<story><title>It Feels Like the Game Is Rigged</title><url>https://theirrelevantinvestor.com/2021/02/01/it-feels-like-the-game-is-rigged/</url></story><parent_chain><item><author>kenneth</author><text>Institutional traders (hedge fund, i-banks, prop traders, hft) have the advantage of deep pockets and the financial literacy to be able to execute strategies which create easy returns. Many of these strategies are easily scalable to turn a small edge into a big one, using leverage. Oftentimes these strategies have an asymmetric risk profile, with low probability of losing a lot of money (sometimes with unlimited downside potential), for example:&lt;p&gt;- writing out of the money options for the premiums&lt;p&gt;- shorting stocks with leverage&lt;p&gt;- &amp;#x27;08s frenzy of selling credit default swaps&lt;p&gt;- forex trading with spreads so low that they take 100x+ leverage&lt;p&gt;Usually, when these strategies work, it&amp;#x27;s easy money and they get addicted to the easy returns. They scale the strategies up to a level of risk they can&amp;#x27;t handle. Like having 140% short interest relative to GME&amp;#x27;s float. When these strategies blow up in their faces, it wipes them out completely, to the level of requiring bailouts.&lt;p&gt;Main street (retail investors, taxpayers) have had enough of this, and a lot of anger is directed at institutional investors for always getting the easy money and the bailouts at their expense. They want to see the game applied fairly, such that when the bets go sour, they go bankrupt and don&amp;#x27;t get bailed out like in 2008. In the 2015 CHF forex crisis, many brokers went bankrupt overnight. That&amp;#x27;s what should happen to Melvin, and to anyone who takes the stupid risky bets that don&amp;#x27;t work out.</text></item></parent_chain><comment><author>smabie</author><text>I get what you&amp;#x27;re saying but I don&amp;#x27;t think I&amp;#x27;ve ever heard professional investors describe generating returns as &amp;quot;easy.&amp;quot;&lt;p&gt;Making money at a trading or investment firm is &lt;i&gt;serious&lt;/i&gt; work, and no one takes it lightly. Using your example of writing options, market makers who do this are &lt;i&gt;very&lt;/i&gt; cognizant and paranoid about the risks involved.&lt;p&gt;However, excess kurtosis and skew (left side tail risk) has definitely wiped out a number of firms, so your point is somewhat valid. I just wanted to point out that when every trader at a firm has their life savings in the company fund, they don&amp;#x27;t go around slinging YOLO trades. This is serious business, and the vast majority of participants act accordingly (I have met some idiots tho, but most of them went or are going out of business).&lt;p&gt;But it doesn&amp;#x27;t take that many idiots to cause a lot of mess, so that&amp;#x27;s another factor to consider.</text></comment>
<story><title>It Feels Like the Game Is Rigged</title><url>https://theirrelevantinvestor.com/2021/02/01/it-feels-like-the-game-is-rigged/</url></story><parent_chain><item><author>kenneth</author><text>Institutional traders (hedge fund, i-banks, prop traders, hft) have the advantage of deep pockets and the financial literacy to be able to execute strategies which create easy returns. Many of these strategies are easily scalable to turn a small edge into a big one, using leverage. Oftentimes these strategies have an asymmetric risk profile, with low probability of losing a lot of money (sometimes with unlimited downside potential), for example:&lt;p&gt;- writing out of the money options for the premiums&lt;p&gt;- shorting stocks with leverage&lt;p&gt;- &amp;#x27;08s frenzy of selling credit default swaps&lt;p&gt;- forex trading with spreads so low that they take 100x+ leverage&lt;p&gt;Usually, when these strategies work, it&amp;#x27;s easy money and they get addicted to the easy returns. They scale the strategies up to a level of risk they can&amp;#x27;t handle. Like having 140% short interest relative to GME&amp;#x27;s float. When these strategies blow up in their faces, it wipes them out completely, to the level of requiring bailouts.&lt;p&gt;Main street (retail investors, taxpayers) have had enough of this, and a lot of anger is directed at institutional investors for always getting the easy money and the bailouts at their expense. They want to see the game applied fairly, such that when the bets go sour, they go bankrupt and don&amp;#x27;t get bailed out like in 2008. In the 2015 CHF forex crisis, many brokers went bankrupt overnight. That&amp;#x27;s what should happen to Melvin, and to anyone who takes the stupid risky bets that don&amp;#x27;t work out.</text></item></parent_chain><comment><author>throwaway2007b</author><text>&amp;gt; institutional investors for always getting the easy money and the bailouts at their expense&lt;p&gt;When was a hedge fund last bailed out with public funds? They typically don&amp;#x27;t. Like them or not, they have historically been left to fail, or be bought out by their competition.</text></comment>