is affected by our economy. Poker is a stupid game that a handful (relatively speaking) of people make money with.

Poker has various complexities but one can be successful at lower stakes by reading an easy book and applying a few basic concepts. It's a [censored] card game. The stock market isn't.

As a side note: It pisses me off whenever I read here, "Oh I run so good at poker maybe I should become a trader because OMG they're so alike."

Re: Difference Between Poker and the Stock Market
 

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Why do people insist on comparing the two?

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Maybe because poker and financial trading are both negative sum gambling games that can be profitable through risk management, skill, and a bit of luck.

There are valid similarities.

Re: Difference Between Poker and the Stock Market
 

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Why do people insist on comparing the two?

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Maybe because you're on a financial forum on a poker website?

Re: Difference Between Poker and the Stock Market
 

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Here's one that Barrons screwed up when they wrote about me and other poker players.

They suggested that investors should take a hint from poker players who realize that they should quit a game when they are losing, ignoring ego and realizing their results might indicate that they are an underdog .

But the analogy is badly flawed. Because your losses only tell you that you might have made a mistake when you SAT DOWN. In poker that usually means you should quit. But in the market it very often does not. Reason being, of course, that the "bad" buy, could have turned into a good hold, at the new lower price.

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David,

The table you sat down at is not necessarily the same one you are getting up from in terms of conditions. It could have also become a better value as a result of your losses.

Re: Difference Between Poker and the Stock Market
 

What prompted me to start this thread was an article in the Sunday, NYPOST about the debt accummulated by "Generation Debt," people in the 30-45 age group. The article stated that one of the "problems" with that group (which includes me) is that we view the stock market as gambling.

I understand that the financial firms spend millions of dollars every year to make the stock market seem "respectable" and to hide the gambling element. However, there's no other way to explain the constant fluctuations of stock prices other the gambling element.

If a stock is selling at 30 in November, 45 in March, and 30, again, in August, did those fluctuations really reflect the value of the company?

Re: Difference Between Poker and the Stock Market
 

Anything with variance involves "gambling" because of the risk involved. I think one important distinction is that stock market investing can be +EV (and usually is, when executed properly) but that gambling in general (I'm not talking about poker "pros") is -EV. When the general public speaks of gambling, they speak of the typical Vegas casino environment which, aside from poker, is strictly -EV. In terms of expected value, the stock market is not "gambling" but in terms of variance (or risk), it is like gambling.

At least, this is how I see it.

Re: Difference Between Poker and the Stock Market
 

Bets placed in poker are uncollerated?

Re: Difference Between Poker and the Stock Market
 

Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

[/ QUOTE ]

All the more reason to use a buy and hold strategy with a portfolio of index funds.

Re: Difference Between Poker and the Stock Market
 

I'm a big fan of Bogle myself

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
What prompted me to start this thread was an article in the Sunday, NYPOST about the debt accummulated by "Generation Debt," people in the 30-45 age group. The article stated that one of the "problems" with that group (which includes me) is that we view the stock market as gambling.

I understand that the financial firms spend millions of dollars every year to make the stock market seem "respectable" and to hide the gambling element. However, there's no other way to explain the constant fluctuations of stock prices other the gambling element.

If a stock is selling at 30 in November, 45 in March, and 30, again, in August, did those fluctuations really reflect the value of the company?

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this seems to pop up constantly.

imo there are two different widely known methodologies for involvement int he market.

one is passive, strategic, investing (beta).

the other is active, tactical, trading (alpha).

sometimes the two commingle (i.e. in a mutual fund that has a long bias).

sometimes you can separate the two (i.e. investing in an index, using futures to replicate the exposure and take the remaining $ to an uncorrelated alpha generator like a hedge fund...assuming you are good at picking managers and finding a stream like that).

the point here is that alpha generation is far more like poker in that it is negative sum costs included.

