Can you be long and short at same time?

[Hakuna Matata]

This is the 500th reply to the OP and still some people don't get it.

 

[brewski1984]

I admire your persistance HM

 

[Hakuna Matata]

I admire your persistance HM

Still got juice in the tank mate, just need someone to come for the ride.

 

[brewski1984]

Would you like me to disagree with you and call you a donkey to keep it going?

 

[Shakone]

OK jon, here's a little thought experiment for you: At A), we've got a postman with a letter to deliver to the house at B).

There are two ways he can get from A) to B) - the green route or the red route.

The Green route involves going East for 3kms, then North for 3 kms.
The Red route means going North for 3 kms and then East for 3 kms.

Naturally, he want's to take the shortest route he can. So, he looks at the map and compares the two journeys:

Is the length of the Green route:

1) Longer
2) Shorter
3) The Same

as the Red route?

The interesting thing here is, that those who disagree with you (us) will think this example is insulting, and the answer obvious. But if you throw - what is essentially the same - into a trading context, suddenly it's all about opinion.

I would still like to know why Barjon would close his long, and not add in another short, so that he was long 1, short 2, and net short 1. Why does he prefer to be just short 1? Why not keep increasing entries, so that eventually if he wants to be net short he is 10000 contracts long, 10001 contracts short?

 

[Liquid validity]

There is one simple acid test of this once and for all.
Do institutional / prop traders go long / short on the same instrument / size.
No - they will all be on instruments that simply don't allow it.

Why would anyone go against that?
Does it not give pause for thought that the ability to do this only exists
at brokers aimed at retailers, those same brokers who want customers to
cream themselves on the spread...

Otherwise you need multiple accounts.

 

[Vasco da Banana]

Why does he prefer to be just short 1? Why not keep increasing entries, so that eventually if he wants to be net short he is 10000 contracts long, 10001 contracts short?

Given teh unlimited wealth of most of us here at T2W, possibly there might be something in that idea?

 

[Shakone]

Given teh unlimited wealth of most of us here at T2W, possibly there might be something in that idea?

Yeah, there might. We should get some backing and start a nedge fund

 

[Hakuna Matata]

Right, I have sought permission and have been granted to quote a PM sent to me anonymously (well, I know who it it, you don't).

The exchange went like this...

...
In normal circumstance there is, again as you say, a value to "option to trade" but where that option is not taken up - for reasons I have tried to explain - the benefit is with the long/short imperative man unless the small losses from his stops outweigh the occasional runner like today's.
...

Well, the bit in bold [see above, my emphasis] is absolutely key.

The benefit is with the long/short man ONLY IF he can take advantage of opportunites that the flat man can't. Not only does there need to me more opportunities, they also need to work in the long/short man's favour. The reality is that the opportunities, and the liklihood of them working for or against each other, are the same. There is nothing to choose between the two.

[quoting my reply above]
...
I've selected this bit because I agree that is key, but I'd turn it on its head a bit.

That both have the identical opportunities is not in doubt. The difference is that the long/short man will always take the opportunity (he must close his overall deal) whereas the flat man may not take the opportunity. Where the flat man does take that opportunity the result is equal (and cheaper), where he doesn't take it, everything depends on what happens to the opportunity the long/short man has taken.
...

The bit I would like everyone (everyone that is who still think it's got merits) to concentrate on is this particular sentence:

The difference is that the long/short man will always take the opportunity (he must close his overall deal) whereas the flat man may not take the opportunity... everything depends on what happens to the opportunity the long/short man has taken

This is absolutley true. Let's examine the consequences in a little more detail by way of another thought experiment:

Suppose we have two traders, Trader A and Trader B. They:

Both start flat and finish flat
Make the same first trade

The difference between the two is that

Trader A always makes a second trade, closes, and goes home
Trader B sometimes makes a second trade, sometimes goes straight home

Now, we want to try and pick which trader we think will perform best over the next month. To do this, we make a table of what their P&Ls are going to be over the next 31 trading days.

As you can see from the bottom of the table, we can express their respective P&Ls as this:

Trader A's P&L = 31X + 31Y
Trader B's P&L = 31X + ?

We know that both traders will make identical trades first (these are the X's), so their P&L's from the first trades are the same.

We also know that Trader A will always make a second trade, Y. At the end of the month, we add these up to be 31Y.

Trader B, on the other hand, sometimes will trade (and close), but sometimes won't. We won't know how many trades he makes, or doesn't make, until the end of the month. So it's just unknown.

