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Inverse correlation between school education and trading?
I have seen many good traders with little or no college education while graduates from top colleges who cannot even make a single cent from trading (not talking about algo traders though). So my question is, if you decide to make a career out of trading, you should just stay at home and practice trading instead of going to college? What do you think?
Can you help answer these questions from other members on NexusFi?
Why not make the best of both worlds? Just carry a laptop with you to school with a perpetual demo account and while learning about "Efficient Market Theory" you can sim different market scenarios. When you graduate you will have demo experience and school experience. On your first interview bring the laptop to show the recruiter how you made 35,000,000 without one losing trade. In the event you are asked "where do you see yourself in 5 years?" Just tell him/her that by them you will be ready to go live trading.
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This may seem true to an extent, but what really is happening is usually people who trade are self motivated and either skipped the opportunity to go to college for something else or just never had it altogether. I talk to people with doctorate degrees all the time who are dumb as bricks. Maybe the people who trade after having an education were stupid to begin with so they turned to trading as an alternative because they couldn't excel in their own career they went to college for.
Nonetheless, There are a lot of variables that could influence this situation. Trading requires a certain amount of logic, but the majority of the art is psychological discipline, not all analytic ability. Often times the over analytic side of a person will interfere with the trader's success.
I'd suggest to at least get a BA to have something to fall back on. Trading will never go away, but you might get too old to have the motivation to go back to school.
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I don't think there is any correlation between education level and trading success whatsoever. I also believe that if one wants to learn to trade... college is not nessisarily the place to be. Trading requires basic math skills yes, and a degree of logic, but we all (hopefully) learned this in grade school. After that, it is about understanding how you and your psyche best approach the market.
Maybe those go went to college are just fed up with learning and are not patient enough to get live and successful thinking they know everything they need thanks to their high education.
Those who did not go use this opportunity to experience what they missed
The history behind perhaps the greatest formula ever created in finance: the Black-Scholes-Merton options pricing model. Two of its creators were awarded the Nobel Prize in Economics in 1997. A year later their hedge fund Long Term Capital Management (LTCM) had collapsed with staggering losses of $100 billion due to significant leverage of the strategy.
The Black-Scholes Formula was derived by observing that an investor can precisely replicate the payoff to a call option by buying the underlying stock and financing part of the stock purchase by borrowing. Only five variables were needed: the price of the stock; the exercise price of the option; the risk-free interest rate; and the time to maturity of the option. The only unobservable is the volatility of the underlying stock price.
The main problem with the framework (which assumes the ability to use risk-free arbitrage and dynamic hedging in continuous time) is that it doesn't consider how a change in market dynamics (specifically liquidity risk and default) can affect overall market sentiment. This means the prices of assets can in some extreme cases depart from what the formula says should hold. LTCM was brave and took a contrarian view. It borrowed even more in the face of the perceived profitable outcome. Instead the reverse happened (things just kept getting worse day after day).
Really ironic here, I spent so much time and effort trying to get good grades and all to go to good college, and then end up doing something which does not need a college degree at all..
Imagine the amount of trading practice one can get with the savings in school fees! haha
Personal observations and experiences usually dont make for good statistical data. The thing is, most traders are not "retail" in any sense. Most traders are the ones you find at big banks, hedgefunds etc, which make up 99% of the activity in the financial markets. Nearly all of these have some formal college education.