beta is not like poker. you can be "guaranteed" a return by simply placing money in a diversified portfolio and letting it grow. there is no such easily acheivable analogy in poker (the only one that even comes close, bust still isn't, is finding great players who need staking and investing in them. problems here are massive adverse selection and moral hazard: those who need staking are typically not players an investor would like to stake and those who don't need staking are more likely to be the highly successful players in whom an investor would love to invest. moral hazard comes from after the investment. if a player sees his losses as-partially- covered, he/she may engage in behavior that he/she would not have done if tthat money was theirs)

anyways, now that i've listed all that out, the similarities between beta and poker are none that i can think of because in the markets, i think picking alpha managers is really freakin ghard, similar to the problems described above with picking winning players.

there is no risk premia creation/distribution in the poker world.

alpha generation though i think does have some similarities as mentioned in this thread.

so if you rephrase the OP to read: "difference between poker and alpha generation" you are far more hard pressed to find a difference.

the MAIN one...and a massive one...is that alpha generation is not and will never be normally distributed since the underlying process is both risky AND uncertain (i.e. the overall fundamental risks are unknown even to the participants) wheras poker is mostly just risky (i.e. 52 cards, known distribution) and thus can be modeled in that portfolio sense with a normal distribtuion thanks to the law of large #s (obviously you can start talking about the players and their deviation from their expectation. even with large #s of players, their errors could be correlated if caused by essenciallyt he same psychological forces etc.). but overall, the DRIVER of the process in poker can be normally distributed whereas the DRIVER of the process in trading is not.

Barron

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

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Ive avoided both of these pitfalls. I trade at Zecco so I pay nothing for each comission. And I use level II trading software from Ameritrade and so far have had no problems getting a very good price when I buy/sell. Im not losing money to the market maker.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Here's one that Barrons screwed up when they wrote about me and other poker players.

They suggested that investors should take a hint from poker players who realize that they should quit a game when they are losing, ignoring ego and realizing their results might indicate that they are an underdog .

But the analogy is badly flawed. Because your losses only tell you that you might have made a mistake when you SAT DOWN. In poker that usually means you should quit. But in the market it very often does not. Reason being, of course, that the "bad" buy, could have turned into a good hold, at the new lower price.

[/ QUOTE ]

No, I think you have it backwords, regarding the last paragraph.

Re: Difference Between Poker and the Stock Market
 

ur losing edge to market makers

Re: Difference Between Poker and the Stock Market
 

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They are both negative sum games. Poker has the rake and stock trading has commissions and spreads. Both are very difficult to overcome for the vast majority of people.

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Commissions are really insignificant IMO. If I buy $100,000 of stock with a $10 commission that's nothing. The rake in poker is much more difficult to overcome. Second of all even if one is doing day trading in a very limited number of stocks, they have the upward bias of the market working for them. I realize that people are not compensated for taking individual company risk and the systematic risk varys from stock to stock (GE correlates more with market movements than somehting like KKD for instance) but there is an upward bias nonetheless. Not true in poker. Sorry the market makers in stocks and the house in casino poker are not the same thing at all, not even close.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

[/ QUOTE ]

Nothing stops you from being a market maker yourself.

Re: Difference Between Poker and the Stock Market
 

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Commissions are really insignificant IMO. If I buy $100,000 of stock with a $10 commission that's nothing. The rake in poker is much more difficult to overcome. Second of all even if one is doing day trading in a very limited number of stocks, they have the upward bias of the market working for them. I realize that people are not compensated for taking individual company risk and the systematic risk varys from stock to stock (GE correlates more with market movements than somehting like KKD for instance) but there is an upward bias nonetheless. Not true in poker. Sorry the market makers in stocks and the house in casino poker are not the same thing at all, not even close.

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If you're relying on the 'upward bias' in the US market as a day trader, then you're in the wrong biz. Just buy bonds and forgo churning commissions. Being a market maker is more analogous to table games in the casino than to the rake in poker. The casino, or market maker, can lose on any given bet but in the long run EV becomes actual value.

Re: Difference Between Poker and the Stock Market
 

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[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

[/ QUOTE ]

Nothing stops you from being a market maker yourself.

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Correct, all you have to do is have a large amount of capital, and purchase a seat on an exchange and you too can make two sided markets.