Comparing the two traders P&L's at the end of the month, we can see that both return at least 31X. The difference between the two is that Trader A has an extra 31Y to add(remove) to his P&L, while Trader B has, well, we don't know what he's got to add to (or remove from)his P&L.

Is there any way of knowing what the results of Trader A's second trade will be in advance? NO. We'll only find out what the 31Y means after the fact.

Is there any way of knowing in advance what the results of Trader B's second trade are? NO. We'll only know after they've happened.

So the difference between the two is that Trader A has made 31 other trades for an unknown P&L, and Trader B has made an unknown number of trades for an unknown P&L. We do know, however, that Trader B cannot have made more trades than Trader A. He either traded and closed, or went home.

So which Trader do you pick as doing the best? Trader A, who definatley does 31 more trades, or Trader B, who does up to 31 more trades. Remember that the P&L of the first trades is the same, and the P&L of the second trades are unknown...

... so to decide which one you think will do the best, you have to choose between:

Trader A: 31X + Unknown P&L from 31 additional trades

or

Trader B: 31X + Unknown P&L from up to 31 additional trades.

I hope everyone can see that, because we can't know what the P&L of their trades is going to be before they've happened, we should always choose Trader B.

 

[Hakuna Matata]

I'm late for rugby now

 

[robster970]

Would you like me to disagree with you and call you a donkey to keep it going?

I don't know about you Brewski but I reckon HM is wrong and what's more, he is an ass.

I can prove beyond all reasonable doubt and to 6 sigma that being long and short with equal position sizes on the same security not only halves your commissions but also puts you net long and short in the process to deliver teh profits.

 

[brewski1984]

I don't know about you Brewski but I reckon HM is wrong and what's more, he is an ass.

I can prove beyond all reasonable doubt and to 6 sigma that being long and short with equal position sizes on the same security not only halves your commissions but also puts you net long and short in the process to deliver teh profits.

That HM is a complete donkey, hiding behind a stupid username.

 

[Martinghoul]

There is one simple acid test of this once and for all.
Do institutional / prop traders go long / short on the same instrument / size.
No - they will all be on instruments that simply don't allow it.

Occasionally, yes, but under a very specific set of circumstances...

 

[tar]

There is one simple acid test of this once and for all.
Do institutional / prop traders go long / short on the same instrument / size.
No - they will all be on instruments that simply don't allow it.
.

Institutions with multi divisions ( market making , proprietary trading ... ) , can be long and short simultaneously but they don't do it as a "hedge" , that's why in certain situations its ok like : position trading and daytrading the same instrument .

 

[tar]

I'm late for rugby now

Dont forget to back and lay your team

 

[Liquid validity]

Institutions with multi divisions ( market making , proprietary trading ... ) , can be long and short simultaneously but they don't do it as a "hedge" , that's why in certain situations its ok like : position trading and daytrading the same instrument .

Does that still apply to buy side only outrights though?
Yes fair point you make, but is it really applicable to
the retailer scenario discussed here?

I'd also be interested if MG expanded more on the circumstances he mentioned.
That isn't a baited question btw, genuinely interested

 

[tar]

Does that still apply to buy side only outrights though?
Yes fair point you make, but is it really applicable to
the retailer scenario discussed here?

Food for thought , and i already gave you an example : surely it isn't far fetched for a trader to have a long term position in the same instrument which he autotrade day in day out ...

 

[Liquid validity]

Food for thought , and i already gave you an example : surely it isn't far fetched for a trader to have a long term position in the same instrument which he autotrade day in day out ...

I did touch on that here:
http://www.trade2win.com/boards/dis...-you-long-short-same-time-55.html#post2146000
You must have missed it.

Basically though, by institutional / prop, I meant the individual trader,
not divisional level or buy / sell side differences.

 

[Martinghoul]

I did touch on that here:
http://www.trade2win.com/boards/dis...-you-long-short-same-time-55.html#post2146000
You must have missed it.

Basically though, by institutional / prop, I meant the individual trader,
not divisional level or buy / sell side differences.

Yes, that happens occasionally at an individual trader level as well...

 

[tar]

I did touch on that here:
http://www.trade2win.com/boards/dis...-you-long-short-same-time-55.html#post2146000
You must have missed it.

I'm sorry , i agree with you if the time frames are similar like H1 with H4 , but when the time frames are very different , e.g : position trading for months , with daytrading , then yes it can be done and it is done by some especially in a popular market like the SP or a major currency or gold or a carry trade ... etc .