Common misconception. It assumes that every institution is trading against each other. IF that were the case, then yes, there will be only one big dawg and everyone will lose. In extremely PvP regimes where it's mostly institutions vs institutions, this is indeed the case. However, in most markets, the institutions are not making money off of each other. They are making money off of (uninformed) retail. This is why even institutions of "various complexities" can survive in the market. For example, as a new entrant to FX. I know I am certainly not as competitive as XTX, which has considerable resources spent on dominating FX. However, that does not imply I cannot make money from FX; as the average participant in FX is still leaps and bounds inferior to my investment process. This means I will make more money from these fishes than I will lose to XTX. If you've played Poker, it's akin to folding whenever the biggest shark bets and trying to be in all pots where the fish is playing but the shark has folded. TLDR: Money is always made from weaker players that have no edge. And that's why (uninformed) retail participation is so important for institutions. TLDR2: Avoid the sharps, and trade against the squares, everywhere.
@systematicls Than how are platforms like robinhood growing? If retail is losing, how can they still still trade? Isn't this more a market microstructure understanding problem
@MachinePy question, why does robinhood growing imply retails as an aggregate are winning?
@systematicls Maybe not in aggregate? But Robinhood's PFOF model is reliant on retail traders. Which is clearly working.
i think you got the relationship the other way round! pfof is so valuable precisely because retail is losing on aggregate, therefore, citsec wants to be on the otherside of it! robinhood can grow even if retail loses as long as retail is willing to top up and continue gambling -- which may not be your behavior, as I can tell from this short conversation... but there are many many gambles that are absolutely degenerate