Trading & Markets

Edge

The expected profit per trade, in the units of the trade.

Buy at 99 something worth 100 and your edge is 1.

Positive edge is necessary but not sufficient. Three reasons a positive-EV trade can still be wrong: the size may risk ruin; your edge is an estimate with error, and edges computed from small samples are especially suspect; and adverse selection means realised edge is systematically worse than calculated edge.

The useful comparison is edge per unit of risk, not raw edge - which is why a market maker prefers thousands of small edges to a few large bets.

Full guide

Edge and Expected Value in Trading

What traders mean by edge, how it relates to expected value, and why a positive-EV trade can still be a bad trade.

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