Let's say we are getting a trade stream(instantaneous) of a group of traders that lose money. If we trade on their opposite side in a broker, is it guaranteed that we make money? Intuitionally it seems possible but it may not be that simple...
Any comment is appreciated..

  • $\begingroup$ (1) It is not the simple and (2) if this group of traders only lose money, their careers will be shortlived thereby making your strategy obsolete in a relatively short amount of time $\endgroup$ – amdopt Jan 24 '19 at 14:02
  • $\begingroup$ @amdopt lets assume that we will find losers forever:) $\endgroup$ – xyzt Jan 24 '19 at 14:05
  • $\begingroup$ Some Banks do this against their FX customers... $\endgroup$ – noob2 Jan 24 '19 at 15:57
  • $\begingroup$ by the same token why not find winners and copy their trades? In any case you have the fundamental assumption that losers remain losers and winners remain winners. Sounds exactly like detecting whether a trend will change in a time series, except it is an indirect way of predicting markets rather than a direct way. $\endgroup$ – Attack68 Jan 24 '19 at 19:47

There are a couple constraints :

  • It is true that the majority of traders are losers, but that's after fees. You need to find losers who are statistically losing more than just the fees (because you're going to pay the same), fees can be a sizable share of the losses in the long term. There is no reason to think that the subset of order flow you isolate is any different from random noise, just like Attack68 mentionned above.

  • Then even if you manage to find a statistically significant edge, you become dependent on the sizing of those clients, if you assume for instance that the average retail loser is just a guy averaging down on leverage until he busts, the opposite strategy is a CTA momentum/trend following, you'll need to be confident with the sizing that comes with it (reversals will hurt).

It's been mentionned that banks do that against their FX customers, but the way they get paid is on the spread on their order flow, not because they think their customer is wrong (it might also be because they manipulate the fixing, but that's not legal and anyway that's not something you can do).


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