As a counterpoint I work in finance and work with a group of smart people that all check their egos in at the door. It's a great place to work. We also try to turn money into more money, it's pretty much the game of life whether you play it or not. It pays really well so I can't complain.
Is the job fulfilling? Depends on your goals - for me I've gained a huge knowledge of low level programming, and front line experience on how far one can go with both software and hardware to 'win' against other competitors in the space. That's invaluable stuff for me.
Is the job moral? Anyone who puts their money on the line knows the risks, this isn't stealing from the poor. People who invest must understand risk, and risk is really the only way things move forward in the first place. But it also implies there can and will be people who lose out.
For instance, when trading in commodities like grain, and deploying a strategy to push the price up over a long time period (whether or not it's a single entity doing so or all traders in unison), people somewhere in the world aren't able to buy that grain and go hungry.
Same with all the foodstuffs. But what about other stuff, metals? What happens if you drive those prices up? Well, again, somewhere in the world some poor chap now cannot afford the metal roof sheet that goes on top of his shed, and he'll sleep under the stars.
I think most if not all finance trading negatively impacts the people that are too poor to even dream about finance trading. When there's a buck to be made in finance, there's always a sucker paying for it. Somewhere along the line that sucker becomes someone who isn't even in the whole financial trading circus, and he'll in the end foot the bill. It must be this way, because the financial industry itself doesn't produce or increase the value of things, it just manipulates the price tags.
The big players used to corner small markets which then led to extreme blowouts. It doesn't happen as much now as there are tighter regulations on max position sizes and the volumes are higher.
Significantly influencing the price of a commodity with liquid markets, such as corn or soybeans is pretty much impossible unless you're acting on behalf of a country or are able to control weather. The existence of liquid markets is beneficial for the producers and consumers as the price volatility is reduced and hedging becomes easier. I like to showcase the effect of information on price with the example of fish price in Kerala before and after the introduction of mobile phones to fishermen[1].
The financial world is evolving very quickly with various participants driven by different goals pulling the rug in opposite directions which theoretically should reduce volatility and spreads. However, when people get greedy - and there's a lot of that in finance - bad things happen, e.g. see the natural gas last week[2].
> The existence of liquid markets is beneficial for the producers and consumers as the price volatility is reduced and hedging becomes easier.
Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue.
I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can afford, today and tomorrow, not bankrupting me in the process. When you're hungry you really don't care about all the financial jargon. You care about price.
Traders cannot make a profit if they don't manipulate the price. Simple, if a trader always sold for the same price he bought for he wouldn't make any money. So price goes up, trader has profited from the grain I eat, and has taken a few cents out of my pocket. And I don't even trade. I just live on a dollar day in a shithole somewhere.
If everybody bought just the grain they needed to eat, and every grain producer simply put their product on the market for people to buy, without a "liquid global market" and price index, without traders in the middle wanting to profit from it, my food would be affordable. But because the market bets on a price rise in the future, even though the bad weather hasn't materialized yet, my food is unaffordable.
In financial, when someone profits, someone hurts. And the one that hurts is almost always not even in the game.
> Significantly influencing the price of a commodity [...] is pretty much impossible unless you're acting on behalf of a country or are able to control weather.
No. A market can do that by itself. It's what all those terms bullish and bearish and stuff are for. Markets can drive up commodity prices like a rocket. Bad weather coming? "Let's buy all the grain everybody! Guaranteed profit! Just ignore the starving people over there, they'll go away fast enough." And buy the way, all those think tanks and the pentagon predicting a shortage of every natural resource in the near future, that's not going to influence the price at all, right? Great example of how a country manipulates commodity prices btw.
Financial trade is just people profiting from people who are worse off to begin with. And don't start about how nowadays regulations are much tighter and all that, it's just not true. Everybody always says that in times when stuff is stable, but as soon as something big happens everybody starts the "nobody could have forseen this" dance followed by the too-big-to-fail entities being saved by the govt and the bill footed to the people.
> Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue.
I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can afford, today and tomorrow, not bankrupting me in the process.
I think you two are talking about different things. The comment you're responding to is talking about the price discovery and liquidity facilitated through trading. You're (correct me if I'm wrong) talking about how physical commodities are treated as abstractions, which doesn't help e.g. a farmer.
