Do you tell people you're a trader?

[flat5]

Quote from nicholaf:

i disagree that trading in a futures market or any other zero sum game market is equivalent to taking money from other people. what if the counterparty's goal was not to speculate? they just want to hedge their position. yes, the bottom line is that wealth is transferred, but there is value added to all of this... so i think your perception is a bit naive.

I would agree on the whole, as I just wrote.

I'd add that the original post was about how laypeople perceive what traders do (and the implications for telling people that's what you do), so there may be some value-added here in how to express oneself to a layperson to allay their reservations. Insults probably aren't the right approach, but a concise expression of the paradoxical "value" gained by the "losing party" like yours probably is.

I won't pretend that I didn't gain a helpful perspective by hashing this out with those who were willing to approach the topic in a mature fashion. I appreciate your comments.

 

[nicholaf]

Quote from flat5:

If this is a display of the critical thinking skills of the average trader, I like my odds in this game.

I've never been burned in any market nor am I mentally handicapped. I have an advanced degree from an Ivy in a quantitative subject.

what subject? i was in wharton undergrad, financial engineering at iit and am now in gsb for mba.

Also, I get called an idiot, a moron, and worse about 50 times a day, literally. The forcefulness with which I get berated for being a moron correlates quite nicely with how quickly I am emptying the person's pockets. So, I don't bruise easily, and you might as well save the insults and try to use reason instead.

You'd do well to express what argument you're addressing first.

My main argument is that people may react negatively to trading as a profession because they see it as non-productive and/or predatory, and that this is not particularly irrational because that is indeed the inescapable nature of zero-sum games.

That people are getting upset and defensive about this is really perplexing. It seems relatively obvious and I wouldn't think it would be particularly controversial.

you've got to realize you're attacking their profession. anybody with any feelings with feel animosity towards that. dude, you know, trading in the derivatives markets, just because they are zero sum games doesn't automatically make traders not respected.

the general population is risk averse, and when people spend their time at home or at an office doing "risky" stuff, they are characterized negatively. maybe because they don't dress well or whatever, but because they don't go to work, do the normal things it makes them stand out and people generally don't like people who stand out.

Did I say it was new? Why did you think it was relevant to point out the age of the profession? Do you think people are going to respect a profession based on its longevity? I think the answer to that is clear, considering how most view the "oldest profession."




That's of course a true statement. However, it is also a true statement that gamblers are necessary to the functioning of a poker game, since they provide the action and employ the dealers. However, neither statement says anything about the productivity associated with running the game in the first place. I can give you all kinds of descriptions of how the players can change the nature of the game, which is what almost all of the attempted refutations of what I'm saying have attempted to do: liquidity, spreads, etc. However, none of this is relevant to the idea that at the end of the day, what has happened is that some wealth was transferred and nothing was gained on the net.

as i said before, just because this is a zero sum game doesn't mean that there is no value created. risk transfer is a huge thing you missed.

I think there's one reasonable way to refute this, which I point out below.



Let's clear up one thing. I am talking about irrefutably zero-sum markets such as commodities or financial futures.

Stock markets have additional dimensions which create a whole slew of new considerations. I'm not directing my comments towards non zero-sum markets.

i'mjust curious why you don't view stock traders with such disdain as futures or options traders. they are speculating just the same. just because that the market is not zero sum? that is not valid. zero sum by definition allows extremely effective risk transfer. you can't say that about stocks. in fact, it is impossible to hedge using equiyt only, even if you are "equity market neutral" becuase even if the betas match, you are dollar neutral, the price of stock a will never move in such a way to perfectly hedge stock b.

thus there is value in such a perfect risk transfer. a corporate finance guy will probably tell you more about how hedging using options will enable a company to pursue investment opportunities even when their cash is limited in a downturn of thier business.

Take all the professional gamblers out of the poker games and there would be no games left for the recreational players.

Do you see the irrelevancy of what you're saying? The "average investor" in a zero-sum market is going to lose. You're not doing him any favors by giving him a market to participate in, in the first place.

why does this apply only to zero sum game markets? average investors lose in the stock market.

I truthfully doubt that the poker dealers are upset that there is a poker boom in the past couple years, either. It's of course also irrelevant. None of this makes playing poker a productive activity, nor does employing people who make money off day traders make day trading a productive activity.

There's really one reasonable answer for some markets and I'm surprised no one has offered it.

In the case of commodities, the speculators do offer the hedgers a service by absorbing their risk for a price. The hedgers can benefit from a "loss" from the resulting stability they've gained that has other benefits for their business.

Was that so difficult?

oops, after posting all of that you said it in the last sentence

 

[nicholaf]

Quote from flat5:

I think we crossed in recent posts (you'll see I said basically the same in my last post): I agree with the risk transferrance interpretation of value creation and accept that as a valid refutation of the "zero sum can't be productive" viewpoint.

