Everyone’s a Day Trader Now(wsj.com)
wsj.com
Everyone’s a Day Trader Now
https://www.wsj.com/articles/everyones-a-day-trader-now-11595649609
75 comments
http://archive.is/Ognsr
I have a WSJ subscription and the website still paywalls me half the time. After signing in I get
"
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We noticed you're already a member. Sign in to read The Wall Street Journal. " And clicking the sign in button links to the same page.
We noticed you're already a member. Sign in to read The Wall Street Journal. " And clicking the sign in button links to the same page.
Is this the WSJ or Barrons newsletter? Ad blockers and general troubleshooting done?
WSJ, latest desktop Safari. No ad blockers. No troubleshooting as I've gotten used to it not working in 100 different ways (most of the time the login button on the sign-in component/page just doesn't do anything)
I really wish the archive.is / CloudFlare standoff would get resolved.
This is going to end badly for a lot of people at some point.
It’s all fun and games until the market tanks for an extended period of time and people that cannot afford to be are over leveraged in stock.
It’s all fun and games until the market tanks for an extended period of time and people that cannot afford to be are over leveraged in stock.
Fees and spreads from overtrading will eat up that money first.
If the market tanks for a long time, that's a big problem for everyone (directly or indirectly).
If the market tanks for a long time, that's a big problem for everyone (directly or indirectly).
Exactly the thinking that causes policy makers to keep the cost of borrowing cheap, thus exacerbating the precise vulnerability.
Robinhood doesn't charge commissions. People on WSB lose money the old-fashioned way: by making stupid trades.
You'd figure they and a broken clock would be right twice a day (unless it's an electronic clock so broken means it's not showing anything...) Also, read this about Robinhood: https://news.ycombinator.com/item?id=23894228
A clock 1 second fast is never right.
Robinhood don't charge direct commission, but they do charge commission. It's a bit like traveling and seeing the "no fee" cash exchanges...they don't charge outright fees, they just make their money in the spread.
Every market has what's called a bid/offer spread. That's the difference between the price the next buyer will pay, and what the next seller will accept (if the prices were the same, it would result in a trade, and thus back to having different prices). Market makers earn this spread by always being willing to buy low and sell slightly higher. Robinhood traders are largely unsophisticated and place market orders that cross this spread and thus incur the implicit cost. Market making has become to automated that these small spreads (pennies in many cases) are actually extremely lucrative.
So, Robinhood goes out to a market maker and says "you can execute all my trades for me, but you'll have to pay me for the privilege because I know you'll make a lot of money off my trades". This is called payment for order flow, and Robinhood makes a lot of money this way.
Every market has what's called a bid/offer spread. That's the difference between the price the next buyer will pay, and what the next seller will accept (if the prices were the same, it would result in a trade, and thus back to having different prices). Market makers earn this spread by always being willing to buy low and sell slightly higher. Robinhood traders are largely unsophisticated and place market orders that cross this spread and thus incur the implicit cost. Market making has become to automated that these small spreads (pennies in many cases) are actually extremely lucrative.
So, Robinhood goes out to a market maker and says "you can execute all my trades for me, but you'll have to pay me for the privilege because I know you'll make a lot of money off my trades". This is called payment for order flow, and Robinhood makes a lot of money this way.
This is true, but not overly relevant in this context - the reason lack of commission was mentioned was because someone said that fees will eat away at a day trader's profits before a down market will affect them; with Robinhood or other commission-free brokers, that will not be the case (regardless of how the broker is profiting off the trades - the trader is still going to be getting the best price available on the market, as required by law)
The bid-ask spread on most stocks is 0.01. You'd need to trade a LOT for this to actually make any real difference in your returns. Given that the average size of account at Robinhood is something like $5000, I dont think the average trader there is really getting fleeced by market makers.
The bid-ask spread on some of the questionable options Robinhood traders are transacting in is quite a bit higher, though.
