Wednesday, August 18, 2010

Majority Traders Will Lose Money

The market is not a zero sum game. It is worse than that, as rightly pointed out by Edler:

"Markets are like pumps that suck money out of the pockets of the poorly informed majority and pump it into the pockets of a savvy minority. People who service those pumps, such as brokers, vendors, regulators, and even janitors who sweep exchange floors, are paid from the stream of money flowing through the markets. Since markets take money from the majority, pay help, and give what’s left to the savvy minority, the majority, by definition, must lose. You can be sure that whatever the majority of traders does, believes, and says, is not worth doing, believing, and saying. You have to stand apart from the crowd in order to succeed. Smart traders look for situations where a large majority does something one way, while a small, moneyed minority goes the opposite way." - Alexander Elder

The market has a huge overhead in order to support the trading structure. The money they need is obtained from the various traders through various fees.

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I'd like to share my experiences and knowledge about healthy and happy living as well as mid-life crisis. 不以物喜,不以己悲。