Something like half of the trading is done by specialists & HFT firms as well as a couple of scalpers which is a name for retail traders that hold for a few minutes to gracefully provide liquidity to real traders.
It is not something "shocking", investing requires market makers as intermediaries and an exchange or at least reputable liquidity providers (banks, I said reputable not honest) as well as some rules, and derivatives trading has had this - or most of it - since at least 1750 BC .
Yes, HFT are pigs and have no shame front running big funds or sniping day traders which is a name for another group of retail traders, but back in the "floor" days they did just the same, today everything is electronic and smooth, costs have gone down, reactions are better etc.
Algos have caused big crashes, so let's hope man does not lose control and we do not end up screwing the markets that we need with technology.
1 issue with HFT is they are undercapitalized, the head of global markets research at Goldman Sachs says they are less capitalized than just 1 major bank. This causes them to aggressively adjust their bids when the market price drops. Back in 1987 human specialists had to beg their banks to give them more money to buy during the crash or the entire world would collapse. You should be able to easilly find an interview of Tom Sosnoff about it.
I wonder what would happen if this happened today... The FED in hindsight would print infinite money and give it to hft?
The players in this categories are various market makers that we call HFT , as well as to a much lesser degree a few retail traders called scalpers and front running algos.
This, if my sources are correct, represents another 30% or close to 30% of stock .
This had a boom in the 80s and 90s, and again recently with crypto and now tech stocks.
Most of the people behind this are brokers that spend alot of money to acquire new clients.
"Educators" or "influencers" that refer new suckers to brokers get paid up to hundreds of dollars per client (I should have just done this rather than tryhard).
The amount of quant funds infesting the market AND the success they have is directly correlated to how much retail traders (especially day traders) are around and also how much money these day traders are losing.
You could say they are all day traders but this should be divided in 2 groups: the technical "day traders" which are all retail, and the professional "quants" that abuse day traders. The biggest quants that made big money are Jim Simons & George Soros quants from the 80s and 90s as I said and day trading were very popular.
Might have wanted to keep that for myself idk. Bah no one cares.
2 major groups: Day traders & quants. Also much more rare penny stock pump and dumps can be included.
3- Short term participants (days to weeks)
Once again, alot of the money being extracted here comes from retail investors using random strategies called .
> Pre rolls.
One group of participants that exploit flaws on very small timeframes (days) are all the pre-roll strategy investors.
They exploit commodity ETFS that all lose money over time and have to sell their 1! positions at fixed times to then buy on 2!
These funds regularly blow up, and lately the Oil fund USO was in the news because it became so big the regulators made it diversify its oil position, what got it so big is a very big supply of dumb money getting all excited at very low Oil prices thinking it was free money (below $20 then below $10 then even negative).
Professionals that use these strategies made hundreds of millions from both dumb "investors" as well as retail swing and day traders that jumped at the opportunity to get ran over. Alot of these profits/losses are actually being covered by Interactive Brokers of which dumb clients turned a few hundred thousands into decamillion losses. And they are a prime broker with a barrier to entry (2 years verified experience and $10000 in capital).
As usual regulators, after alot of dumb money got hit hard, started an "investigation". USO suckers lost tens of millions months ago, the profit has been taken that's it, but they do not know it yet. According to Robintrack, most retail investors 6 months later are still bagholding what was supposed to be a quick swing trade.
Pre-roll traders will sell on 1! before the sells and also buy on 2! before they buy, and sell after the big operation moved the price.
In the case of the huge Oil crash, fund traders bought before the price collapse and ended up buying back from idiots that "bought cheap".
They made money not by "crashing the price", they made money by holding their winners while dumb money was underwater.
This dumb money is actually fortunate that there were short sellers to buy from them so close to expiry.
I am not sure regulators with their "investigations" understand this simple concept.
From the website etfdailynews:
“I make a living off the dumb money,” says Emil van Essen, founder of an eponymous commodity trading company in Chicago. Van Essen developed software that predicts and profits from pre-rolling. “These index funds get eaten alive by people like me,” he says.
Quick! Investigations! "The trading house is now the focus of investigations by regulators on both sides of the Atlantic, Bloomberg reported."
Stupid morons. And there's never investigations when "stonk price go up" or when dumb money gets lucky (making them confident and about to lose big). Remember Wirecard... No investigation here. Gee it really blows my mind just imagining the incredibly mind-bogglingly moronic less-than-human mouth breathers that come up with these "investigations". Can't wait for Bitcoin & Tesla investigations.
> Trend Followers.
"The trend is your friend". "Just follow the trend this is what good boys & girls do". Did trend following get to people heads. It was very popular in the 80s & 90s. Some famous trend followers made gigantic returns exploiting dumb money (not sure all of them knew it).