The bid-ask spread on some of the questionable options Robinhood traders are transacting in is quite a bit higher, though.
You fail to grasp the size of the equities market, as well as tangential trading opportunities. Also options market making against retail is absurdly profitable. There’s a reason Citadel is paying tens of millions of the privilege of executing these trades.
Source: former head of quant trading for multi billion dollar hedge fund
Source: former head of quant trading for multi billion dollar hedge fund
Exactly, a down market is a problem for anyone with a 401k or savings in etfs.
People day trading options may be just as well off in a down market, since they can buy puts or volatility indexes to make money on any direction of market movement.
People day trading options may be just as well off in a down market, since they can buy puts or volatility indexes to make money on any direction of market movement.
A down market is a problem for people with 401ks or etf only if they’re close to or in retirement. It’s not an issue for most people between 20 and 60.
Correction, it's an issue for people who need to cash out their stocks. If you lost your job during the pandemic you might need money more than you need well performing stocks so you are forced to sell at a loss.
It’s only a loss if you’ve been invested for a short time. The market is up a ridiculous amount. It would need to drop close to 40% to be back around 2014 levels. You could still sell shares from 2010 that would be sold at a profit, if you’ve been investing for a decade
Isn’t an uptick in retail trading a sign it’s already too late for whatever bubble we’re in now?
Or is that adage bullshit like everything else related to the economy too?
Or is that adage bullshit like everything else related to the economy too?
I wonder how the 1920's were like.
Zweig on 1920's hyperinflationary germany (he covers the austrian experience in a different chapter):
https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.1...
p.238 "Messenger boys established foreign exchange businesses and speculated in currencies of all lands. Towering over all of them was the gigantic figure of the super-profiteer Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to naught. Soon a quarter of Germany was in his hands and, perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius. The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches ; everyone who could read and write traded, speculated and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations."
FWIW the guy who brings and empties my skips was giving me tips on Covid medication stocks last week...
https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.1...
p.238 "Messenger boys established foreign exchange businesses and speculated in currencies of all lands. Towering over all of them was the gigantic figure of the super-profiteer Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to naught. Soon a quarter of Germany was in his hands and, perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius. The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches ; everyone who could read and write traded, speculated and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations."
FWIW the guy who brings and empties my skips was giving me tips on Covid medication stocks last week...
Inflation in the Weimar Republic was specifically to pay down dept with devalued currency. What we're seeing now is an attempt to fill in a hole left by parts of the economy being shut down. Besides the motivation, a big difference is we don't know if this will be net inflationary or deflationary with the slower velocity of money, bad debt, etc.
Money may be printed but it causes inflation only if two conditions are satisfied:
1) the money stays in country
2) the money is used to buy goods or services.
Our monetary system is based on a plan instituted 1oo years ago, before credit cards, electronic banking and and international market for finance. The Fed either changes the rate at which banks borrow money or buys financial instruments outright. This was fine back in the day when the main job of banks was making loans to people to buy homes (See It's a Wonderful Life). However today, money will will seek the highest ROI and stays in the financial system. We are seeing inflation of financial products (stock market bubble) despite record unemployment. Other weird things are booming house sales with record low interest rates. Until money is put in the hands of people who will spend it, we will never have inflation. NO MATTER HOW MUCH MONEY IS PRINTED.Today when I hear the word 'productivity' and 'growth' I realize it is not talking about the real world where there are mouths to feed and people who need a roof. Rather these words are talking about another entity, capital.
Our monetary system is based on a plan instituted 1oo years ago, before credit cards, electronic banking and and international market for finance. The Fed either changes the rate at which banks borrow money or buys financial instruments outright. This was fine back in the day when the main job of banks was making loans to people to buy homes (See It's a Wonderful Life). However today, money will will seek the highest ROI and stays in the financial system. We are seeing inflation of financial products (stock market bubble) despite record unemployment. Other weird things are booming house sales with record low interest rates. Until money is put in the hands of people who will spend it, we will never have inflation. NO MATTER HOW MUCH MONEY IS PRINTED.Today when I hear the word 'productivity' and 'growth' I realize it is not talking about the real world where there are mouths to feed and people who need a roof. Rather these words are talking about another entity, capital.