But it does help producers of commodities - they can hedge against (for example) crop failures. And it helps consumers by driving down the price and making the price more predictable. Futures in particular are very helpful for producers.
This is obviously not a perfect process. But I think it's really unfair to call it a fairy tale, or to say that traders are manipulating the price. In an abstract or purely literal sense they are; but in the malicious, legal sense of markets they are not (at least not in the aggregate).
With respect, your last paragraph sounds like an oft-repeated narrative about the financial industry which - though it has kernels of truth - does not charitably reflect the full picture. Finance is not an unmitigated good, but comments like yours which present it as an unmitigated bad are also off the mark.
This is the whole problem in a nutshell. People spinning a fairy tale about "price discovery" or "liquidity" or "abstractions" like it represents something real, and not something specifically so because of how we implemented our financial system, or terminology specifically invented to create that system.
Posing those things as separate, saying "price discovery" and "liquidity" are different from "how physical commodities are treated as abstractions" is just muddying the waters. They're part of the same slang of the system.
The farmer doesn't care if somebody plays Farmville and treats in game abstractions as though they were his real physical produce. Who cares.
But the farmer does care when a lot of people trade in what he produces, and all those traders act like they're playing f-ing Farmville with virtual goods. In reality that trading influences the price the farmer gets paid and the price the consumer has to pay. Big time. Tell me again how it's just an abstraction. The supermarket doesn't accept my abstract money unfortunately.
That farmer worked hard for that grain you know, why do you think it's suddenly morally okay if you tell yourself nice stories about "liquidity" and "abstractions" and "price discovery" while you just want to make a buck on the farmers grain without putting in the labour yourself.
I don't give a hoot that you tell yourself that you're trading in an abstraction of grain to make yourself feel good about your actions. I just see the price of grain go up and my family going hungry, despite the fact that traders keep telling themselves it's all "funny goods that don't really exist"
> But it does help producers of commodities - they can hedge against (for example) crop failures.
I can see how it does, but honestly, that's one of the worst solutions to that problem. I think crop failure is a problem for everyone not just the farmer (we all have to eat, right?), so a solution that involves everyone instead of letting the farmer fend for himself would be preferable, because when the guy needs to fend for himself he'll fall prey to someone offering him a very volatile, hedged, and abstract "solution" to his problems.
A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add.
With respect, your last paragraph sounds like you get tired of the argument, but, respectfully, you don't give me any reason not to believe "finance" in it's current form is one of the most evil thing humanity has ever come up with.
The futures market comes from the fact that some people are trading actual beans by growing, selling, shipping, buying, or cooking them.
They are typically willing to pay for price insurance to reduce their financial risk. (that could close your factory because of the weather, etc)
(If they trade with other countries they are typically also willing to pay for currency insurance)
At that point a secondary market emerges with arbitrages between different market and points in time.
So far this is to the benefit of everyone. Farmers and Buyers get more stable prices.
This secondary market pins into tertiary markets where you can try to outsmart other players, and to the extent that manipulation is possible it will push back into the primary price or more probable the "insurance" cost. This cost is paid by Joe Random.
This is probably not beneficial but unavoidable and acceptable for having access to price insurance.
Note: I am not a finance person, so please correct me if I'm misunderstanding something.
My understanding is that in futures markets, you make money by predicting what the price of something will be at a time in the future.
Let's say you know of a new battery technology that is much more efficient than anything we have today. Let's further say that this type of battery uses a lot of copper. You think that this will massively increase the amount of copper needed.
In this case, you buy a future (enter a contract) saying you will buy 250,000 tons of copper in January 2020 for $3.20 / lb (which is considerably higher than the price of copper today). Someone with a copper mine can take the other side of that contract and expand their operation (buy equipment, hire workers), knowing that in January of 2020 they will be able to sell that copper at a higher price, and expand their operations.
If the price of copper goes up, in 2020 you buy all of that copper from the mine, resell it, and make a ton of money. The owner of the mine makes a modest profit.
If the price of copper goes down, in 2020 _you still have to buy all of that copper from the mine_, and you lose a ton of money. The owner of the mine makes a modest profit.
You will only enter into such a contract if you have (or think you have) information that the person you are making a contract with does not have, thus allowing them to act on that information sooner and without risk. If your information is wrong, you are the person who loses out, not the person you contracted with, so you're taking on all of the risk for some of the possible benefits.