Trend following was the holy grail at the end of this period and even to today (people have slow brains or something), but it has not - or barely - worked for the last 20 years (all of this is about to change imo thought).
Today the holy grail is index passive investing, who is making this possible are central banks, and the suckers are honest hard working americans that lose purchasing power while passive investors get fatter.
One of the most famous trend followers is Richard Dennis, which in the 70s to 80s turned $1600 into $200 million, in about 10 years.
I doubt he had a clue what he was doing and I think it was both lucky timing and lucky with randomly using the right strategy.
After making big gains he was really excited and thought every one could make money with no brain (money grows on trees as we all know).
"Wow making money is really easy". Typical Dunning-Kruger, except his peak of mount stupid lasted way longer than for other people.
He got rekt in the late 80s, got back in his feet and made some profit in the 90s but much less (and never thought of trying to learn something new).
Then after the 2000 bubble exploded he just lost money and disappeared. He is probably selling courses now.
The sort of general way it all comes together over a period of a few months or years with medium term funds, trend followers & quants versus dumb money:
Here is an example from investopedia with sugar:
Those are big returns in just about 3 months.
A quote from a quant website.
"CTAs by being patient trend-followers took advantage of the random methods of chart traders and profited at their expense. Some that are new to trading are not aware of the frenzy in the 90s about intraday trading mainly financed by brokers. Systematic traders took advantage of it and made large returns. But after the random intraday and swing traders were driven out of the market, CTAs have had problems generating returns. There is scarcity of retail dumb money at this point."
The 80s & 90s were the period where George Soros and Jim Rogers made monster gains in too.
George Soros kept making big profits after that period, Jim Rogers has not.
Since 2000 trend followers have been suffering.
I got into trend following a few months ago it is going all right. It is making a comeback imo, but I do not think it will last long. It might, we will see.
I trust myself to be able to adapt. When this stops working I also have my strategy I have been exploiting for years. If both stop working (unlucky) gee well I'll adapt, SOMETHING ought to be working. I'll survive. I mostly do what I do with Forex thought and it is a different world.
If trend following does not work just go for reversals 🤦♂️
It's so lame to get famous and get the glory but you were actually bad and you end up losing and have no clue why and just end up selling books and trading courses 😂
So on the short term we got retail swing traders that use random strategies, fomo gamblers, and the systematic trend followers & pre-roll people that abuse them. Also hedgers, and a couple of short term hedge funds that probably do not make money on average.
4- The medium term : Around 1 year
I heard hedge & mutual funds had median holding periods of 9 to 12 months, I also heard they had holding periods of 17 months.
I will assume this is not counting the losers, especially if they have a low winrate, that would mean a TF much below the reality.
Retail is completely absent here.
There are various strategies. "Strategic" stock picking. Bull bias, bear bias (on the market in general, so they are looking for stocks to buy, or to sell). "Short sellers" (Enron, Tesla , ...).
Hedge funds also exploit random day & swing traders and made big profits in the 80s and 90s then last 20 years as retail investing declined have made less, but hedge funds did not go from 100 to 0, it is more tame than trend followers.
Recently some hedge funds have struck gold . Bill Ackman made 100R ($2.6 Billion) when the S&P crashed after coronavirus lockdowns.
He made big money with price go down, so of course really dumb people cried and accused him of dricing down the price during a CNBC interview ("spreading FUD") probably soon investigation and bla bla bla .
Where are all the investigations when some clown says that Tesla is a revolution and going up 1000 fold? Where are the investigation in Max Keiser saying silver and later bitcoin would rule the world? "Oh no no need for investigation when price go up 🤤"
5- The long term: 10, 20, 30 years
- Private high net worth. Value investors like Warren Buffet, Charlie Munger, even thought they run a company, an example of a private investor is Phil Town which has a youtube channel and writes book he is not very famous but ye that's a private investor why would they be famous? Should they take a megaphone and shout their net worth on the top of buildings?
- Bagholders: Can either be retail investors that thought "Buy & Hold" meant "Buy garbage & Forget", I doubt they are aware 96% of US stocks go to zero, well 100% on a long enough horizon but we are looking at less than 3 decades here. Or can be day & swing traders that bought something stupid (USO, Bitcoin ...) and refuse to cut their losses so they turn their gambles into long term bagholds. Bill Ackman is a famous bagholder, when he is wrong he is SO WRONG and he just keeps on holding his bags all the way to zero which is really crazy. Warren Buffett early in his carreer has been on rare occasion been a bagholder, what he calls his worse mistake cost him according to himself at least 100 billion, he just kept trying to get that textile company to be worth something. The company Warren Buffett bagheld is called Berkshire Hathaway .
