Retail investment: A force for good or evil?

Trading is evil

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    DIS - Get Report. I know, it sounds like I am stating the obvious.

    He co-founded Macro Ops and is the host of Fallible. Losing periods of any trading strategy are a necessary evil. To understand this concept think about where profits in the market actually come from.

    When you make a profitable trade someone else took the other side and lost that money. Free money does not appear out of thin air. So if your trading strategy never lost, the people on the other side of your trades would eventually run out of money.

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    Eventually the traders overselling the market would start to realize how much money their were losing by doing so. It would be a lot harder for the losing traders on the other side of your trade to figure out their mistakes and reverse course.

    By Elvis Picardo Updated Jun 25, Making mistakes is part of the learning process when it comes to trading or investing. Investors are typically involved in longer-term holdings and will trade in stocks, exchange-traded funds, and other securities. Traders generally buy and sell futures and options, hold those positions for shorter periods, and are involved in a greater number of transactions. While traders and investors use two different types of trading transactions, they often are guilty of making the same types of mistakes.

    Your edge in the market would likely endure. But those losing cycles were necessary for his long-term value oriented strategy to maintain its profitability over time.

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    The dynamics of a poker game help to further illustrate this concept. Because of luck, losing poker players can have winning sessions and even large winning streaks.

    The sudden wave of stay-at-home investors eager to profit from increased volatility has, however, raised concerns as to how retail investors coexist and interact with their institutional brothers and sisters in the market. Increased volatility always encourages market participation from individuals, says Steve Sanders, executive vice president of product development at retail broker Interactive Brokers. When the market is stagnant and moving sideways there is just not as much interest.

    This keeps the bad players coming back to play again trading is evil again even though they are long-term losers against the truly profitable poker players. And as always, stay Fallible out there investors!

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