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Trading—The Last Frontier
■ 3. The Odds against You
Why do most traders lose and wash out of the markets? Emotional and mindless
trading are big reasons, but there is another. Markets are actually set up so that most
traders must lose money. The trading industry slowly kills traders with commissions
and slippage.
You pay commissions for entering and exiting trades. Slippage is the difference
between the price at which you place your order and the price at which it gets filled.
When you place a limit order, it is filled at your price or better, or not at all. When
you feel eager to enter or exit and place a market order, it’s often filled at a worse
price than prevailed when you placed it.
Most amateurs are unaware of the harm done by commissions and slippage, just
as medieval peasants could not imagine that tiny invisible germs could kill them. If
you ignore slippage and deal with a broker who charges high commissions, you’re
acting like a peasant who drinks from a communal pool during a cholera epidemic.
The trading industry keeps draining huge amounts of money from the markets.
Exchanges, regulators, brokers, and advisors live off the markets, while generations
of traders keep washing out. Markets need a fresh supply of losers just as builders
of the ancient pyramids needed a fresh supply of slaves. Losers bring money into the
markets, which is necessary for the prosperity of the trading industry.
Note: Start reading from Sequence 1.