Buffett actually rarely holds for more than 2 years, and half of his purchases are sold under 1 year. He has a 100% turnover!
From the paper linked below, "we observe a median holding period of a year, with approximately 20% of stocks held for more than two years. At the other end of the spectrum, approximately 30% of stocks are sold within six months."
So he loses (or breaks even sometimes perhaps) 80% of the time. But when he wins... you know... 150R.
Important: if I got this (didn't read the whole thing) they only looked at what was in his quarterly fillings!
Who knows what grandpa B bought and sold within weeks!
It is very hard to find what stocks Warren Buffett quickly exited without going over quaterly reports, every one touches themselves at his returns, wants to know what he holds to copy, looks at winners which is almost useless but out of tens of millions of die hard fans it's like not a single one gives a damn about looking at his cut losses, due to low IQ .
It is truly mind boggling that over 90% of retail investors just transformed LOOK FOR GREAT COMPANIES AT GOOD PRICES, BUY AND HOLD WINNERS, into "Never surrender never give up just buy absolute garbage down 90%, buy and forget, hold the bag to zero over the long term it will eventually go up".
You could literally tell them exactly what to do they'd end up losing all of their money and dying of food poisonning somehow because they are handicapped.
Buffett holds for 7.5 year on average (or he did in 2010), with 80% of stocks held for less than 2 years, and 20% held for more with a couple held for several decades. He ain't holding for 50 years or a century.
6- The very long term
Big pension funds, insurance funds, sovereign wealth funds, mega bagholders (owners of ponzi shares held those to their death dreaming they would magically regain value)...
The big, big, BIG boys. They do very little in markets because they rarely participate, but when they do they move entire markets.
They move alot of money at once, and while random retail traders & quants do big day after day, they mostly cancel each other out.
The over 1 trillion dollar "NOK" fund owns 1.5% of world shares, and when they do something you can feel it. Socialism (they are not really socialist but whatever) works really well when you have immense wealth. Over 1 trillion for 5 million inhabitants.
They hold 2.6% of EU stocks and "only" 1% of american stocks. There is talk that they may sell EU stocks to buy NA holdings, mostly USA obviously.
"Norway wealth fund may move $50 billion into U.S. stocks from Europe"
That would really help push the price up and help jump start a bubble.
50 billion is just a small adjustment for them.
"The has said its advice was not based on any particular view on future return in individual markets or regions."
They don't really care. They are trying to preserve the country wealth and are just doing small adjustment ("small"). They hold forever.
"The minority centre-right cabinet of Prime Minister Erna Solberg must seek approval from parliament for any major strategic shifts at the fund, a process that could take months to complete and which may involve making compromises."
No day trading here...
I am old why am I focussing on Norway...
Those are the current biggest wealth funds (made of 1 or more funds for the country) in the world:
China 2,250,000 million usd - Origin: their bags come from sending free goods to fat americans. They believe they will get something in return.
UAE 1,350,000 million usd - Origin: Oil & Gas. Hehehe a few months ago I remember an idiot telling me arab countries were poor 3rd world countries.
Norway 1,100,000 million usd - Origin: Oil from the sea. Crossed 10 trillion NOK recently I think. Their children have their future covered.
Saudis 900,000 million usd - Origin: Oil from the sand. During an interview the wealth manager Yasir Al-Rumayyan said he wanted to grow it to 2 trillion. Future gambles to take advantage of?
Those were the big famous ones. Then you got Singapore, more arab countries... The USA have a (LOL!) 200 billion wealth fund (and 30 trillion liabilities). Talk about a pyramid scheme.
If you look at the biggest fund from any source by AUM who do you have at the top?
1- FED - 7,000,000 million usd (but really you can just put an infinite sign here)
2- BOJ - 5,200,000 million usd bigger than the US one relative to population what a scam
3- PBC - 5,150,000 million usd biggest baghodlers in the world (I'm just kidding don't cry China)
Then you got plenty of multi trillion US state owned funds (sounds pretty communist to me, I wonder why they are pushing the price up at the people's expense), Japanese megacorps & banks, China communist groups/banks, European banks. Some middle east holders of course. And then a grand total of 0 african country is present in the top 100.
Banks really dominate the world. They hold all the capital.
It would be a real shame for passive investors & tiktok robinhood holders if the US communist funds that hold over $10 trillion were to liquidate their assets to cover the US foreign liabilities (China) and to pay for social programs wouldn't it? A reaaaal shame 🙃
What is this? I am feeling tingles. Team Biden! It's just a shame they have all these toxic ultra racist, anti business & anti family views.
