[immigrantheart]

I just recently got into a trading firm. I also had this sort of question before and its relative question, that is “can individual trader really make money without having to be a fortune teller”?

What I found out that my trading firm is a market maker, and this trading firm, alongside with other non individual (corporate) players in trading world, have moats in their cutting of fees.

To make a profitable trade, you need to take into account many of the fees (and taxes) or else you get into death by thousand cuts. Trading firm simply operates in a different fee structure than individual traders. Some market makers are actually getting paid instead, just by providing liquidity. That’s why they can be profitable.

If an individual stock trader buys stock A for $100 and sell it later for $100, it is considered loss (due to fees) or at least break even. Not so much for trading firms, they actually make profit.

Since trading bots are just individual traders, same rules apply.

CMIIW

[giantg2]

Much of this is true. However it doesn't really answer their question of why most trading bots aren't profitable. So you covered fees which really only affect mostly breakeven trades. That leaves out the trades with any real gains. If you have a bot making positive trades above the fee level (usually minor, like $2) then it's not a concern. The question becomes, why can't the bot achieve these profitable trades?

[weare138]

I don't think it's an issue of bots not being profitable but the simple strategies most of the off the shelf trading bots use not being profitable. There are a ton of financial firms using algorithmic trading bots that make plenty of money doing it. The difference is they're experts and developing their own complex strategies. When you try to run your own trading bot using just the basic strategies most of them use that's who you're competing against. Of course your poor little bot is going to get trounced.

[markus_zhang]

However doesn't a market maker run the risk of holding an unbalanced bag when the market moves? Also curious is there any true market maker these dayd? Aren't they all doing trading actually or just my fantasy? Thanks!

[kasey_junk]

What do you think the distinction between market making and trading is?

Also, yes market makers can get left with bad positions if the market moves against them, but when I was in the industry operational failures were the much more troubling issues.

[markus_zhang]

I think MM doesn't take sides and try to balance the book while making a lot of pennies from both sides. However I heard (not in industry) that many MM are actively taking sides so the question.

[kasey_junk]

Most market making strategies are run by firms that have a portfolio of other strategies that will be directional. Those mm strats, besides making the spread when possible, also allow the firm to maintain fee structures which make other strats possible and order inventory that allows them to have priority in the market. Most of the time the overall firm is mostly neutral while individual strategies/desks are directional.

All of its trading though and none of this is new.

[markus_zhang]

Thanks! This makes a lot of sense~