Do you tell people you're a trader?

[I Missed Boat]

Quote from flat5:

You can't escape zero-sum no matter how you shuffle the money around in a market, nor who's it is, nor who is doing the trading. There's nothing circular about that.

That's like saying if someone stakes me and I win them money in the poker game, I am providing them with a service. Sure, and I've also provided someone else with an equal and opposite disservice.

Entertainment Value?

 

[I Missed Boat]

Quote from flat5:

The general public typically buys and holds, or trades infrequently enough that they don't particularly need liquidity nor low commissions.

If you take the conventional wisdom of the day, the public should be buying and holding an index for decades.

Trading facilitates other traders, just like you have to have other poker players to get the game going. But I find that to be circular to claim that that is a "service."

I'm sorry, but that's crap. Big spreads and liquidity add up quite a lot. If numerous consumers want to exit, there is not much liquidity, they are probably going to get hit much harder in their sale. And with no liqudity, spreads can be 30 cents. In a $30 stock that is 1% right off the investment. That doesn't matter? C'mon buddy, be serious! And then when you add up all the small savings for retirement funds and mutual funds, it is substantial.

 

[I Missed Boat]

Quote from flat5:

Name one. Seriously. Maybe there's one I don't know about.

I did (liquidity, tighter spreads, lower commissions), and only below did you address it (and poorly I might add).

 

[Hydroblunt]

Quote from flat5:

I'm not trolling. If someone can specifically refute something I've said, please do so.

I'm no expert on markets and I could be wrong in the way I'm viewing them as basically a big poker game.

But you aren't going to convince me of that by putting up a bunch of goofy smilies.

If you're not trolling, then:

A) You got seriously burned in the market and have a HUGE grudge against traders or anyone involved professionally with the market

B) You are mentally handicapped

I'm going to attempt to answer your idiotic "argument", well if you ever fix your selective reading problem. Trading is speculating and speculation is one of the oldest professions throughot human's history. Speculators are vital to any functioning market since they provide liquidity and make markets more efficient. Without traders (otherwise known as gamblers by you), where would today's stock markets be? Most of the volume in today's markets are performed by short term traders. Take out all speculators from the picture and there would barely a market left for the average investor. Just occasional big blocks going off.
Also, the day trading industry provides a good chunk of jobs through the support functions of clearing firms. I truthfully doubt that the tech support guys in my office are upset that "gamblers" which do nothing productive provide jobs in an industy that has had rough times for almost 5 years.

 

[flat5]

Quote from I Missed Boat:

I'm sorry, but that's crap. Big spreads and liquidity add up quite a lot. If numerous consumers want to exit, there is not much liquidity, they are probably going to get hit much harder in their sale. And with no liqudity, spreads can be 30 cents. In a $30 stock that is 1% right off the investment. That doesn't matter? C'mon buddy, be serious!

Compared to what? People have been getting hit with 6% or more commissions in real estate forever, and yet the real estate market seems to continue functioning. 1% transaction cost is a bargain, depending on your comparison point.

 

[flat5]

Quote from Hydroblunt:

If you're not trolling, then:


A) You got seriously burned in the market and have a HUGE grudge against traders or anyone involved professionally with the market

B) You are mentally handicapped

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.

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.

I'm going to attempt to answer your idiotic "argument",

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.

Trading is speculating and speculation is one of the oldest professions throughot human's history.

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."

Speculators are vital to any functioning market since they provide liquidity and make markets more efficient.

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.

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

Without traders (otherwise known as gamblers by you), where would today's stock markets be?

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.

Most of the volume in today's markets are performed by short term traders. Take out all speculators from the picture and there would barely a market left for the average investor.

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.

Also, the day trading industry provides a good chunk of jobs through the support functions of clearing firms. I truthfully doubt that the tech support guys in my office are upset that "gamblers" which do nothing productive provide jobs in an industy that has had rough times for almost 5 years. [/B]

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?

 

[nicholaf]

Quote from flat5:

Because it isn't productive. It's a way to take money from somebody else's pocket and put it in yours, but accomplish nothing in the process, much like shuffling cards around on a table in a poker game.

i think your logic in trading is flawed. there is value added in trading even when there is a zero sum game. take for example a vanilla fixed for floating interest rate swap. at the outset, both the fixed and the floating sides have a value equal to each other based on the cash flows of the notional amounts. therefore, a zero sum game. However, what in reality is happening is that there is risk transfer between the two parties. imagine a bank has too many deposits (floating rate payments) and too little loans (fixed rate reciepts). they would want to hedge away the interest rate risk. thus they enter into a swap.

now a trader, by executing this in the structure credit derivatives desk arguably just matches up this bank and another institution that wants the reverse. so this is a zero sum game. however, there is value added because risk is hedged away. thus there is value creation and the trader by enabling this transaction gets his fee.


People have more respect for people who earn their money by producing something in an exchange that is not zero sum.

as in the above, this is zero sum. but there is value creation. a paradox?

I think that's the root of it, and it's not particularly irrational.

thus trading is not gambling...

 

[nicholaf]

Quote from flat5:

No, that's your assumption.

What I don't have is some fantasy that trading is something other than a purely selfish pursuit to take money from others' pockets and put it in my own. Nor do I have any illusions that that is the core reason why people often receive it poorly.

It's quite similar to the shell game played on the street. People think of that as a con man activity. Don't you think the shell game con man justifies his activity by saying "people are entertained by this, I'm providing a service." Of course he does. But people still think it's a con and not a legitimate business.

After all, you could be a teacher, or a doctor, or a policeman, and help others in the process of earning a living, rather than simply taking people's money.

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. if you read hull or some other intro to the derivatives markets, speculators do provide a service for trying to gain money. it is legitamate in the sense that it enables sophisticated investors to customize a portfolio of securities that creates their ideal payoff with their ideal risk/reward characteristics. granted that not all investors are sohpisticated, but this is the idea of complete markets, ala your intro to invcestments textbook (bodie will be a good start). so i think your perception is a bit naive.

 

[flat5]

Quote from nicholaf:
as in the above, this is zero sum. but there is value creation. a paradox?

thus trading is not gambling...

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.

 

[nicholaf]

Quote from flat5:

Agree with your first assertion. Also agree that people work to make money. However, you guys are pretty funny in the way you (collectively, not necessarily you) dismiss out hand the notion that anyone looks to get something more than money out of their work. You can tell a lot about people by what they assume about others.

A great many people get satisfaction out of the productiveness of their careers, whether it be creating art that others can enjoy, or teaching a subject that helps someone live a better life, or treating illnesses, or what have you.

The idea that there is no such thing as a noble profession that creates a greater good, other than simply a zero-sum wealth transfer is an insidious lie. Period.

i think what you are missing is that the act of wealth transfer in itself is a vehicle to improve the efficiency of the financial system. take for example IPOs. arguably, the institutions who buy the newly issued stock from the i-banks are entering into a zero sum game with the firm. however, by the act of their participation in the IPO, wealth is distributed and the firm can proceed to invest with their newly raised money from their public offering. take for example a farmer. he shorts corn futures so he can hedge. the speculator on the other side takes the risk in the hope for gain. in his very act of selfish interest, he has provided a value of risk transfer. the value is in the risk transfer that you cannot value plainly