> A simple granary (sized to community) and enough cash to resow next year is usually enough. No virtual, hedged, liquid or funny stuff needed. It's as old as the hills as well, failing crops have been dealt with by humanity successfully in many civilizations through out history. Without a financial system that requires the farmer to bet on the price of grain next year, I might add.
If you know that the crops are likely to fail, you can buy futures in grain. It's the ultimate "put your money where your mouth is". If you buy grain futures, you are saying "There will be a crop failure. Plant more grain. I will cover the downside if I'm wrong." Thus you make the crop failure less impactful by prompting action earlier.
I agree that a simple granary is _usually_ enough. But a simple granary plus a futures market will be enough even more often.
Are you saying the financial system is why we've moved away from subsistence farming, and that this is a bad thing? I'm having a hard time figuring out what, exactly, the world you'd prefer would look like.
This position is further supported by the reality of real estate speculation: in London, in Silicon Valley, you can count the housing units that are owned by extremely wealthy capital holders, and kept empty because the increase in value will exceed any profits taken from filling them (minus the costs of maintaining them).
That's the market actively destroying the fundamental purpose of a good because the dynamics of its value are able to bring more profit than using the good for its existential purpose. If that can happen to housing, it can happen to anything. BurnGpuBurn is absolutely correct here.
Real estate is rather different from the commodities markets, though: It's most definitely not a commodity (if you don't count things like mortgage-backed securities, anyway), and the markets are frighteningly illiquid. There are things like futures and options on real estate, but they operate very differently from your average put on hard white winter wheat.
There's an argument, not entirely (as far as I can tell) unreasonable, that at least some trading firms - the market makers - are benefitting the small folks in these markets. The argument goes that they do siphon profits out of the market, but it's mostly the profits of other financial firms. What they're ultimately nabbing is profits that come from information asymmetry, and that asymmetry usually benefits hedge funds more than farmers. So hedge funds make less money, yeah, but the impact on farmers is greater price stability, which is a benefit to them.
By extension, the implication is that, when hedge fund managers complain loudly about high frequency trading, it's crocodile tears.
And the irony is these bubble markets invariably collapse, because speculation is not a good foundation for sustainable profit.
The opportunity costs of prioritising the financial industry over other activities are almost incalculably huge. Bubbles aren't the only problem. The industry has cannibalised top talent and kept it from working on useful problems, which has created a huge deficit in future potential.
> If everybody bought just the grain they needed to eat, and every grain producer simply put their product on the market for people to buy, without a "liquid global market" and price index, without traders in the middle wanting to profit from it, my food would be affordable
This is false.
Commodities futures markets exist precisely so the price of bread stays stable and relatively risk-free for a year at a time. The big players are not traders - they are companies that work in grain, use grain, produce grain, etc.
As for markets creating money by driving up prices - this doesn't really happen. You can make money when prices go up or down, and nobody really has the size or the stomach to try and corner a market (which is also illegal). Typically these efforts fail miserably and lose the trader a lot of money.
Countries manipulating prices is a totally different matter, than "markets".
I'd think hard about it before you attack commodities markets as the enemy of food prices, and do a bit of digging as to the actual purpose of those markets.
Go ahead - sell a couple hundred thousand pounds of grain. "Simply" put it on the market... how do you do that reliably? How can you plan as a farmer ? Budget for seed, etc?
I think commodities futures markets exist so that the normal commodities markets don't screw everybody over too much.
You're totally right about there being a few big players in production and so on. That's part of the problem. Because every farmer has had to operate and compete in this insane globally connected commodities market, what we're left with now after decades is a few big players. That's what you get when a German farmer has to compete with the US farmer, the Chinese farmer, and the Russian farmer, all the others and vice versa. Everybody loses and gets bought up by the bigger fish. That's a symptom of this market though, not a cause. And in my eyes, it's not a very good symptom either.
> Go ahead - sell a couple hundred thousand pounds of grain. "Simply" put it on the market... how do you do that reliably? How can you plan as a farmer ? Budget for seed, etc?
Well, I wouldn't know how of course, but that's not the point. Humanity has done the grain thing successfully, on large scales and over long time periods, multiple times in the past. Without a commodities futures market to keep prices stable.
