Jul

16

 I found there are many similarities between trading and playing poker (Texas Hold'em).

1. In both games, at first one is presented with an opportunity. In trading, this is the time one starts to decide whether one should make an entry; and in poker, this is when one is dealt with the first 2 cards. One calculates at this time the chances and the expectations and makes a decision on whether to proceed and how much money to put in.

2. While holding, one is constantly presented with the potential possibilities to win or to lose. In trading, this is reflected by the ups and downs of the equity value; and in poker, every new card coming to the table alters one's chances. During this time, one constantly calculates the chances and the expectations and makes decisions on whether to continue holding and whether to add or reduce one's position (in poker one can't reduce).

3. At closing, in poker, this means the final showdown; and in trading, this is when one has to close out the position. Only at this point, the possibilities to win or to lose are realized.

Probably one crucial difference is that in trading one does not have a way to bluff, unless one is a heavy weight in the market. But it is quite the same in both games that one is often bluffed at.

John Netto responds: 

I feel compelled to respond given I have used both mediums as a way to make a living. No comparison between poker and trading is complete without examining the ancillary issues such as transactional costs and liquidity.

In poker, the house takes a rake on every pot and for every orbit (time the dealer button goes around the board), a player must post a big blind and a small blind. The rake can be as small as 5% and as high as 20 percent given the venue and size of the pot.

In trading, one might pay a small fee for software or data, but on a percentage basis, this is substantially less. Overall, these are real factors for a number of professional cash game players in computing their positive expected return.

Liquidity is another issue. You are at a table with 8-9 other players and the higher the stakes go, the more seasoned and experienced the players are.

Therefore, assessing the "volatility" of a table is critical as a trader who likes to be long a lot of gamma, I like to be in games where the players are looking to gamble and mix it up in a lot of pots and chase down their draws at bad payouts.


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  1. Steve on July 16, 2013 2:53 pm

    Here are some things to consider about poker. I leave it to the reader to discern if they apply to trading.

    Cash games poker.

    You are playing against the other people seated at the table.

    There are 169 two card combinations that you can be dealt ex. suits.

    You position changes after every hand. i.e. the button moves.

    There is a rake that is taken off the table after every game.

    The winner is expected to tip the dealer.

    You are permitted to reload after every hand. table stakes apply in no limit. Limit poker contains more action and leads to showdowns.

    Different players enter and leave throughout the session.

    Rulings by the house are final. There is no appeal.

    The most important decision you will ever make is the first two cards that you are going to play.

    The second most important decision you will face is whether to continue after the flop

    Professionals will tell you they make their money in a grind by putting in their hours.

    Pros will tell you that they earn their money by not playing hands while others play theirs.

    Pros do not like to test their skills against other pros. They prefer to attack the weak, the fish.

    Cheating and team play occur in poker.

    The cards have no memory. They do not know or care who is playing them.

    The psychology of the table changes with the style of the players.

    Players adapt their style to fit the table they are seated at.

    You have to play hands to win. eg. You cannot keep the last hand and play it for the next session.

    Remember theses rules generally apply to cash games. Tournament poker is entirely different and a completely different set of skills is necessary to succeed at that level.

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