Hey everyone. This is Kirk, here again at optionalpha.com. In this video, I want to talk about before we get into the specifics throughout such courses and this section on entering swaps, time talking here our logic and thought process of how we go about stimulating trades and merely a 10,000 foot idea of what we're trying to do. It's obviously video games of numbers and I've often said that when it is necessary to alternatives trading, we should range our business much like a casino does. We all is recognized that casinos make money, they make money hand over fist, but it's sometimes hard to step back and to identify areas exactly where their perimeter is. We know that casinos make money and they have an boundary and they want us to play, but let's quantify that.
What does that look like and what are the car-mechanics and logistical behind that because there's much more to it than exactly the percentage that they're going to win or lose on a payed swap or a table game. It comes down to sizing, table restrictions, number of experiences that people represent or roll the dice. There's a lot that goes into it and we should act much like a casino does, but we often do the complete opposite and you'll picture why. How does a casino genuinely make money and what's their fringe that they have over us? How do we quantify that? Let's start with roulette. Admittedly, roulette is one of the most difficult curious competitions, but it's actually one my favorite ones to performance. I intend, lead figure. I like representing it and I don't go there to make money. But when I vanish, I like to play roulette. I don't follow all the things with poker and the various players at the counter. I just like to play roulette and bet on the various figures and gaps. But when it comes to roulette,( and we know that activity with the rotate that revolves and the marble that falls) most often, parties will bet on blood-red or black and it's pretty normal for somebody to go into a casino and only make all their fund or cherry-red or pitch-black or whatever the case is.
But here's the exact direction that it's paid out. You can see the payout is 1:1. That makes if you bet$ 1, they'll salary you$ 1 if you earn and if you bet$ 1 and "youre losing", "youre losing" $1. That's how the payout manipulates. It's pretty fair as far as hazard and reward. You put up $50, you are able oblige $50 or lose $50. But here's where the casino's perimeter comes into play and there's two different ones. There's the European probability which European roulette wheels merely have one light-green zero and they do a little bit better as far as likelihood. Us Americans, we get hammered and we have two double zeros on our roulette wheel and that means that our likelihood is even lower. But you can see that the likelihood of this happening, either one of the following options, red or pitch-black is just about 48% to 47%. Even though you're making$ 1 for every$ 1 you put up at risk, the probability of you restraining that is 47% which means that the casino's advantage is somewhere around 2.5% to 3 %. That's how we can find out what the casino's margin is because every time that we make this transaction, theoretically, we're losing about 2.5% to 3 %.
It's not a lot. It's not like the casino is robbing you of your coin immediately. But over term, you can see how this is something that originates. And you can see the number of total occasions it can happen and the colours and everything and the numbers that are covered in this. As we go down on the roulette curious, you can see that likelihood of cherry-red or pitch-black is about 46%, 47% depending on how you calculate it and who you look at and the number of manifestations. But you can see that the quirkies of that happening even with simply even crowds that have payouts are pretty much the same. The casino is not going to smooth you over the calls and take all your money at once. They want you to stay longer and they want you to play longer. And then certainly, as you get ever further down, the probability of touching any one crowd on the roulette wheel weakens dramatically, but the payout is clearly a lot higher. Instead of being 1:1, they'll payout 35:1. If you put up$ 1 in fund to gamble and you smack it, you're going to make about $35 for every$ 1 that you put up.
Big payout, but it's got a very small likelihood of actually happening. Why table restraints? You've often heard that when you go to a casino that the casino will have a little signed affixed there that says that this table has a table limit or a bet limit of say $50 or $100. Having table restraints increases the number of "plays" that a person will establish which thus increases the members of this house hem back to the casino. The longer "youre playing", the more you stand to lose and that's date, cease of legend, there's no debating it. Casino's intentionally wants you to utter lots of performances and play a lot and they want you to do it with a small amount of money. I often say and I've done a podcast on this too, is that if you walked into a casino and you told the casino administrator," I want to bet$ 1 million on blood-red right now. One speculation,$ 1 million on blood-red, one move, one revolve and that's it ." And they would absolutely hands down say," No course ." 99% of casinoes would say " Absolutely no way" because their one-time probability of losing on that gambling is about 47% that they're going to lose to you, so it's too big of a stake in one full swoop.
What they would want to see is they want to see you spread that$ 1 million over thousands of different gambles. They restraint the amount of money that you can bet on any one wheel or any one comedy because they know that the more you rotate, the more you go, the more behind that you become. Here's a great chart that really proves this and this is with roulette, the peculiars of going with a pitch-black or ruby-red or even an peculiar count, so merely one rotate. If you spin it one time and the wheel starts around one time, you're likely to be behind on average about 51%.
Remember, you're getting paid 50/50 if you triumph, so your risk is almost exactly the same as your honor payout wise. Over the course of 100 slants, the percentage that you would get behind is about 64%, so you're still in the game now, you've been toy for a while, but now you're starting to lose more and more of that rim to the casino. And over 1,000 twistings then over more importantly 10,000 twistings, you can see that on a granted nighttime, over 10,000 twirls, you have no chance of preserving any of the money that you started with. The longer you play, the less compatible you become. In happening, compatibility removes exponentially the longer that "youre playing" because that small house line that we looked at before, 2.5% to 3% gradually goes back to the casino. And this is why they want us to play longer and longer.
This is why they have great deals on casino jaunts and they furnish you free chambers and free meat because the longer "youre playing", the more money that's going to get sacked back to them. Having said all of this, as brokers and more importantly as options sellers, we need to follow the same reasoning with how we lead our the enterprises and you have to think of it as a business to begin with. This isn't a hobby. This is something you do on the side. You have to run this thing like a business and that means that you have to one, establish high probability crafts. When you go to a casino, you're not making any high probability business. There's a small edge to the house.
In trading, we know how to utter high probability markets and we can do that. Number two is we've got to keep its own position size small. We've got to set table restrictions for ourselves. We can't "il be going" like I often say like a rodeo cowboy really slinging fund around left and right. You got to go in there and you got to make small wagers based on your position length. We've got a great guide inside Option Alpha in the guidebooks and checklist section that helps you decide its own position width based on a bunch of different account sizes.
And number three, we have to understand that compatibility is what leads to profits, so enabled to procreate high probability sells with small positions over a long strain of day. And going back to the casino lesson, they didn't really have a 100% probability of success in earning until they had 10,000 spins. That doesn't mean that we've got to see 10,000 trades, but that does mean that one or even 100 commerces over the course of a year are not able to get us to that firmnes rank that we want, but we're expressed the view that if we impede becoming high-pitched probability sells and hinder giving table restraints for ourselves that we will see success the longer and longer we stay in it.
That's why people in this business who have been in it five years and 10 years become more and more successful because they've just made more crafts. If they abide coherent and long-lasting, it will lead to profits. Hopefully the government had been a really good lesson time to get you started before we get into a great deal of the logistics of opening sells and how to manage some of those entry points and looking for trades. It's important to take a step back and understand the 10,000 foot thought of what we're trying to do here. As always, if you guys right now enjoy this video, satisfy share it online, on Twitter, on Facebook. Add a comment right below this video in the lesson page if you have any questions. I'll make sure I get back to all of those. Glad trading!.
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Posted from my blog with SteemPress : http://www.instantcashlink.co.uk/this-is-how-casinos-make-money/