Quick! someone tell the clueless socialist woke crew the US are holding trillions that could more than cover their student debts and social programs!
Special mention: Blackrock is the world largest asset manager overseeing more than 7 trillion. And they work hand in hand with the FED.
The turtle system backtested had a flat - FLAT - performance between 1996 and 2009, so this includes the big crash trends!
Trend following was caused in big part by the major mispricing caused by decades of Bretton Woods...
Funny how guys that are clueless end up making huge returns (they are above average traders don't get me wrong - they're competing against donkeys thought).
And everyone still thinks it is the holy grail, the "right way to do things". "Never fight the trend". Sorry but I make (made) money fighting the trend.
It literally, with proof, has not worked for the past 20 years, and people are STILL going "oh well don't fight the trend always follow it and don't be a short term gambler stay in for the long haul". It LITERALLY does not work. Just look at any chart. DOES. NOT. WORK. It's amazing how oblivious these clowns giving advice are. "Duh well that's because you have to hold for more than just a few months that's just noise that's just gambling you got to hold for years the index that's the holy grail".
The next holy grail investors that are going to sell courses are soooo going to be passive index holders.
"If you started investing at 20 bla bla bla", "I live in the past", "This is how you make money, not speculating (it is the holy grail)".
The correct way of doing things is being a passive index holder with 0 added value? Oh but OF COURSE! This makes so much sense!
The laws of supply & demand will reward idiots that passively hold an index with 0 research and just sit on their hands! Very logical!
And gravity is upside down and you have to throw salt & alcohol at your wounds to make them better!
Takes them 30 years to adapt... Hey still better than university professors of economics that argue about Keynesian & Austrian economics from 100 years ago 😆
I wonder for how long clueless idiots are going to repeat "S&P500" like parrots and obssess over it?
"Just put it in bank acc and make 15% interest" idiotic 70s-80s boomer advice. Has not worked for a long time. How blind can they be to still give this advice?
It's over 30 years old.
Free passive money will soon be a thing of the past and it is good! There will probably be a small period where it is easy to extract money from robinhood tiktok "investors" in tech stocks or in Oil (USO), that would be great, please more gigantic contangos more easy bets!
But that won't last. And retail "investors" in fx with a time horizon greater than day trading gamblers I don't really care about, have no importance they just buy when the price goes up and sell when the price goes down that simple, nothing to exploit here, it's just nice that idiots are willing to fill our orders, in particular the orders of bankers that do the exact opposite they basically keep buying as the price goes up and keep selling at it goes down there is not a huge edge blindly doing this but on average it is what they do they have a small edge exploiting dumb money in a way.
Conditions change... making money gets harder. Movements take longer, risk rewards are smaller, winrates go down, having an edge actually requires a brain not just systematically fomoing early on each time there is a new high...
"Let your winners run" "Do not fight the trend". As usual the creepy old dudes that have no clue how to make money give the most garbage advice that worked 30 years ago, seriously how long does it take for them to catch up?
An intelligent high level speculator will always be able to make some money. Warren Buffett is one of them. He has an additional edge by looking at really high timeframes. Buffett made exceptional gains when the market made exceptional gains, but even when easy money left he got decent returns, and if long term holding did not work, assuming he would still be an investor not just quit or do something else like shorter term, he would have had some winners and some losers, his winrate is about 20% maybe it would be slightly smaller his winners would have lasted less long he'd have gotten 20R out rather than 150, but in a more ranging market his losers would be softer too...
Which also reminds me: if there is little to profit from in 1 market, looking at more markets allows us to keep making decent returns rather than being stuck with just commodities in the 90s and disappearing into oblivion.
I don't want to paint a depression picture. It is not impossible to stick around. Just don't expect being an OTP. Well I guess most retail traders don't care to stay around 10 20 years or more they'd much rather be big OTPS, get lucky, and make huge gains then retire. But my answer to this is why? They're clearly reptilian brains. Why do they care about performance, what will money bring them? Give them a pogo stick and they'll be happy for life!
Change is not a bad thing. Change is good.
I just adapt. Consume and adapt.
Dumb money gets eaten alive by systems traders. System traders get eaten alive by early reversal traders. Early trend traders get eaten alive by fundamental traders. Every one gets eaten alive by me.
They fear me. I do not have what they call a "life". I prepare months in advance, even for a 1 week move. And then I wait. Position for ambush.
In the shadows. Ready to reap. But they also learn and try to fight it. Clever creatures. So this is when I... Strike from above. And they die running. They can't keep up. Do not fear death. The best part of you will live on!
Also join my discord you will find the link in my telegram channel