Of casinos, bookies and market makers.
For the past 25 years I have been avid supporter of all three businesses – casinos, bookies and market makers. And by supporter, I mean my hard earned money has gone to support these businesses.
At some point it occurred to me that these business models are connected and that connection became the access to a breakthrough in my performance and profitability.
Let’s look at these business models:
Casinos make money because every game they offer has a built in statistical advantage for the casino. That edge can be very small (lower than two percent), but over time and the millions of bets placed by casino patrons, that edge earns the casino enough money to build elaborate hotels, fountains, giant pyramids, towers and replicas of famous landmarks.
Generally, a bookie is an expert in the field in which he or she offers bets. Bookies have to be extremely knowledgeable, or they will not be able to turn a profit.
The goal of a bookie is to set up a point spread which allows him or her to profit no matter what the outcome of an event is. This requires a constant adjustment of the odds, and in some cases a bookie may even buy bets from another bookie to create a desired spread.
Ever think about how you can just call your broker (or go online) and in a moment’s notice sell 1,000 shares of Cisco? I mean, who is buying those shares? How does that really work?
Well, a market maker is to thank for this. There are people, market makers, that are willing to be there, standing by at all times, to buy or promise to sell any given stock. They will buy whatever you are selling, or they will go out and get whatever you want to buy. They are the grease in the wheels of the market.
What is interesting, from our perspective, is HOW MARKET MAKERS MAKE THEIR MONEY!
Look, they are taking a risk with every trade. Suppose they buy your 1,000 shares of Cisco that you want to dump and before they can sell it the price drops? They are risking their assets with every trade they facilitate.
How they counter this, how they profit, is they add a little something to every trade. They buy for a little less than the current price and the sell for a few cents more than the going rate. They don’t need a lot of mark up. Just a few pennies on either side – but given the volume of what they do, they wind up ahead.
Not only is their risk mitigated, but the amount they add puts the odds on their side. They are not playing for the stock to rise or fall at all. They just want there to be volume!
THE MILLION DOLLAR CONNECTION
Can you see it? All three make their money by guaranteeing that THEY have the statistical advantage at all times.
None of them need to (or look to) win big. No, their money comes from the EDGE that they establish BEFORE any bets are placed. In fact, they are the ones
TAKING the bets, not MAKING the bets.
All they need is a small edge and they know, mathematically that they are going to come out ahead.
So what of it? Good for them. What does that have to do with us?
Well, what if I told you there was a way to gain the same statistical advantage that casinos, bookies and market makers have? What if I told you that there was a way for you to stop MAKING trades and start TAKING trades (just like a casino, bookie and market maker)?
I want you to know that there is. You can trade like a bookie. You can trade like a casino. You can use market makers to be a market maker.