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Any Consequence for having too many successful traders?

  • #1
  • First Post: Jan 5, 2006 5:07am Jan 5, 2006 5:07am
Just a thought that crossed my mind...

I'm not sure if there was already a thread about this.. I think there was, but I'm not sure.. Anyway, let's hear all your inputs on this...

Is it possible for the percentage of successful traders increast to more than 5%? (I'm not sure about the figure, but let's say successful traders are only 5%)
If it is possible, what will be the consequence/s if such event occurs?
Will it mean less profit for the successful traders since the money coming from 95% will be reduce to 90%, and the benefitters will be from 5% to 10%..

I think the following will make it easier to understand:
1) Lossers - 95% -> 90%
2) Winners - 5% -> 10%

Logically, it seems that way.. But I'd like to hear your arguments/inputs....
  • #2
  • Jan 5, 2006 5:38am Jan 5, 2006 5:38am
This is assuming that the FX market is a zero sum game which it is not! The only zero sum games are ones that start at zero and finish at zero - that is they must expire at some point like futures and options. FX doesn't expire so isn't zero sum.

Simon
  • #3
  • Edited 6:08pm Jan 5, 2006 5:46am | Edited 6:08pm
Hmmmm.. Good point.. Any body care to argue?

For anybody who's not familiar what "zero sum game" means... You can look it up in Investopedia - I think the best source for terms used in investing...

You can directly look it up here:
http://www.investopedia.com/terms/z/zero-sumgame.asp
  • #4
  • Jan 5, 2006 8:58am Jan 5, 2006 8:58am
Quoting eastmaels
Just a thought that crossed my mind...
In Forex markets there aren't only traders, speculators, there are entities not concerned with the speculative factor, they exchange huge amounts of money for other porpouses... and they move the market! So you can take advantage even on this.

DrRock said it well.
  • #5
  • Jan 5, 2006 10:59am Jan 5, 2006 10:59am
Quoting Croesus
In Forex markets there aren't only traders, speculators, there are entities not concerned with the speculative factor, they exchange huge amounts of money for other porpouses... and they move the market! So you can take advantage even on this.

DrRock said it well.
Im not 100% sure I agree with Dr Rock regarding a zero sum game.

Clearly a HUGE percentage of foreign exchange business conducted each day is non speculative. Goods and services need to be paid for across international boundaries, and there's a fair chunk of risk management by hedging. The important thing to remember is that whilst these transactions move the market, this business isnt conducted through brokers.

Surely the small subset of speculators or traders involved in retail spot forex, conducting business through a particular broker are taking part in what is a very close approximation to a zero sum game. Money simply flows from losers to winners and an equalibrium is maintained. The broker is also part of this zero sum game, if 100% of traders where suddenly to win, those gains would be paid for by the broker !
  • #6
  • Jan 5, 2006 11:25am Jan 5, 2006 11:25am
Quoting Razzle
The important thing to remember is that whilst these transactions move the market, this business isnt conducted through brokers
That's right but then we fall in the old controversy:
all brokers are bucket shops?
They say that all the transactions are processed going across the banks, so they earn only the spreads...

Better to stop here.

I think the main point is that forex market is different from stock market (for example), if the latter IS a zero sum game, the forex market can't be properly labelled so.

  • #7
  • Jan 8, 2006 6:11am Jan 8, 2006 6:11am
Quoting Croesus
That's right but then we fall in the old controversy:
all brokers are bucket shops?
They say that all the transactions are processed going across the banks, so they earn only the spreads...

Better to stop here.

I think the main point is that forex market is different from stock market (for example), if the latter IS a zero sum game, the forex market can't be properly labelled so.

Stock market isn't a zero sum game either - the futures and options markets are the only zero sum games (when you take spread and brokerage into account, they are actually a negative sum game).

Simon
  • #8
  • Jan 8, 2006 8:23am Jan 8, 2006 8:23am
Quoting DrRock
Stock market isn't a zero sum game either - the futures and options markets are the only zero sum games (when you take spread and brokerage into account, they are actually a negative sum game).

Simon
I agree 100% that the stock market certainly isn’t a zero sum game. Looking at this in very simple terms the share price of a company can increase dramatically due to a wide range of reasons, for example, announcement of better than expected financial performance, announcement of a patent, appointment of key personnel, purchase of a competitor etc. Anyone who is long that particular stock benefits as the share prices rise, but its important to realise that they are benefiting as the “worth” of the company has increased, the gains are not necessarily due to losses incurred by other traders shorting the stock.



I’m not at all convinced that the same argument applies to retail forex. When my trade is profitable, I’m paid directly from the losses of another trader (or losses incurred by my broker). I’ve yet to see anyone provide any explanation of why they think forex isn’t a zero or negative sum game.


Ive heard a few people say it isnt zero sum, but unfortunately not why they believe this is the case. Am a missing something obvious ?
  • #9
  • Jan 8, 2006 11:36am Jan 8, 2006 11:36am
saw this in moneytec, might be of interest to some

http://faculty.haas.berkeley.edu/lyo...%20profits.pdf
  • #10
  • Jan 8, 2006 12:21pm Jan 8, 2006 12:21pm
Quoting DrRock
This is assuming that the FX market is a zero sum game which it is not!
FX is indeed a zero sum market. its a negative sum market when you factor in the spread.

judging from your argument of why FX is not a zero sum, you may be confused with what zero sum means. a zero sum market is a market in which there is a dollar lost everytime there is a dollar gained. if i make a dollar, someone has to lose a dollar.

forex and futures are zero sum. the stock market is not zero sum, because a company can grow and all the shareholders benifit.
Relax and be happy.
  • #11
  • Jan 8, 2006 12:25pm Jan 8, 2006 12:25pm
Quoting eastmaels
1) Lossers - 95% -> 90%
2) Winners - 5% -> 10%
the simple answer to this intriguing question is that the bar would be raised. the more people making money, the harder it is to make money. in theory, for a zero sum game like forex, you want the market participants to be as dumb as possible
Relax and be happy.
  • #12
  • Jan 8, 2006 7:05pm Jan 8, 2006 7:05pm
Quoting merlin
in theory, for a zero sum game like forex, you want the market participants to be as dumb as possible
  • #13
  • Jan 8, 2006 9:43pm Jan 8, 2006 9:43pm
Quoting merlin
the simple answer to this intriguing question is that the bar would be raised. the more people making money, the harder it is to make money. in theory, for a zero sum game like forex, you want the market participants to be as dumb as possible
Lol... But can we view it as sharing the blessing?

