I am a new trader who has been trading in the green for about a month now. I believe I have a solid understanding of this game's fundamentals, different views that people have on what function the markets provide. We are buying and selling fictional assets that have no inherent value except the psychological value people place in it, based on the corresponding psychological price levels we give importance to depending on the numbers that we interpret from the availability of fundamental resources to drive *hopefully growing demand. On one level, investors provide capital to finance ventures to accrue more resources(oil, gold, commodities in general)-which build infrastructure and allow for more specialization(through diverse specialized companies)towards the optimization of our resource gathering/efficiency. On another level, traders speculate and drive prices within certain "projection zones"-which may or may not have a fundamental basis as it is a PROJECTION on continued growth, or decline. Bubbles could not happen if this was not the case.
Now the industry itself: as I understand it, the industry does NOT have my best interests at heart. Brokerages make money off of commission and sell/use retail information they gather. Institutions take advantage of information edge, news driving and large capital to mow down retailers. High frequency traders try to scalp everyone...
This led me to adopt a psychology of "being a market sociopath". I had to accept the fact that for me to make money, someone out there was "losing money". I thought that most successful traders were "tricking" their morality in order to make money.
But this, as it turns out, is a path to loading yourself down with guilt over taking profit lol. Upon further reflection, I realized that anybody who enters the market is essentially a gambler. Once that money leaves their pocket and is in the market-it's no longer any individual's money. It is the markets money, and being made up of all our psychologies/fears/greeds-it will do what it does. I am merely an account operator who lends money to gamblers to play the game they love. Anything I'm missing?
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@dark pool: I like your post and I think you are mostly rright.
Traders are not allowed to print money, so if you wish to make a living from trading, you need to transfer OPM (other people's money) to your own pocket. You don't need to feel guilt, if you make profits. Your profits come at a risk, which is the risk of losing your own money.
And yes, I agree with some of your conclusions:
-> Trading is a variation of gambling: Professional gamblers only play, when they have an edge. You have an edge, when the expectancy of your returns is positive.
-> Trading is essentially a zero sum game, with commissions, slippage and operational cost deducted afterwards. This means that the expectancy for all traders is negative.
-> There is a huge industry selling mostly useless, sometimes useful services to traders. The expectancy for the industry is positive.
-> As with the gambling industry traders do not only want to make money. They also seek thrill, entertainment and ego boosting.
Society has developed various ways of recycling money. One is taxation. Trading and gambling is different from taxation because it does not serve any purposes other than self-enrichment or entertainment. And the participation is not mandatory. If you feel guilt, or if you don't like it you can stay off trading and spend your spare-time otherwise. You can invest your money in collecting stamps or doing other crazy things...
Last edited by Fat Tails; March 27th, 2015 at 09:39 PM.
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Hah, I actually left the banking industry back in 2007 because I couldn't lie to people's faces anymore. This was before the crash obviously, so I'd like to think I called that. :P National City(bank I used to work for)got reamed proper, and I had the last laugh. Trading for myself is vastly different-I do not have to lie to people, I just have to see through their intentions. It actually helps that I know that everyone is out to get me because it lets me perform free of unnecessary emotion. I've also been educating myself further on what it is exactly the Federal Reserve does...for so long I'd accepted the banker's gospel that I'd forgotten to think for myself. The results...are quite disturbing to say the least lol.
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Contrary to @Fat Tails, I disagree with most of what you've said.
That's not true. Electronic market makers are only competing to offer a better price than the next market maker. This means on a whole, all market makers make less and less money over time. Goldman used to make to the tune of $3 billion a year in this business of market making. Now by some estimates, the *entire* electronic market making industry makes $3 billion per year.
It's like how the invention of the internet has helped bring down insurance premiums because now insurance providers have to be more competitive as their pricing becomes more public and transparent. The winners are the users of this risk transfer mechanism, which include retail traders.
What worries me *slightly* about this is not the presence of electronic market makers, but rather that we have too few electronic market makers. We've seen 3 major electronic market makers disappear in the last 3 years. Today, essentially 4 firms trade against almost everyone else in the equity options market. That's like walking down the street and only having a choice of eating from McDonalds, Taco Bell, KFC or Burger King.
I suppose you are referring to derivatives when you speak of 'fictional assets'. There's nothing fictional about, say, a futures contract in orange juice. If you held it to delivery, you'd see your orange juice in storage facility. That seems to me the same as signing a contract to buy a house, seeing numbers in your bank account or accrual-based accounting. (In accrual-based accounting, your cash 'assets' decrease when you receive a piece of paper demanding for your money.)
Sure there's a metaphysical argument to be made that no one should be giving you a bag of fruit just because you reduced some numbers in your bank account statement, but that has the same level of philosophical circularity as saying that we don't need to wear clothes in public because nudity is a fictional invention of mankind.
A significant portion of people use the markets for good reason. To invest their retirement assets to overcome inflation risk; to protect their manufacturing or agricultural business from price fluctuations; to ensure they can deliver on a production contract that they had with another company. Risk doesn't go away, it can only be transferred from one party to another. Quite on the contrary, from your description, you're the one who's borrowing money from brokerages.
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I was making it too personal. I've adjusted my relative reality to see that anyone who puts their money into the market is putting a mark on their back. Anyone who believes that the monetary system is stable and valued properly-has a mark on their back. The warnings are all there, and I don't have to sell anything lol.
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So what you're saying is the industry out-botted itself, that a flash freeze won't destroy the entire orange crop and that the Federal Reserve doesn't simply take loans out against itself, then have the American tax payer pay for it. About right?