Retail Trader vs Market Maker and the Winner..?

Discussion in 'Options' started by SmithTheTrader, Jan 6, 2009.

  1. As a retail trader, there is a question that always comes back and hunt me from time to time..

    May be this is an easy question to all the elite trader here ?

    We all know that market makers have inherit advantages over retail traders - bid/ask slippage, order flow info, arbitage ..

    Is there any chance that any retail trader will beat market makers and success in LONG term ? :confused:
  2. Not if you play the same game. But, if you use options to accomplish your investment objectives then you are not in direct competition with market makers.

    You can both make money.

  3. MTE


    As dagnyt pointed out, being a retail trader means that a market maker is not your competitor, unless you try to "make markets" and look for arbs.

    The advantage that a retail trader has over a market maker is that a retail trader has complete control over the timing of the trades. A market maker must be ready and trade at will.

    If we are talking competition then we should talk retail vs. institutional.
  4. As a retail traders, you always get into disadvantages position in commision, slippage (even worse when you hit your stop loss and you have to close your position in market price), which means retail trader by default will have a negative expectancy system.

    In theory, you will have a neutral expectancy if you can trade without any commision, get filled in mid price and etc..

    I know a lot of people claim that you can overcome all those disadvantages by looking for "edge" using other methods - like technical / fundemental analysis, good risk management,..which is great - But end of day, do we really have any retail trader that actually "success" in the LONG term (let say 10 years or more) ?

  5. someone


    I guess its time to leave ET

    new people come and ask same questions over and over again

    nothing ever new under the sun

    nothing even new in the markets
  6. MTE


    A weird comment coming from a person who has registered on ET 3 days ago him/herself, wouldn't you say!?
  7. I won't feel surprise if someone ask the same question before, the point here is do we really have an "edge" in options trading ?

    If alpha really exist, why not institutional traders just exploit it and make ton of $$$$ :D
  8. All you said is true and can be considered as the cost of doing business.

    The MMs have an advantage, but that does not prevent you from making money when trading options.

    I began using options in 1975 and have been profitable over the years (most of which I spent as a CLOE MM). But retail trading works also.

  9. MTE


    Who says they don't?
  10. MTE


    #10     Jan 7, 2009