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#21
10-01-2007, 02:57 PM
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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. 
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#22
10-01-2007, 03:08 PM
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Re: Difference Between Poker and the Stock Market
[ 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 ] 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.
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#23
10-01-2007, 03:10 PM
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Re: Difference Between Poker and the Stock Market
[ 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. [/ QUOTE ] Nothing stops you from being a market maker yourself. [/ QUOTE ] 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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#24
10-01-2007, 03:44 PM
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Re: Difference Between Poker and the Stock Market
[ QUOTE ]
[ 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. [/ QUOTE ] Nothing stops you from being a market maker yourself. [/ QUOTE ] 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. [/ QUOTE ] 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.
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#25
10-01-2007, 03:50 PM
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Re: Difference Between Poker and the Stock Market
[ QUOTE ]
In poker, you're betting on cards; in the market, stocks. Can anyone come up with another? I can't. [/ QUOTE ] 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.
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#26
10-01-2007, 09:09 PM
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Re: Difference Between Poker and the Stock Market
[ QUOTE ]
[ 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 ] If you're relying on the 'upward bias' in the US market as a day trader, then you're in the wrong biz. [/ QUOTE ] Of course I made no such recommendation or claim. [ QUOTE ] Just buy bonds and forgo churning commissions. [/ QUOTE ] Of course this has nothing to do with the OP or what I wrote about. [ QUOTE ] Being a market maker is more analogous to table games in the casino than to the rake in poker. [/ QUOTE ] Nope. [ QUOTE ] 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.
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#27
10-01-2007, 10:19 PM
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Re: Difference Between Poker and the Stock Market
[ 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. 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?
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#28
10-01-2007, 10:46 PM
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Re: Difference Between Poker and the Stock Market
[ QUOTE ]
I've yet to see a short-term trading system that generates a greater net profit than the costs it produces. [/ QUOTE ] 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
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#29
10-01-2007, 11:07 PM
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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.
[ QUOTE ] [ QUOTE ] Being a market maker is more analogous to table games in the casino than to the rake in poker. [/ QUOTE ] Nope. [ QUOTE ] 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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#30
10-02-2007, 12:33 AM
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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.
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