Yeah, the story makes sense if you are talking about e. g. Argentina but not if you're talking about the US.
End badly? The stock market will never see crash in our lifetime again. Since Jerome Powell nationalized the stock market, it's basically Federal Reserve policy to just keep printing money to inflate it. It's all priced in.
The dollar is already losing value.
Exactly. There will never be a crash as all the world just prints money that seeks the highest ROI, and this is only found in financial markets. Witness a booming stock market that is decoupled from record unemployment. Witness the lowest mortgage rates and house sales are booming. People will starve and die before the S&P will. Ultimately our machines and trading algorithms will be churning along as we die of disease, famine, and natural catastrophes.
> people that cannot afford to be are over leveraged in stock
why are they doing it if they cannot afford to do it? If someone made a conscious decision to day trade with money they cannot afford to risk, they have to accept responsibility for losing it when the markets turn sour.
why are they doing it if they cannot afford to do it? If someone made a conscious decision to day trade with money they cannot afford to risk, they have to accept responsibility for losing it when the markets turn sour.
Because they are new and started in propped up markets. They've not seen real volatility yet, and catastrophic damage can happen anytime as Black Swan Event. Besides, the downside to most Options is unlimited.
The comment was rhetorical. We all know why they are doing it and why they probably shouldn't. I think OP's point was the last bit of the comment:
> they have to accept responsibility for losing it when the markets turn sour
> they have to accept responsibility for losing it when the markets turn sour
No harm to repeat it, especially since the temptation might beat the rational mind.
[deleted]
I'm wondering what's going to happen when the reality sinks in on the real estate market, especially with all of the restaurants and retail that have closed shop for good. I think all of the REIT's are in for a world of hurt in the 3rd quarter.
This could indeed become very interesting not only for retail and restaurant real estate.
If there are considerably less entertainment locations in cities, moving to the city could potentially become a lot less attractive, especially for young people. Combined with the current push for remote work by workers and companies alike this could push real estate prices way down.
If there are considerably less entertainment locations in cities, moving to the city could potentially become a lot less attractive, especially for young people. Combined with the current push for remote work by workers and companies alike this could push real estate prices way down.
Already happening, at least for rentals. We got a massive ranch in Sonoma for 10% the usual price and made a coliving for founders there (btw, hit me up if interested to join)
While it's true that there are more bars and restaurants and opera houses in huge cities, there are still many bars and restaurants everywhere, it was never about bars and restaurants. Just because that's somewhere young people occasionally go and spend some of their income on doesn't mean it's the most important thing, or even the 10th most important thing.
Obviously the most valuable part of a city is its demographics. Especially young college educated people, and in really big metropolises, the ones with the hottest real estate markets, of single college educated people between 20-40.
To keep this focused, the day trading is mostly caused by returns. That's not saying much. It's pretty crazy how much the retail trader has been outer-performing some classes of professionals though, especially in the last quarter. [1] It isn't on like, having a sophisticated market thesis obviously.
It's just this huge, persistent, ugly refutation of the finance professional. Index investing was the vanguard not the main force; retail trading is the main force.
[1] https://www.barrons.com/articles/retail-traders-are-beating-...
Obviously the most valuable part of a city is its demographics. Especially young college educated people, and in really big metropolises, the ones with the hottest real estate markets, of single college educated people between 20-40.
To keep this focused, the day trading is mostly caused by returns. That's not saying much. It's pretty crazy how much the retail trader has been outer-performing some classes of professionals though, especially in the last quarter. [1] It isn't on like, having a sophisticated market thesis obviously.
It's just this huge, persistent, ugly refutation of the finance professional. Index investing was the vanguard not the main force; retail trading is the main force.
