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When I do sports betting and the moneyline is -110, 110, I must win at least ~52.4% of the time to break even. The 2.4% goes to the bookmaker as their vigorish (or "rake", or "juice").

My stock broker says that stock trading is free. How can this be? Logically, they must somehow be getting some vigorish to keep their lights on. How much is the vigorish in the stock market? And what is the minimum percentage of stock bets I have to win in order to break even?

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    "My stock broker says that stock trading is free." Who is your stock broker and what exactly did they say? – glibdud Oct 15 at 11:20
  • @glibdud They said that there are no trading fees and no commissions. – kingrulezzz Oct 15 at 11:51
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    Your understanding of vig, is incorrect. And the idea that you can apply the same concepts (either the actual concept, or your incorrect concept) to the stock market, is totally incorrect. – Fattie Oct 15 at 13:42
  • Even when there are no fees/commissions, there is always a bid-ask spread. The 'casino' section of the market where you can bet on the stock going up or down without owning the stock is called the options market. I think you will find some pretty large bid-ask spreads on options. – Paul Oct 15 at 22:22
  • @Fattie What's incorrect about my understanding of vig? – kingrulezzz Oct 15 at 23:37
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Fidelity, Schwab, Vanguard, et al make billions of dollars per year from investors from:

  • Net interest income

  • Mutual fund and ETF service fees

  • Financial planning

  • Sale of annuities

  • Managed money

When major discounters eliminated commissions last year, for Schwab, commissions made up something like 5% of their revenues so elimination of commissions wasn't a terrible hit to their bottom line. OTOH, it was something like 35% for Ameritrade and that led to their merger with Schwab.

A security's bid/ask spread would be akin to the rake in sports betting. However, its size varies as does the size of a round lot wager because stocks have different prices. Therefore, you can't make a comparative calculation such as with a simple sports bet.

In addition, with sports betting, the size of the rake is known as well as the payoff of the bet so you can calculate a required win rate. With stocks, the size of the win is variable so the required win rate is a moving target. If you win large, your win/loss rate can be much lower and conversely, much higher if you have some sizable losses. This further prevents determining a break even win/loss rate.

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You are applying the model of sports betting, to something that is in no where related or similar to sports betting.

It is very difficult to know where to start, because you have such a fundamental misunderstanding of what it means to be an investor or even a speculator.

About the closet thing to a "vig" is the commission one pays to trade an instrument or the fee one pays when using an ETF or mutual fund. But even that is far from accurate.

Think about this: The Lakers won the 2020 NBA championship. Nothing will ever change that. You could have bought Apple last week at 122. During that time and now you could have sold as low as 120.38 or as high as 125.05. Those are two very different events and barely scratch the surface at the differences.

You might be tempted to think "so stocks are all about timing". Not at all. A much better winner is the guy who bought five years ago, paying 23 and only paying the "vig" once and still holding the stock today.

He has several advantages:

  • He does not have to worry about timing (which is impossible to get correct consistently)
  • He can concentrate on his career or business, earning more to have more money to invest
  • He pays less commissions
  • He does not incur taxable events

Those kinds of things are not applicable to sports betting.

And in my opinion the 5 year Apple investor loses to someone who invests in a boring old S&P500 index fund.

Does sports betting have a way to "bet" money with no insight or intelligence and consistently earn about 10% every year? The stock market does.

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  • The Apple investor loses to the S&P 500 investor? How? – kingrulezzz Oct 15 at 11:55
  • @kingrulezzz Adjusted for splits APPL was .556 on 1/93, and .122 on 12/97. Many were predicting its death. S&P500 went up during that time. – Pete B. Oct 15 at 13:01
  • @kingrulezzz: Also, because the Apple investor had to somehow pick Apple's stock as a winner from all the others out there. Suppose the investor had picked say Compaq or Palm instead? – jamesqf Oct 15 at 17:37

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