(And indeed, living is gambling. It's all just a matter of the risk/reward portfolie).
But jspauld has apparently made $2/trade after fees on 250,000 trading, with a very small standard deviation (I would guess less than $2/trade) - which makes it one of the best businesses one could ever have.
You can't live without gambling - by e.g. going to be a salaried employee for Yahoo rather than Google or that weird newfangled "TheFacebook" thingy back in 2004, was a gamble.
jspauld, statistically speaking, has made less of a gamble there than almost anyone else posting on HN.
> So, everyone else, beware of making this a case study in how to make lots of money really fast. You are more likely to lose money.
True. But that's true for every single success story posted on HN, reddit, or USAToday.
Because there's a commission on trades, and because you pay taxes on net gains but your minimum tax is zero, high frequency trading by its very nature must a loss for most players.
I was not aware that this is what defines gambling. And "no service produced" is certainly wrong by accepted economic theory - arbitrageurs provide a price discovery service for everyone; they get rewarded for exposing the inefficient prices, even though it is done through market mechanics rather than a specific customer.
OP appears to be a statistical arbitrageur - which is the same concept, except that it includes a shift in time or space (and incurs risk). You might not be interested in this price discovery service, but other people are paying for it with their wallet. (And it's mostly the market makers who pay for this with reduced profits)
> one trader's gain being another trader's loss (relative to market returns).
That's not true in investing in general - when shares have time to appreciate or depreciate, it is definitely not a zero sum game. Everyone can win, or everyone can lose, or anything in between (it all depends on your time range, and your measure of loss or profit. The "non-zero-sum" element arrives partly from companies using operating profit to buy back their own shares).
> Because there's a commission on trades, and because you pay taxes on net gains but your minimum tax is zero, high frequency trading by its very nature must a loss for most players.
That's only true if all players are hf players. If there is sufficient non-HF activity, then the zero-sum argument does not hold.
(I'm not saying that it's not a good approximation - in most time scales, in most scenarios, it is - but it is not the mathematical truth you imply it is)
Again, it's a great approximation most of time and over most time periods and asset classes, but it is NOT axiomatic in the way most people believe it is.
Remember: as long as there is a way to inject or withdraw more capital into the system (through whatever asset class, as they are all interconnected), the sum is not identically zero.
Just assume one of the stocks is a gold mining company that works efficiently. The share value rises, and the shares are redeemable for the gold, without anyone having to lose anything (except mother earth)
It sounds like you are making the argument that this is zero-sum game, but whether something is zero-sum depends on your utility function. If the players are risk averse, then a transaction like buying insurance can yield positive utility for both participants.
Many trading strategies are performing a service in similar (but more complicated) ways.
Most people don't understand that, when you're able to recognize patterns, playing millions of hands while never exposing more than 1% of your bankroll on any deal is not "gambling" but "printing money" (a tiny amount of money in my case compared to consulting but that is not the point).
At the same time the very fact that obviously (seen most of the posts here) most people don't understand basic bankroll management, risk management, standard deviation, expected value, variance, etc. means there are probably quite some opportunities out there to make money for those who do understand that ; )
If I tried to kludge together a definition, I might come up with something like:
>Risking the loss of something of value in exchange for the possibility of gaining something of greater value in a situation where the determining factor of losing value or gaining value is random chance
The problem with a definition like this is that, as others have pointed out, it applies to vast realms of human endeavor, from founding a company to playing the lottery. It also includes no distinction between risks with a positive expected value and risks with a negative expected value.
If a lottery has ten $1 tickets for sale and each ticket has an equal chance of winning, there is an obvious difference between the prize being $11 and $9, but buying a ticket at either price is just as much "gambling" in the common parlance.
What we really need is a word that only refers to gambling in situations with an expected value less than or equal to zero.
>If a lottery has a total of ten $1 tickets for sale and each ticket has an equal chance of winning, there is an obvious difference between the prize being $11 and $9, but buying a ticket at either price is just as much "gambling" in the common parlance.
I believe we call that gambling.