101–110 of 116 posts
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Trading also subjects you to short term capital gains tax rates, as well as losing the effects of compounding.
Short term capital gains rates have been 15%, right? Which is, based on my last gander at the tax charts, less than the regular w2 tax rate bracket many successful traders would file under.
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A distinction without a difference. He is an active trader that moves in and out of businesses all the time. In fact, he just dumped all of his airline stock recently due to Covid-19. It doesn't matter if you trade based on research or not, you're still a trader.
au contraire , it's precisely the most carnal difference, that of intent and of effect. investors want investments--the companies--to succeed, and thereby externalizes a net positive societal effect; traders want their bets to succeed, others be damned.
If you buy and sell stock, you're a stock trader. And Buffet is a stock trader.
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No, I mean the mathematical mean, not mode. If you take this action infinitely many times, what is your average (mean) return? https://en.wikipedia.org/wiki/Expected_value
I see, so you're saying the expected profit on the trade is $0 assuming an efficient market and ignoring trading costs? Your comment is confusing the way it's worded because the expected value of the option is non-zero.
If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…
Two counterarguments: 1) Trading fees. If the house takes a cut of 0.1% on every transaction, then on average those who trade more lose more money. 2) Risk/reward tradeoff. If you buy deep out-of-the-money options, you might have a 5% chance of profitability, but expected return of $0 (neither positive nor negative). 95% of the time you lose $X, and 5% of the time you make $19X. If traders are pursuing riskier strate…
If you trade derivatives, fees can be very low (because these are highly-leveraged products but if you are smart you know you shouldn't take any leverage). This can save substantial money if you trade frequently.
> Risk/reward tradeoff. If you buy deep out-of-the-money options, you might have a 5% chance of profitability, but expected return of $0 (neither positive nor negative). 95% of the time you lose $X, and 5% of the time you make $19X. If traders are pursuing riskier strategies, you'd expect most of them to lose money.
There is more to trading than predicting the direction of a stock/currency. You can provide liquidity and arbitrage a stock and its derivatives. Having traded for a while, arbitrage opportunities do exist; though sometimes you might have to be patient and cut off trading until an opportunity arise. This can be quite a time (like a year with no trading opportunity) and will require a lot of self-control.
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This is absolutely right. I'm handily beating the market with an automated strategy I designed to the point I've all but shut down my startup/programming consulting business. What the system trades, and what I understand intellectually is the right thing to do, is often very hard to stomach emotionally.
Do you have a background in finance / any recommended reading? I've spent a lot of time on a automated trading side project of mine but haven't found the strategy yet. In retrospect time has been spent in completely the wrong areas ( setup a solid backrest platform first, duh )
Warning: it is a lot of fun, thrilling, but hard to make money. My winning algos took a while to research, longer to automate, and often lost alpha quickly.
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This is absolutely right. I'm handily beating the market with an automated strategy I designed to the point I've all but shut down my startup/programming consulting business. What the system trades, and what I understand intellectually is the right thing to do, is often very hard to stomach emotionally.
What platform do you trade on?
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Costs? as in commissions? I haven't paid a commission in two years. Many brokers are now commission-free.
if it's commission free, it's likely because (1) fees are baked into the quoted price, or (2) firms are buffering trades with their own holdings and making money on traders' losses. you're paying somewhere for sure.
The fees are baked into quoted price ("the spread") but the execution cannot be worst than the NBBO (National Best Bid Offer).
They are making money on the spread for sure, probably crossing some trades internally as well. They also make money on the margin rates.
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You don't work at a startup to make more money, you work at a startup for non-monetary benefits and if you're extremely lucky you might get rich quick. Average case is you make less, good case is you make even if your company is highly successful.
Without pointing any specific fingers, people were pushing 'you should spend your 20s working 60-80 hours a week at a startup so you can get rich' really hard for a while there. It's only relatively recently that this is understood to be a bit of a con
This go-around, there is a lot of private capital, so companies stay private for a decade or longer and lock employees out of liquidity events (meanwhile, founders can negotiate to take some cash off the table during a financing round.) The incentives are skewed. In the 90s bubble, companies with a $50M valuations could go IPO -- you could hopefully sell after your lockout. (Oh, and houses cost a tenth of what they do now.)
This go-around, there is HN, Quora, Blind, and so it is harder for people to get suckered into starry visions.
That said, it is still worth considering working at startups for the high-learning, low-BS environments you can find as compared to big companies.
It's my understanding that, if commissions are free (e.g. Robinhood) then on average, any trading strategy is going to perform comparable to the market average. If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.
You can reliably lose money in absence of commissions by buying at the ask and selling at the bid. You can't invert that to make money.