Meet Gene, a NASDAQ Market Maker Message Board

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Non-Tech : Meet Gene, a NASDAQ Market Maker

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To: LPS5 who wrote (787)	8/26/2000 6:24:02 PM
From: Dan Duchardt	Read Replies (1) of 1426

LPS5, I don't know much about the insurance business, but I have to believe that there's a reason why this hasn't been done yet. No insurance expert here, but the fairly obvious reason is that buying and selling stock is nearly a zero sum gain (some people don't use the word "nearly"). The ratio of winning trades to losing trades has to be about 50/50. To cover the full loss for the losers, the winners would have to be spending at least half their profits on premiums, while the losers are increasing their losses by 50% in premiums netting them losses only half as big as with no insurance. A simple example: One trader makes 1000 and another loses 1000. Insurance has to pay the loser 1000, which they get by collecting 500 from the winner and 500 from the loser. The winner then has to spend that 500 to protect his next trade. That's a mighty hefty premium for what is being protected. It's a far cry from collecting life insurance premiums from a population of 40 year olds, the vast majority of which are expected to live to see 41. Maybe with a huge deductible so only catastrophic losses are covered it could work, but as others have said, there are ways to hedge to take care of that. Dan

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