[1] https://www.barrons.com/articles/retail-traders-are-beating-...
Or there is a reasonably effective vaccine in 1q timeframe and much of the long term extrapolation from a temporary situation is overdone. I’m certainly not saying this is going to be the outcome but it is a very real possibility.
It takes about a year for changes in the market to fully hit real estate fund valuations, even when they mark-to-market on a quarterly basis. The thing is, nobody is selling so recent transactions that are used for valuation aren't impacted yet. In the short run you can account for lost rent under short term delinquency.
After a lot of retail day traders lost their shirts in the dot-com crash, FINRA made a rule restricting pattern day trading to those with over 25K in their accounts.
I wouldn't be surprised to see a similar rule for options trading come out of this.
I wouldn't be surprised to see a similar rule for options trading come out of this.
It's already applicable for Options Trading.
Not sure what you're talking about.
There is no restriction on being able to trade options with less than 25k in an account.
There is no restriction on being able to trade options with less than 25k in an account.
They mean that all the pattern day trading rules apply to options just the same as stocks, i.e. you cannot be an options day trader with less than 25k in the account.
The comment they replied to doesn't imply that it doesn't apply to options, it's clear they're saying restrictions will be added to options plays.
My apologies for the very limited words that I'd used earlier.
I'd indeed meant that the pattern day trade restrictions of USD 25k also applies to Options Traders who seek to day-trade Options in the U.S.
This was just my observation/information-sharing, and not a disagreement with anyone.
I'd indeed meant that the pattern day trade restrictions of USD 25k also applies to Options Traders who seek to day-trade Options in the U.S.
This was just my observation/information-sharing, and not a disagreement with anyone.
It seems ridiculously patronizing to try to lock people that aren’t already rich out of legitimate investment opportunities while other types of gambling like lotteries remain perfectly legal.
I'm not a fan of lotteries either but when someone plays a lottery, they have fair odds of winning. With trading, most of the time, they will lose and someone with millions in the bank will win.
What? You have a much higher chance of making money buying a stock than you do of winning the lottery.
If you’re talking about “Most of the time”, most of the time you will lose the lottery, but make money on buying a stock, on average at the overall rate of return of the market as a whole.
If you’re talking about “Most of the time”, most of the time you will lose the lottery, but make money on buying a stock, on average at the overall rate of return of the market as a whole.
You don't get a market return from day trading. The only way you can make money off of day trading is by providing liquidity and the amount of liquidity needed in a market is limited by volume. It's easy for commercial investors to push out retail traders because they can provide more liquidity.
Retail investors (aka people buying stocks as investment) are unaffected by that limit.
Retail investors (aka people buying stocks as investment) are unaffected by that limit.
> You don't get a market return from day trading. The only way you can make money off of day trading is by providing liquidity and the amount of liquidity needed in a market is limited by volume.
This isn't true in the slightest. Market makes might favor liquidity providing strategies but the vast majority of day traders do not. Retail day traders are trading lower volumes and do not move markets. They are much more advantaged in this respect (although they typically lack the informational edge of pros).
> It's easy for commercial investors to push out retail traders because they can provide more liquidity.
This just also isn't true at all. Everything has a price, including liquidity and as a perfectly fungible good, it doesn't matter who the seller is. Exchanges operate on price-time priority so if you provide liquidity at a better price, or before someone else, then it doesn't matter how big you are or how much you provide (within the context of vanilla ETPs relevant to day trading).
This isn't true in the slightest. Market makes might favor liquidity providing strategies but the vast majority of day traders do not. Retail day traders are trading lower volumes and do not move markets. They are much more advantaged in this respect (although they typically lack the informational edge of pros).
> It's easy for commercial investors to push out retail traders because they can provide more liquidity.