Anyway, honestly, here's why I asked this question..
Somehow, it's related with the PF, or any other course whose aim is to create successful traders..
I mean, let's say that all the subscribers of James16's Group and Rob Booker's students (so far they're the two honest services that I know or believe) become successful traders (I said that because their aim is to help traders become successful right?).. It would increase the number of successful traders.. although I doubt that the number will increase the figure from 5% -> 10%.
But for argument's sake, let's say that it goes to that number because the said services constantly produce successful traders..

I know I'm making a lot of assumptions, but it's just a thought that I somehow what the input of guys here... It's a question that I think will bug me until I get an answer that I'll be satisfied..

But anyway, I think I may have found the answer that I sought...
So let's say that the above mentioned services (and others) produces successful traders, I think that it will still remain at 5% because of maybe a lot of people will try to be successful everyday.. I mean, new players are coming who will lose...

Somehow, I think that the figure will still remain at 5%...
But if it indeed goes up to 10%, then you're view is right that it will be harder for the 10% to make money because they'll be sharing profits from the 90%...

But for me, I view it as sharing the blessing to the additional 5%..
For me, those who view it otherwise are greedy..

Hehe.. No offense meant..

Thank you very much for your input guys.. You can continue the discussion as you like... You may even argue any statement I just made, but for me, I already got the answer I wanted.. I wouldn't have gotten it without your inputs...

This just shows how important discussions like this is..

Peace...
  • #14
  • Jan 9, 2006 2:11am Jan 9, 2006 2:11am
If you look at some historical charts going back 20+ years, you will see much bigger ranges than we are currently seeing today. Back then the participant group was much more exclusive than today where everybody and his brother can trade forex. Now we are finding lower volatility today across the entire market. Low volatility and higher participation. More efficiency, more computing power, and more money chasing the same ideas (which were probably found independently).

So you are asking what happens if 5% goes to 10%. These people must have found an edge that delivers results. But there are only so many ways to trade the market and eventually too many people will find the same thing and it will become less effective.
  • #15
  • Jan 9, 2006 5:40am Jan 9, 2006 5:40am
Quoting craigatk
If you look at some historical charts going back 20+ years, you will see much bigger ranges than we are currently seeing today. Back then the participant group was much more exclusive than today where everybody and his brother can trade forex. Now we are finding lower volatility today across the entire market. Low volatility and higher participation. More efficiency, more computing power, and more money chasing the same ideas (which were probably found independently).

So you are asking what happens if 5% goes to 10%. These people must have found an edge that delivers results. But there are only so many ways to trade the market and eventually too many people will find the same thing and it will become less effective.
I'm nt sure if i undestod you right. but what you're saying is that when a lot more people are trading the same way, the less effective the system will be? could you explain why? Because if what yo're saying is true, then why are thre peple wh are teaching their system, when the consequence of teaching the system makes the system less effective? I thin what i just want to know or nderstand is the logic behind the statement (if i understod it right), "the more people doing the same thing makes the method less efective". very much looking for replies.
  • #16
  • Jan 15, 2006 11:03pm Jan 15, 2006 11:03pm
eastmaels;

Extreme example.
If I publish the Grail to a few friends, and it issues a Buy signal, we would be able to buy from the 95%

If I publish the Grail to this forum, and it issues a Buy signal, we would be able to buy from the 90%

If I publish the Grail to the World and it issues a Buy signal, who will sell it to me?

My thoughts wander to the correlation between % of Traders with >'x' Years Time in and the 5% succesfull Traders.

B
  • #17
  • Jan 16, 2006 8:17am Jan 16, 2006 8:17am
Quoting Bemac
If I publish the Grail to the World and it issues a Buy signal, who will sell it to me?
This statement is, ultimately, correct in theory.
  • #18
  • Jan 16, 2006 8:40am Jan 16, 2006 8:40am
Quoting WTB
This statement is, ultimately, correct in theory.
Yup. I guss that's why he used the words "extreme example" . I think raders should be careful when reading this because it is in theory But anyway, the big quetin is, is the world wiling to follow one system? I think the probabiliity of that is next t impossible. I may be rong though.. who knows, maybe I'll find dicover that system.. damn my keyboar is killing me .
  • #19
  • Jan 16, 2006 10:13am Jan 16, 2006 10:13am
Quoting WTB
This statement is, ultimately, correct in theory.

As traders, individuals make up just a sliver of the pie .. the movers of the market remain the large institutional Investors, Banks, and Governments ... who remain far more sophisticated at what they do than what we do weather we are succesful or not ...



In theory, there is no difference between theory and practice. But, in practice, there is.

Jan L.A. van de Snepscheut http://www.gurteen.com/gurteen/gurte...oogle-icon.png

  • #20
  • Jan 16, 2006 12:21pm Jan 16, 2006 12:21pm
I think big part of losers are small and high leveraged accounts. In money denomination there are 50% losers and 50% winners (not considering spread) but big accounts with small leverage have more chances to succeed.
kiss the trend
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