Always interested to hear from the veterans and getting their take on things. Observations on how things have/havent changed. Ive been trading professionally for about a decade. We constantly hear "things are changing so fast and so much". Well, yes and no, somethings have changed, some for the better, some for the worse. Lets stop all the negativity and realise things have also changed for the better. Its true there are more algos now, edges have died out. You can't really trade news announcements anymore as the computers get the headlines first. But edges also are created. Back when I started if you wanted to spread anything you had to be very fast mentally (or punching numbers into a calculator) to work out your spread price. Now you just put your orders in an autospreader and it does the work for you. I can trade 20-30 markets simultaneously with super fast trading speeds from a home office. Trading commissions are dirt cheap. there are more exchanges competing for our business offering new products. Is trading harder now? in my opinion no. Its always been hard. There were similar failure rates 10 years ago as there are now. Edges are a little harder to come by. But barriers to entry are so much lower and software so much better. Would be interested to hear guys that have been trading since the 80's and 90's take on things. And my question to them, how much were trading commissions back then? I feel im getting lulled into quite expensive strategies and would probably suffer if there were price hikes on trading costs (which are possible with regulations), i imagine costs were higher back when exchanges had less participants/volume thanks
Commission in the 80s and 90s were much higher, but volume was much lower. Commissions for online brokers, prop firms and HF traders were much lower in the 2000s. Clearing firms have a few problems now. They no longer make a lot of money from debit balances and short stock. They have regulatory problems where they need more capital now. I see commissions and other charges going up not down, as there are less clearing firms and their internal expenses are going up. Less competition and higher cost.
Hi Robert. I completely agree with you. I can only see costs getting higher. I was speaking to a head guy at one of the futures exchanges yesterday that told me now almost 50% of their revenue is from data. I spend several hundred a month just on data now. But thats why i asked about the 80's. If people were successful back then with high costs and low volume they will be successful in the future with high costs and low volume. its just about adaption. But I think it will become harder and harder for new traders to start learning how to trade. Its very expensive to take on new guys now with the extra charges and I cant imagine theres many retail guys that can afford to venture into the markets with their break even getting higher and higher.
I started trading in 1985. Markets were very inefficient and there were lots of ways to make money without taking a lot of risk. Because there was more edge it was OK to pay higher commissions and higher interest rates, now there are lower commissions and lower interest rates and a lot more competition and a lot less inefficiencies. Now I think most traders must take risk to make a living. That was not so in the late 80s.
The guy who introduced me to trading has been doing that for 40 years with success. He never talks about his edge but he does calculations with an old HP calc and data tables from Yahoo finance. He has bought houses, expensive cars and much more with the profits. But he has told me horror stories about brokers in the 80s and 90s and he thinks trading is much easier nowadays than it was then. He talked about $70 commissions one way in futures in the 1980s and other bad tricks brokers played.
It's a bit of an 'out there' theory. But trading pits would actually solve many of the fears and concerns participants and regulators have. A smaller group of participants. No HFTs. Designated trading hours allowing everyone to react to news at the same time. Reduced posting of fake orders etc. But I started after floor trading had finished so don't really know what I'm talking about on that front. I think the biggest reason edges are more locked up now is not anything to do with regulations or volume. It's technology. Just 1 algo firm can find an edge that used to be the living of 500 individuals and autotrade it across 50 markets simultaneously. As much as I wish that wasn't the case it will never change. It's like a blacksmith complaining he does have a business now because ppl stop riding horses and bought cars. It's brutal but I can't see any regulations being anti technology...unfortunately. But in my experience the more expensive to trade markets with less participants actually provide individual traders more edges. Because it is too expensive for algos to steal ticks. And volume too low for the big guys to get in and creates inefficiencies. So I wouldn't personally mind if some of those algo based firms found it too expensive to trade.
I barely qualify on the 20 years requirement. The one thing I can say is that unless you are trading a very liquid security, the spreads today are much larger and the amount of shares you have access to at any instant of time are much lower. It is like night and day from then compared to now. I find the notion that HFTs make spreads tighter and increase liquidity absolutely ridiculous. I've adapted over the years but it always makes me chuckle when people defend HFTs as some super awesome replacement for what existed before.
No doubt you're right. But i was specifically talking about futures trading. There is definitely more volume on every price now. However, overall volume traded is lower. Weird
There were mostly amateurs trying to make money. Even idiots could sometimes make money. Today you have to be more professional. Much more competition. The only thing that was difficult 20 years ago was the price to access daytrading. I was daytrading forex on a Teletrac. Rent was $1850 a month. When Tradestation 3.5 arrived I paid a few thousand $ for the software and needed Esignal satelite dish connection. $185 a month plus a few thousand $ for the installation. Today you need $3000 to open an account, a PC and internet, all the rest is (almost) for free. So starting now is much easier, but making profits much harder.
Would you say the two go hand in hand? Higher costs/barrier to entry = easier profits. It kind of makes sense as less people = less competition