Re: Difference Between Poker and the Stock Market
 

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[ QUOTE ]
[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

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Nothing stops you from being a market maker yourself.

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Correct, all you have to do is have a large amount of capital, and purchase a seat on an exchange and you too can make two sided markets.

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Most exchanges are order-driven, which means as long as you're able to quote a price, you're effectively a market maker. Some are technically not, but it doesn't make a big practical difference, as long as you have good execution. Bid-ask spreads exist because in a locked market, market makers lose money on average, not because market makers need to make money.

Re: Difference Between Poker and the Stock Market
 

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In poker, you're betting on cards; in the market, stocks.

Can anyone come up with another? I can't.

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The differance between poker and stocks is poker is a zero sum game. For every winner there needs to be a loser, not so in the stock market. The market has averaged a 10% gain over the last 80 years or so. The average poker player has lost money to the house.

Re: Difference Between Poker and the Stock Market
 

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[ QUOTE ]

Commissions are really insignificant IMO. If I buy $100,000 of stock with a $10 commission that's nothing. The rake in poker is much more difficult to overcome. Second of all even if one is doing day trading in a very limited number of stocks, they have the upward bias of the market working for them. I realize that people are not compensated for taking individual company risk and the systematic risk varys from stock to stock (GE correlates more with market movements than somehting like KKD for instance) but there is an upward bias nonetheless. Not true in poker. Sorry the market makers in stocks and the house in casino poker are not the same thing at all, not even close.

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If you're relying on the 'upward bias' in the US market as a day trader, then you're in the wrong biz.

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Of course I made no such recommendation or claim.

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Just buy bonds and forgo churning commissions.

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Of course this has nothing to do with the OP or what I wrote about.

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Being a market maker is more analogous to table games in the casino than to the rake in poker.

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Nope.

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The casino, or market maker, can lose on any given bet but in the long run EV becomes actual value.

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Market makers don't fade "bets" from investors offering odds that are unfavorable to investors and they don't cut pots either.

Re: Difference Between Poker and the Stock Market
 

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They are both negative sum games. Poker has the rake and stock trading has commissions and spreads. Both are very difficult to overcome for the vast majority of people.

[/ QUOTE ]

Commissions are really insignificant IMO. If I buy $100,000 of stock with a $10 commission that's nothing. The rake in poker is much more difficult to overcome. Second of all even if one is doing day trading in a very limited number of stocks, they have the upward bias of the market working for them. I realize that people are not compensated for taking individual company risk and the systematic risk varys from stock to stock (GE correlates more with market movements than somehting like KKD for instance) but there is an upward bias nonetheless. Not true in poker. Sorry the market makers in stocks and the house in casino poker are not the same thing at all, not even close.

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This isn't true. Commissions are only a small part of your "rake"

Day trading generates huges costs, and not just in the form of commissions. There are also spreads to overcome, which are even more significant when day trading as the spread takes up a greater proprtion of your trading channel.

And then there is the slippage...... [img]/images/graemlins/frown.gif[/img]

I've yet to see a short-term trading system that generates a greater net profit than the costs it produces.

And I don't see how the upward bias of the market helps days traders. What happens when they're short?

Re: Difference Between Poker and the Stock Market
 

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I've yet to see a short-term trading system that generates a greater net profit than the costs it produces.


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doesn't mean that they don't exist. renaissance, DEshaw are the famous ones i know of that do this. and these are a TON of S-T trading systems combined together. each individually are almost surely expected to be net winners.

Barron

Re: Difference Between Poker and the Stock Market
 

Perhaps I misunderstood your post. I believe day traders, focusing on a 'very limited number of stocks' do not gain much at all from a long term systematic bias. I just offered the alternative of buying bonds as a less expensive and more direct way to play the US economy.

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Being a market maker is more analogous to table games in the casino than to the rake in poker.

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Nope.

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The casino, or market maker, can lose on any given bet but in the long run EV becomes actual value.

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Market makers don't fade "bets" from investors offering odds that are unfavorable to investors and they don't cut pots either.

