Is it true that most aspiring traders at institutions lose money?

Discussion in 'Professional Trading' started by crgarcia, Sep 14, 2008.

  1. Pretty much the same way as most individual traders fail?
     
  2. No because they usually have an institutional edge e.g. being the market-maker in an OTC security, being able to front-run customer orders (e.g. FX), knowing customer positions and order flow, legal insider information (e.g. commodities).

    However it's true that they would mostly lose money without that advantage.
     
  3. sjfan

    sjfan

    Like to see you cite some (or any) evidence for this. Aspiring (by this I assume the poster means junior) traders tend not to have rights to authorize their own trades.

    Besides, and this is most oft missed point on ET, institutions are not organized very differently.
     
  4. GodsGift

    GodsGift

    If it could be proven, the circumstance would be regulated away.

    Consider the Zero Competition Condition, which states that if an industry has low/no barriers to entry, economic rewards will induce entry up to the point of the returns converging toward zero. This explains why real estate agents, whether in NYC or Des Moines, make about the same (low) COLA-adjusted amount of money whether in boom times or bust. Their competition with each other eats up all of the returns. The only time there is any excess return is when the market is handing EVERYONE money and people just stuff their pockets full and then call themselves a genius.

    In normal situations (and especially in lean times), participants in low barrier to entry industries are out there everyday chopping each other up. This explains the state of trading in the markets. Except in high-finance, where…

    The only barrier to entry is money and the satisfaction of perfunctory licensing requirements. The fact that investment firms have consistently profited while taking directional positions in the markets proves that they have an edge, which is created by their market-making capability and access to superior information. To think that this is not the case is naive.
     
  5. Bingo.