I found this article an interesting read. Few points: Large player profitability depends on retail unprofitability With large AUM funds may create own opportunities Passive is a threat to quant funds Actual fund models may be different than what most imagine
Size is absolutely an edge in shares. Microstructure var in the share market is 70% spoofing by institutions.
It is very rare that I read a well-crafted article and disagree with close to 100% of everything written. This would be that time. BTW, this was me trying to be polite to this author, where I could not find a bio. And, he has should a great following that the article had no comments.
Theoretically speaking, it may make sense, however in practice I do not think it is true. Regarding Options, as one person is taking a position another person is doing the opposite, thus there are two opposing ideas/ theories going against one another. Sure, a fund may have a ton of AUM and be able to size their trades higher but a market maker will take the opposite and hedge the risk out getting as close to delta neutral as possible and keeping theta positive. So its really only the fund taking on the risk, and the retail clients not really being a part of the "big trade". The markets can be irrational longer than you can be liquid.
well, I would actually like to disagree with this article but unfortunately he is correct in a number of points. While his reasoning is a bit odd, he describes basic principles that every aspiring trader should acknowledge: 1. Size is king 2. When you are the market, you make the price In the big markets this might not be possible anymore since I do not believe that anyone has enough cash to push the indices or treasuries. But look at microcaps or OTC stocks, hell still even crypto...if you keep buying untill the shorts puke and the trendfollowers jump aboard, you got yourself a nice trade...happens all the time. Also the quant hype is BS. Math has it's place in trading but it doesn't grant profits. A zero sum system is also a rock/paper/scissors system so when there are too many "quants" doing the same shit another guy with a counter strategy will make a lot of money.
Agree with you on all points. Would like to point out that one doesn't need to push all the time, just need to wait for the right moments. Some examples of this is waiting for (and sometimes creating) a catalyst. Another is running up Futures prior to Equities open to generate a gap/momentum. Not to mention that with size come connections, but that's a separate topic all together.
nobody has the fire power to move the index at will... but the way my pro boys do it is when the dumb money is too crowded on one side of the boat and they do have enough fire power to tip the boat - get a narrative going in the media, give the price a big shock, the boat tips over and the snow ball effect is created... aka panic sells and margin calls.