This just also isn't true at all. Everything has a price, including liquidity and as a perfectly fungible good, it doesn't matter who the seller is. Exchanges operate on price-time priority so if you provide liquidity at a better price, or before someone else, then it doesn't matter how big you are or how much you provide (within the context of vanilla ETPs relevant to day trading).
> I'm not a fan of lotteries either but when someone plays a lottery, they have fair odds of winning.
You do realize that lotteries have negative expected value right? That means that the net losses of losers exceed the net gains of winners...it's the epitome of unfair.
> With trading, most of the time, they will lose and someone with millions in the bank will win.
This just sounds like someone with an anti Wall Street chip on their shoulder. In most industries, the "winners" have millions in the bank...that's how they got the millions.
You do realize that lotteries have negative expected value right? That means that the net losses of losers exceed the net gains of winners...it's the epitome of unfair.
> With trading, most of the time, they will lose and someone with millions in the bank will win.
This just sounds like someone with an anti Wall Street chip on their shoulder. In most industries, the "winners" have millions in the bank...that's how they got the millions.
For every $1 spent on state lotteries, only about $0.65 is paid out as prizes [0]. Contrast that with something like roulette, which isnt particularly high EV for a casino game. It pays out about $0.95 for every $1 wagered.
[0] https://fivethirtyeight.com/features/what-percentage-of-stat...
[0] https://fivethirtyeight.com/features/what-percentage-of-stat...
Well "ridiculously patronizing" is a way to see laws. People can always look after themselves.
Another way to look at laws is that they protect the public from the predatory forces that we can't seem to just outlaw outright. Because PACs get in the way of legislation for the public good.
I'm sure there's some other way to look at it but I've already found at least one I agree with.
Another way to look at laws is that they protect the public from the predatory forces that we can't seem to just outlaw outright. Because PACs get in the way of legislation for the public good.
I'm sure there's some other way to look at it but I've already found at least one I agree with.
I’m not arguing all laws are patronizing. Some things have potential harms that are hidden, I think fda and food safety regulations are good ideas. Some things require specific knowledge to do safely, like driving a car.
But regulating something where the sole requirement to access it is to just have more money, is ridiculous. If trading options is so dangerous, requiring a license might make sense. Requiring that you just be rich to do it makes no sense.
But regulating something where the sole requirement to access it is to just have more money, is ridiculous. If trading options is so dangerous, requiring a license might make sense. Requiring that you just be rich to do it makes no sense.
It's specifically around pattern day trading. It's relatively high-volume trading in a low-balance margin account. This isn't what "legitimate investment opportunities look like."
There are a number of types of investment for which you need to be qualified. VC funds generally require a minimum net worth before you can invest. And the rationale is the same: they are both investments in which it's possible to lose a lot of money before you make any. Discouraging people who would be greatly affected by several losses in a row has some merit.
The accredited investor rule is the very worst example of this. It has no merit at all, it’s just gatekeeping for the sake of it.
Someone with low funds might be qualified to understand investment. They just don't have the means.
I guess, on average, it made these people poorer. But yes it's kind of government baby-sitting its citizens.
Bullshit rule that only serves to help market makers.
Ethereum-based options trading is going to enable these consumer experiences to be global, private, decentralized, and self-sovereign within a few years. It works already, but has many sharp edges.
When that happens, retail investors in Utah or Uganda will be able to short TSLA on a web app; no regulators involved, thank you very much. The implications are exciting and concerning.
When that happens, retail investors in Utah or Uganda will be able to short TSLA on a web app; no regulators involved, thank you very much. The implications are exciting and concerning.
> When that happens, retail investors in Utah or Uganda will be able to short TSLA on a web app; no regulators involved
Can Americans legally trade securities and other financial instruments on an unregulated exchange? I think no - my neighbor Bob can't just open up a stock brokerage, and I dont see how this is any different.
Engaging in illegal financial transactions also makes it harder to seek recourse when you're defrauded.
Can Americans legally trade securities and other financial instruments on an unregulated exchange? I think no - my neighbor Bob can't just open up a stock brokerage, and I dont see how this is any different.
