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Old 05-24-2015, 10:04 AM   #1

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Where Does the Lost Money Go?

Has someone ever studied where the lost money goes? You always read things like "95% of traders destroy their accounts", but how much of the money actually ends up in better traders' pockets? And how much is wasted on commissions and other fees?

I would be very interested to hear about any studies, theories, etc? For stocks, forex and commodities.

Thanks!
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Old 05-24-2015, 03:08 PM   #2
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Re: Where Does the Lost Money Go?

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Originally Posted by Frane »
Has someone ever studied where the lost money goes? You always read things like "95% of traders destroy their accounts", but how much of the money actually ends up in better traders' pockets? And how much is wasted on commissions and other fees?

I would be very interested to hear about any studies, theories, etc? For stocks, forex and commodities.

Thanks!
Of course the money lost makes it's way into another's hands. Commissions are a fixed cost for winners and for losers alike. The commissions and fees varies from broker, exchange, and asset class. It's a very broad question, that may not be helpful to delve into.

There have been many studies done on the effect of different trader types and market liquidity. The studies are available if you are willing to look for them.

This study is one of the more interesting as it pertains to day traders and skill levels:

http://faculty.haas.berkeley.edu/ode...l%20110523.pdf

Note that the PDF is just the abstract...

Last edited by jpennybags; 05-24-2015 at 03:24 PM.
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Old 05-24-2015, 09:10 PM   #3

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Re: Where Does the Lost Money Go?

Good traders and bad traders take your money from you and keep it or give it to someone else, depending on how good or bad a trader they are.
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Old 05-25-2015, 08:22 PM   #4

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Re: Where Does the Lost Money Go?

The biggest chunk goes to banks, who manipulate the market, very small portion goes to traders that manage to profit.
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Old 05-26-2015, 04:44 AM   #5

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Re: Where Does the Lost Money Go?

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The biggest chunk goes to banks, who manipulate the market, very small portion goes to traders that manage to profit.
Banks make money until they lose all of it and then some, recognizing that they didn't have a handle on the risk they were taking.

Cycles of fear and greed over and over again. No one is immune.
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Old 05-26-2015, 05:35 PM   #6

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Re: Where Does the Lost Money Go?

Thanks jpennybags, it was an interesting paper to read even though it does not really give info about how much actually ends up in commissions since there are so many other participants than day traders. Do you know from where one can get that kind of data to analyze? Are there any publicly available datasets?

A perfect answer to the question would be a real world example of something like this hypothetical stock exchange (100k traders, in one year):
- 95k loosing traders have collectively trading accounts of $95M in the beginning of the year, which becomes only $50M at the end of the year.
- 5k winning traders have collectively trading accounts of $5M in the beginning of the year, which becomes $10k at the end of the year.
- This would mean that $45k has gone to broker commissions
- Somehow the holdings must have been corrected by the index or something.

Are there any data like this available?
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Old 05-26-2015, 10:11 PM   #7
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Re: Where Does the Lost Money Go?

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Originally Posted by Frane »
Thanks jpennybags, it was an interesting paper to read even though it does not really give info about how much actually ends up in commissions since there are so many other participants than day traders. Do you know from where one can get that kind of data to analyze? Are there any publicly available datasets?

A perfect answer to the question would be a real world example of something like this hypothetical stock exchange (100k traders, in one year):
- 95k loosing traders have collectively trading accounts of $95M in the beginning of the year, which becomes only $50M at the end of the year.
- 5k winning traders have collectively trading accounts of $5M in the beginning of the year, which becomes $10k at the end of the year.
- This would mean that $45k has gone to broker commissions
- Somehow the holdings must have been corrected by the index or something.

Are there any data like this available?
The market changes from year-to-year... month-to-month... week-to-week... and, day-to-day. One could argue, and be totally right in saying... second-to-second.

What you seem to miss is that there are winners and losers in every time frame. Everyone pays a fixed cost to trade. You may have a winning trade that facilitates another winning trade... or you may take money from someone who is losing... or, you both may be losers.

NONE OF THIS MAKES ANY F*KIN DIFFERENCE!!!!

The money you lose from your account, is lost... it makes no difference who takes it. You can observe studies, and write papers, and piss and moan about the reality of things, but it is what it is...

This what you must deal with.

Don't know if there is any data available... someone else may. Just saying... don't worry about it...

You can get some sense of the failure rate from the study... not saying it's you... could be "me" tomorrow. We shall see... it's good while it lasts... make the best of it.

Last edited by jpennybags; 05-26-2015 at 11:03 PM.
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Old 05-27-2015, 04:36 PM   #8

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Re: Where Does the Lost Money Go?

I understand that a loss is a loss and in that sense it makes no difference. I also know how the costs are formed for individual trades. I also know that there are different winners and loosers at different times, where some are more often winning and others more often loosing and money is not equally distributed (be the reason luck, skill or whatever).

What I do not know, and what is interesting, is how much of these loosers' money could really be available to better traders. If it turns out that something like 90% of the losers are collectively trading with a 0-profit, 0-loss strategy (like random trading) and are just loosing their money in commissions, it would seem as if long term investing would be a better idea than trading. However, if the loosers would be collectively loosing mostly due to all making bad trades (following the crowd, reading same news), it is a different story.
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