However, your next sentence is a non-sequitur. I still think it's gambling. I also think getting into your car and driving to the store is a gamble, and don't think having a further semantics argument about what constitutes gambling would be productive.

wow you are fast in replying. haha

yeah we crossed posts..

i would say gambling is putting a bet in a game that you know the odds are against you in the hope of a huge payoff that has a negative expected value.

this would differ from trading strategies that are backtested and show a positive expected value with a statiscial edge.

edit: hmmm i just re-read your post and you said it would not be productive to argue what is gambling... oh well.

 

[nicholaf]

Quote from flat5:

I would agree on the whole, as I just wrote.

I'd add that the original post was about how laypeople perceive what traders do (and the implications for telling people that's what you do), so there may be some value-added here in how to express oneself to a layperson to allay their reservations. Insults probably aren't the right approach, but a concise expression of the paradoxical "value" gained by the "losing party" like yours probably is.

I won't pretend that I didn't gain a helpful perspective by hashing this out with those who were willing to approach the topic in a mature fashion. I appreciate your comments.

to a layperson, a trader is looked down upon because success is measured differently. to the layperson, climbing the corporate ladder and getting a title or something embedded in our culture. however, to a trader, success is bottom line. to me, success is to have a sharpe ratio >2

glad to have someone like you on this board.

 

[flat5]

Quote from nicholaf:

what subject? i was in wharton undergrad, financial engineering at iit and am now in gsb for mba.

PhD, applied math. Numerics for partial differential equations. Applications in computational physics.

oops, after posting all of that you said it in the last sentence

Yeah, I think we're on the same page. You're a breath of fresh air in this thread. Thanks for putting up with my naivete.

 

[flat5]

i would say gambling is putting a bet in a game that you know the odds are against you in the hope of a huge payoff that has a negative expected value.

this would differ from trading strategies that are backtested and show a positive expected value with a statiscial edge.

The sign of the expectation of a bet is one way to look at it, but I don't think it's the common view. I play irrefutably positive expectation poker and I'll be damned if I can convince even a few people that it's not gambling.

Keeping it in quantitative terms but trying to match that up to how people "feel" about it, I think it has more to do with the magnitude of the "risk of ruin," (suitably defined) which of course still exists for positive expectation bets, and is a function not only of expectation but also the ratio of bet size and bankroll, as we call it in the gambling world. I believe you call that "money management."

I think people associate gambling with any activity with a significant risk of ruin, even if it has positive expectation. If I can bet $1 to win $100 on 1:98 odds, and have a $3 bankroll to work from, I think most people would think of that as gambling, even though the expectation of each bet is positive. Because I'm very likely to go belly up if I play the game.

 

[nicholaf]

Quote from flat5:

The sign of the expectation of a bet is one way to look at it, but I don't think it's the common view. I play irrefutably positive expectation poker and I'll be damned if I can convince even a few people that it's not gambling.

Keeping it in quantitative terms but trying to match that up to how people "feel" about it, I think it has more to do with the magnitude of the "risk of ruin," (suitably defined) which of course still exists for positive expectation bets, and is a function not only of expectation but also the ratio of bet size and bankroll, as we call it in the gambling world. I believe you call that "money management."

I think people associate gambling with any activity with a significant risk of ruin, even if it has positive expectation. If I can bet $1 to win $100 on 1:98 odds, and have a $3 bankroll to work from, I think most people would think of that as gambling, even though the expectation of each bet is positive. Because I'm very likely to go belly up if I play the game.

that's an interesting point. come to think of it, it may well sum up what laypeople would view as gambling. the very possibility that there is a large loss will constitute gambling, as the average person is risk averse.

true, money management is a critical factor not in itself, but as a function to enable us to take on positive expectation bets when they occur.

you must play 1 mean hand in poker. heh

 

[Everest]

Quote from flat5:

PhD, applied math. Numerics for partial differential equations. Applications in computational physics.



.

and still a f***ing idiot.

there can little hope

 

[science_trader]

Quote from Everest:

and still a f***ing idiot.

there can little hope

Couldn't say it better....

flat5, if you really do have that level, then do a search for 'Minority Game' on the net. Read a little and you'll discover what has been found and proved. From a toy market like this one, which displays stylized facts comparable to real markets, it is shown that speculators are a necessary group in a market.

http://arxiv.org/abs/cond-mat/9909265
http://arxiv.org/abs/cond-mat/0101326
http://arxiv.org/abs/cond-mat/0103024

 

[flat5]

Quote from Everest:

and still a f***ing idiot.

there can little hope

Define "f***ing idiot" and I might even agree with you for a suitable definition (although I'm probably giving you too much credit, and should consider your post an emotional epileptic fit.)

However, "there can little hope" is not a sentence in the English language.