Employing newbies and taking the opposite side

Discussion in 'Strategy Building' started by Pekelo, Sep 17, 2005.

  1. Pekelo


    Here is a maybe novel idea for a trading strategy, based on the fact that 95% of new traders eventually blows out.

    So a prop firm or brokerage should just employ a bunch of new traders and let them trade with the firm's money, but they would also take the opposite side of each and every trade, but let's say with twice the money.

    Of course there would be slipage and extra fees involved, but counting on most of the traders blowing out, the firm should be ahead by the end of the exercise...

    If you think about it, using this strategy, a firm only need a consistent trader. It doesn't matter if he is consistent in losing or winning. Obviously, once the traders' consistency is recognized, then the backoffice either can start to give him more money or take the opposite side of his trades....
  2. Someone once explained a Retail Spot Forex operation like that to me (from the inside)....:) (they actually had software for it)
  3. AaronCapps

    AaronCapps Global Futures

    most forex operations are like that unless you are dealing directly with the banks, but then even they are betting on the same thing.

    It comes down to how bad they lose. If they only lose a little bit on avg, then cost may still make you lose, but if they constantly average huge losses and small wins, then it could be possible in theory
  4. I once heard of a guy that faded everything a friend of his did. He actually lent the guy money when he went broke, so he could keep at it.
  5. AaronCapps

    AaronCapps Global Futures

    i've heard stories of firms doing something similar back in the 50's.
  6. bitrend


    I'm curious to know what was the result?

  7. Why not just become a broker. You take the other side of your customers trades. If they become profitable you pass their trades on to the exchange.
  8. Pekelo - you are hilarious :D :D :D
  9. Pekelo


    Well, thank you. I thought I would repeat my plan from the other thread, because it is based on the idea posted here first, although perfected for better results:

    1. Hire 10 newbies who have to use their own little money, let's say $5K. Less is OK too.

    2. Teach them a bullshit swing system with futures. Why futures? Because that is one fast way to lose it all quick. Options are too complicated for the average person. Why swing trade? Because you don't want them to scalp, remember you are taking the oposite side let's say 3 times. That is hard with a scalping system.
    So theach them a wide stop loss swing system.

    3. On average I would say 1 will make money, 2-3 tread water, the rest will get whipped out. So your company made 6x3-3-little commission=5losers x 3 multiplier x $5k >>>75 K probably in the first month.

    4. To those who lost it all, offer the company's money and say, that it wasn't their fault, and you give them another chance, and if they become profitable they can pay it back. You are basicly hedging yourself, because if they keep losing, you still make twice as much and if they win, they have to pay you back.

    5. To the 1 winner, you can say, he should reinvest his winnings. There is a good chance that more money will screw him up, thus becoming a loser.

    6. Put a new add in the paper that you are hiring and repeat the process....

    If it really works out the way I described, you can use a bigger multiplier, like 5 or 10. Again, you are basicly like a casino, playing the numbers game, chances are that there will be no group where more than 50% is going to be the winner. Even if it is 4 winners to 6 losers, you are ahead....
  10. They will lose in futures because of money managment but they may have a large runup before they blow their account. Is your system prepared for that?
    #10     Mar 3, 2006