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You're correct. Market Makers do not cut pots.

Market makers (in their purest form) provide two sided markets; making their money by buying on the bid, selling on the offer, and scalping the difference. As such, market makers make the most money by finding an equilibrium (or theoretical) price where there are an equal number of buyers and sellers. They then set their bid below this theoretical price and offer above the theoretical price and attempt to attract as much order flow as possible. If there are more buyers than sellers a market maker will 'fade' his(or her) market up in search of this new equilibrium by raising both the bid and offer. If you send a large market order the the NYSE I guarantee the specialist (head market maker) will fade your bet every time and take the EV between the market equilibrium price and the price you are executed at. This difference is the Market Maker's vig. Examples are best seen in illiquid stocks, as their markets tend to be wider, but they trade smaller volume. The purest form of a market maker makes the bulk of his/her money in the same way that a casino does, by taking many small +EV bets (much like a successful poker player).

Re: Difference Between Poker and the Stock Market
 

I don't see the Poker equivalent of Margin. Sure, you can get staked, but, it's not quite the same. With Margin, the brokerage firm's money is not at risk, as they'll sell the stock long before their money starts disappearing. In addition, you can't get into trouble with margin because you can only lose your money, albeit twice as fast*.

* This wasn't true in the pre-depression days when you could borrow up to 90% of the purchase price.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Perhaps I misunderstood your post. I believe day traders, focusing on a 'very limited number of stocks' do not gain much at all from a long term systematic bias. I just offered the alternative of buying bonds as a less expensive and more direct way to play the US economy.

[ QUOTE ]
[ QUOTE ]
Being a market maker is more analogous to table games in the casino than to the rake in poker.

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Nope.

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The casino, or market maker, can lose on any given bet but in the long run EV becomes actual value.

[/ QUOTE ]

Market makers don't fade "bets" from investors offering odds that are unfavorable to investors and they don't cut pots either.

[/ QUOTE ]

[/ QUOTE ]

You're correct. Market Makers do not cut pots.

Market makers (in their purest form) provide two sided markets; making their money by buying on the bid, selling on the offer, and scalping the difference. As such, market makers make the most money by finding an equilibrium (or theoretical) price where there are an equal number of buyers and sellers. They then set their bid below this theoretical price and offer above the theoretical price and attempt to attract as much order flow as possible. If there are more buyers than sellers a market maker will 'fade' his(or her) market up in search of this new equilibrium by raising both the bid and offer. If you send a large market order the the NYSE I guarantee the specialist (head market maker) will fade your bet every time and take the EV between the market equilibrium price and the price you are executed at. This difference is the Market Maker's vig. Examples are best seen in illiquid stocks, as their markets tend to be wider, but they trade smaller volume. The purest form of a market maker makes the bulk of his/her money in the same way that a casino does, by taking many small +EV bets (much like a successful poker player).

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That's the way market makers USED to make money. Spreads are usually 1 or 2 cents. These days market makers make their money by out-trading the average trader.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
They are both negative sum games. Poker has the rake and stock trading has commissions and spreads. Both are very difficult to overcome for the vast majority of people.

[/ QUOTE ]

Commissions are really insignificant IMO. If I buy $100,000 of stock with a $10 commission that's nothing. The rake in poker is much more difficult to overcome. Second of all even if one is doing day trading in a very limited number of stocks, they have the upward bias of the market working for them. I realize that people are not compensated for taking individual company risk and the systematic risk varys from stock to stock (GE correlates more with market movements than somehting like KKD for instance) but there is an upward bias nonetheless. Not true in poker. Sorry the market makers in stocks and the house in casino poker are not the same thing at all, not even close.

[/ QUOTE ]

This isn't true. Commissions are only a small part of your "rake"

Day trading generates huges costs, and not just in the form of commissions. There are also spreads to overcome, which are even more significant when day trading as the spread takes up a greater proprtion of your trading channel.

[/ QUOTE ]

Huge costs? Spreads? Commission and spreads often total 2 or 3 cents per share. That is what you call "huge costs"?

