Legendary trader Tom Hougaard said that when he started trading the Dow back in 2000, he was paying an 8 pt spread to daytrade intraday. Checking the Dow back then it was at only about 20,000. Today, we traders trade a 1 pt spread with the Dow at 40,000 (or a 0.25 pt spread on S&P 500 futures) We traders are such spoiled brats whining about how trading is so hard with the bid ask spread and commissions eating into our profits. With spreads now as tight as the minimum tick size, we have no excuse to be losing to Goldman Sachs or Morgan Stanley algos.
The game is much harder and edges are fewer and far between and much smaller. Maybe if you are a long-term trader your logic applies, but the edges are smaller there I'd think as well.
He must of been spread betting in the UK. Spread bet firms had wider spreads back then and that might of been before daily bets were introduced. Also an 8pt spread may have been ok if he was holding overnight looking for 500+point moves. But not viable for day trading with the ranges we had back then. So I doubt he was making any money day trading with that kind of spread back then. Average 5 trades per day and he was paying 10,000 pts in spread per year. Which was the value of the Dow index at the time (not 20,000 like you suggested)
I´d much rather trade with an 8pt spread and a 6pt edge than a 1pt spread and a 10th of a point of potential profit.
No, I would be raging if every time my stop loss got hit, I lose an extra 8 points in slippage on YM futures due to the wide bid ask spread. I take it for granted that my stop loss only costs me an extra $5 in slippage for 1 pt in YM futures. Your point about potential profit is fair enough. I don't know how anyone can empirically test that potential profits have gone down and that the game is now "much harder." Seems true, just cause of high frequency trading, algos and AI, but can't imagine how you could test by how much the game has gotten harder. Perhaps as a proxy one could compare the profit from the most vanilla moving average crossover strategy in the early days to profits today. But that would be a very crude proxy.
You cannot understand, because you are a customer. You are going long and short based on some squiggly lines on a chart, set stop losses and get in and out of the market crossing the spread. Traders would kill to match your order since your type of trader is the epitome of uninformed flow...and that´s why everyone is competing to trade against you. . Previously you had to cross an 8pt spread and some a-hole with a license, a polyesther suit and a seat at the exchange could take hours to fleece..uhm fill you. Nowadays we have to compete over nanoseconds to be on the other side of your order. And it´s very easy to prove. Just look at the average mark outs of a trading firm over time. We´re talking about 1/100th of a point of average profit today Comprende? Probably not...just make sure you understand that you are the meat everyone is fighting over.
We are not spoiled brats!! It's just changed market structure. Before the bid/ask spread was wider but so were the profit and the opportunities. You can do fast scalping just to take advantage of the fat spread. Today there is no more fat spread so the profit has become thinner also especially with the arrival of HFT that pretty much took away that one profitable venue of scalping from us traders and drastically reduced the profitability of daytrade and all we can do is multi-day trading or just swing trading like those retired investors. So are we spoiled no? We are just fighting to survive, as usual.
What do you mean by uninformed? Sounds like some fancy mumbo jumbo of a guru trying to sell courses. All that matters is if your PnL that is staring you in the face is positive.
So True! We’ve got it pretty easy now with those spreads. Guess we just need to stop blaming the market and start blaming our own trades!