I have never run or worked for a mutual fund, but I have heard that funds have way more restrictions over holding periods, leverage, and other constraints that individual investors do not have. Are there mutual funds that swing or day trade? Most individual traders can liquidate his/her entire account without really affecting the market. Large and medium sized mutual funds can't do that. Besides that, I would think it would be harder managing other people's money than one's own. There are pros and cons to both sides, but investors will start bailing out of a mutual fund that can't beat their benchmark. Are there many traders who run algorithmic trading strategies that are consistently profitable month after month with excellent Sharpe ratios?
OK, switch that to hedge funds if you're concerned about restrictions on trading style. And if the allegation is that "large brokers" are stealing the "strategy" of their most successful traders than your size argument would apply there as well, after all the post was talking JP Morgan. The point being that a room full of millions of monkeys randomly hitting buy and sell keys for random stocks will end up with monkeys that have a string of wins, month after month. Just like millions of accounts that at a brokerage. This idea is the very definition of data mining! The entire concept of JP Morgan copying the trades of some punter here on ET would be laughable if it wasn't such a perfect representation of the sad mix of ignorance and hubris that's pretty common among inexperienced investors. There may very well be some traders with algorithmic trading strategies that are consistently profitable month after month with excellent Sharpe ratios. I may even be one of the people with that type of account. If JP Morgan wants to effectively let me front run their massive trades by copying my trades, please, please, please, do so! It would only make me significantly more profitable, in fact I could quite with the hard work and simply buy an random stock, wait for the massive volume of the copiers to drive the price up, and then sell it at a profit!
explain this as it is not as I understand. If you do a quick search on 140% margin you'll see number of links to the rules including one from IB: What are fully-paid and excess margin securities? Fully-paid securities are securities in a customer’s account that have been completely paid for. Excess margin securities are securities that have not been completely paid for, but whose market value exceeds 140% of the customer’s margin debit balance. Hence, if you are fully paid and not signed up for SYEP, IB (or any broker) can not lend out your shares. Your points though are mostly all valid but also point to how IB is pretty much the fairest amongst them all with higher credit/debit spreads, splitting stock loan if shares are lent out, not selling flow and not having a prop desk.
Well, if you can establish a track record and gather a bunch of followers who will copy your trades...you might actually be able to get away with picking random stocks at that point. Recently, Apple became worth a lot more in a short amount of time after Buffet announced his large stake in the company. Actually, you don't even need to be good or right to influence the price of a stock. If you're a large bank and upgrade or downgrade a stock, the stock price will move in the direction of the recommendation. Despite the upgrade or downgrade revealing absolutely no fundamental information relating to the operations, strategy, or earnings of the company to the public that was not already known before the upgrade / downgrade, the stock price will move, usually significantly. So much for efficient market theory. I agree with your first statement, but if all the accounts at a brokerage are just monkeys randomly hitting buy and sell, then eventually, given enough time, all the accounts will all go broke after commissions and fees are extracted because those traders have no edge. But not all people do that and the broker could hire some smart people to figure out the statistical probability that any given trader has a real edge. The broker wouldn't necessarily have to throw all their money behind one trader, but would instead develop a model that allocates capital based on what their best traders are doing.