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And then there is the slippage...... [img]/images/graemlins/frown.gif[/img]

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Slippage??! Have you been reading a futures systems article? Slippage is irrelevant with stocks.

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I've yet to see a short-term trading system that generates a greater net profit than the costs it produces.

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You haven't looked very hard. I think you have a misconception of what stock daytrading is.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
If you send a large market order the the NYSE I guarantee the specialist (head market maker) will fade your bet every time and take the EV between the market equilibrium price and the price you are executed at. This difference is the Market Maker's vig. Examples are best seen in illiquid stocks, as their markets tend to be wider, but they trade smaller volume. The purest form of a market maker makes the bulk of his/her money in the same way that a casino does, by taking many small +EV bets (much like a successful poker player).

[/ QUOTE ]

What kind of order are you talking about? Anyway what you described here isn't in the least bit similar to what a casino does. Perhaps similar to casino's competing for customers business. In the scenario you describe both sides can be +EV, DUCY? Of course OP was about poker not casino gambling.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
That's the way market makers USED to make money. Spreads are usually 1 or 2 cents. These days market makers make their money by out-trading the average trader.


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I can't really speak to stocks but this sounds pretty acurate. Back in the days of trading pits market makers would buy on the bid and sell on the offer and even then those spreads got tight. Not as tight as in today's electronic trading platforms though. The last bastion of true market makers is in illiquid stuff, options and spreads. These are the places where a true market maker can make a market and actually get paid for it. Electronic trading has changed the playing field enormously.

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]


The bad thing about stocks, is it takes a much bigger bankroll to get significant returns, but at the same time is less risky.


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This depends on how you play the market. If you're heavily leveraged and buy volatile stocks, you can get cleaned out in a hurry.

Re: Difference Between Poker and the Stock Market
 

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I don't see the Poker equivalent of Margin. Sure, you can get staked, but, it's not quite the same. With Margin, the brokerage firm's money is not at risk, as they'll sell the stock long before their money starts disappearing. In addition, you can't get into trouble with margin because you can only lose your money, albeit twice as fast*.

* This wasn't true in the pre-depression days when you could borrow up to 90% of the purchase price.

[/ QUOTE ]

The equivalent is allowing the staker to hold your WSOP bracelet until you repay him. When you go busto, he sells your bracelet and beats the Hell out of you. Poker Margin should be used sparingly.

Jimbo

Re: Difference Between Poker and the Stock Market
 

[ QUOTE ]
Assuming markets are priced efficiently, you are always giving up edge when investing in the market to market makers. That is, the more you trade, the less you are expected to win. I like to think of commissions as rake and the edge lost to market makers as negative Sklansky dollars. In poker you still pay the rake, but profitable players instead are the recipients of Sklansky dollars.

[/ QUOTE ]

it costs $10 to make a trade. that is way less rake than you pay in poker.

Re: Difference Between Poker and the Stock Market
 

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it costs $10 to make a trade. that is way less rake than you pay in poker.

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This highlights another difference: you pay the comission whether your trade wins or loses. In poker you pay the rake only when you win. Unless of course you're paying time instead of rake....

Re: Difference Between Poker and the Stock Market
 

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it costs $10 to make a trade. that is way less rake than you pay in poker.

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This highlights another difference: you pay the comission whether your trade wins or loses. In poker you pay the rake only when you win. Unless of course you're paying time instead of rake....

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I'm not sure this is true. If another player is losing money to the rake, then its money you can't win. Fish bust quicker due to rake.

Re: Difference Between Poker and the Stock Market
 

I think it is a joke that people still think that poker and investing are remotely similar.

Poker is finite game with limited variables to understand, quantify and evaluate.

Investing or trading is an open ended "game" with hundreds if not thousands of quantifiable and psychological variables all with the potential to impact your results. Why do you thik that investment pros rarely beat indexes? It's too difficult - too may variables? Why did the housing/mortgage market recently create such an impact in the financial markets that no one anticipated? Because certain firms panicked together and caused market disruption.

There is no comparison. Most investment pros dont play poker and only few poker players are great investors.