Engaging in illegal financial transactions also makes it harder to seek recourse when you're defrauded.
Just because you do it on a block chain doesn't mean you're "self-sovereign." That's just tax fraud.
Pardon me, I wasn't clear. I am not advocating for tax fraud or illegality :)
Self-sovereignty is a technical characteristic of blockchains where nobody can prove you own a asset or did a transaction. That makes it hard to prove tax compliance or non-compliance.
To those who think Ethereum on-chain activity is merely pseudonymous and not private, you're correct, but only temporarily, because zero knowledge platforms are arriving and will enable many common financial activities to be performed in a truly private context.
Self-sovereignty is a technical characteristic of blockchains where nobody can prove you own a asset or did a transaction. That makes it hard to prove tax compliance or non-compliance.
To those who think Ethereum on-chain activity is merely pseudonymous and not private, you're correct, but only temporarily, because zero knowledge platforms are arriving and will enable many common financial activities to be performed in a truly private context.
If it happened and you don't report it, that's fraud. It doesn't matter how easy it is to not report it. This would apply to any other regulation as well, not just taxes.
I don't think you understood what parent said: US government does not prevent people from trading directly, however in practice some can't do it, because all trading platforms are obliged to restrict "unaccredited" people. It is unclear how this will apply to decentalized currencies. Right now I'd say it does not apply at all, if everything happens on chain.
This has nothing to do with people paying or evading taxes after a trade.
This has nothing to do with people paying or evading taxes after a trade.
The comment about no-regulation seems to imply private means secrecy and not simply a peer to peer transaction.
Putting something on a chain does not mean current regulations do not apply. If by "no regulation" they mean peer to peer trades have less regulation, I'm not quite sure about that but if it becomes the most common way to trade I'd be surprised it would stay that way.
Putting something on a chain does not mean current regulations do not apply. If by "no regulation" they mean peer to peer trades have less regulation, I'm not quite sure about that but if it becomes the most common way to trade I'd be surprised it would stay that way.
It is the later. Regulations will stay that way, or will likely be much less strict than for larger financial institutions. Privacy is not part of the question at the moment.
> She mostly buys blocks of stocks that trade for less than $5 a share and sells many of them within a day or two...The potential for big gains—increases of mere pennies per share in some cases—outweighs the risks, she said.
Citadel must be making a killing on market making, right now.
Citadel must be making a killing on market making, right now.
It takes 100% to gain back -50%.
[deleted]
I understand the instinctual cynicism that many have when they view the recent surge in retail trading. But I genuinely believe this is not only a good shift, but a needed one.
Will some people get burnt with YOLO options trades? Absolutely. But guess what, holding onto cash in a savings account is getting you burnt right now too, its just happening too slow for most to realize.
In reality, we are all traders and virtually every financial action we take (or don't take) is a trade. Doing nothing with your money is a trade. Buying a house is a trade. Investing in a 401k is a trade. Buying pokemon cards is a trade.
The fact that the current generation of high schoolers/college kids think investing and trading is cool is actually a really good thing. The world is becoming increasingly financialized and they need to understand this. The financial gatekeepers have had their fun for long enough.
Will some people get burnt with YOLO options trades? Absolutely. But guess what, holding onto cash in a savings account is getting you burnt right now too, its just happening too slow for most to realize.
In reality, we are all traders and virtually every financial action we take (or don't take) is a trade. Doing nothing with your money is a trade. Buying a house is a trade. Investing in a 401k is a trade. Buying pokemon cards is a trade.
The fact that the current generation of high schoolers/college kids think investing and trading is cool is actually a really good thing. The world is becoming increasingly financialized and they need to understand this. The financial gatekeepers have had their fun for long enough.
Money lost trading is lost forever. The slow decline of the value of cash is hardly comparable. Not that I like the metaphor, but if doing nothing is a trade, it’s holding an option that costs little to maintain.