I'm just saying this isn't the only way to do trade, and in a lot of ways, it's a very bad way to do trade.
> Because every farmer has had to operate and compete in this insane globally connected commodities market, what we're left with now after decades is a few big players. That's what you get when a German farmer has to compete with the US farmer, the Chinese farmer, and the Russian farmer, all the others and vice versa.
I must confess to some confusion. I thought you wanted affordable food. Do you think that you'd get affordable food if you were only ever able to purchase from the providers in your immediate vicinity, who won't face price competition from farmers elsewhere who might be more efficient?
“Done the grain thing successfully” seems like an odd statement. I don’t know how successful we were at a secure supply chain for grain before national markets were established, but then again we also didn’t have the technology to enable anything but more local markets until the railroad crossed America.
As for competition internationally and “big fish” - I’d say that some of this is due to economies of scale in agriculture especially as automation reduces labor required per acre - but this is also other asymmetries and market factors. State subsidies is one huge factor that incentivizes owning land that doesn’t even produce. Further, as farmers retire their kids want less and less to do with ag and sell the land to bigger companies (or maybe to a housing developer).
I’m not saying “the market” is perfect but it didn’t necessarily get this way by accident either. It serves an important function across the board for all parties involved - including consumers.
While there is considerable truth to what you say, it's not the whole truth. Food is a bad example, anyway: it's cheaper now than it has ever been.
"If everybody bought just the grain they needed to eat, and every grain producer simply put their product on the market for people to buy, without a "liquid global market" and price index, without traders in the middle wanting to profit from it, my food would be affordable."
Well, yes, but the grain would be in Saskatchewan rotting and you'd be wherever you are starving.
Worldwide trade existed and worked quite well long before our current financial system. I don't get why on would believe that without Wall Street the world would stop to function. Part of the fairy tale I guess.
Traders typically provide two prices - the price they will buy at and the price they will sell at. Their profit comes from the spread between. A good trader does not care if the market moves up or down, they make their money on the spread, a trader typically wants as little inventory as possible.
The people who cause markets to move are not the traders, they are the people who buy from and sell to the traders.
> Traders cannot make a profit if they don't manipulate the price.
Traders aren't the only reason prices move.
Clearly a wide spread crop failure would also increase grain prices.
You can still make money as a trader if you do a better job at predicting such events than others.
A frictionless market with a lot of liquidity should (in theory) result in rapid, accurate and transparent price discovery, which in turn should result in more optimal asset allocation, which in turn should result in people being able to get what they want at a lower price.
In practice, many markets are far from frictionless, and far from liquid, and pricing far from transparent, which is where most (all?) of our problems come from.
The best (and most ironic) example comes from the financial services industry itself: Although markets are the daily bread of the industry, it is ironic that the market for financial services is opaque and noncompetitive. How else could such profits be sustained? How else could the two and twenty compensation convention survive, if it weren't for the fact that the industry acts as an unofficial cartel?
When we complain about financial services, we often forget that the rhetoric of many free-market neoliberals is pure hypocrisy: what they practice is 180 degrees apart from what they preach.
> Traders cannot make a profit if they don't manipulate the price.
Is that supposed to be obvious? It seems very not-obvious to me: e.g., if a trader has no ability at all to manipulate the price, but is able to predict future prices better than anyone else can, then they can make a shedload of money by doing it. (The market will respond to their trades, which I suppose is a kind of manipulation, but that reduces their ability to profit.)
Maybe it's true in practice that no one can actually make money by predicting future price movements better than other people do, and that the only way to succeed is market manipulation. If so, it would be nice to see some evidence.
(There are other options besides "win by manipulating markets" and "win by being good at predicting on account of being extra-smart": for instance, "win by being good at predicting by means of illegal insider trading". That has ethical problems of its own, but they're very different problems from those of market manipulation.)
If the market bets on future grain price increases and makes grain more expensive before the bad weather materializes then sure, that's bad for people trying to buy grain. (Though presumably it's good for farmers.) But that same process of prediction, at least if it works -- which presumably it does, somewhat, else no one would be trying to do it -- also means that once the bad weather does materialize the prices will be lower than they otherwise would have been, because the market can predict that the weather won't always be bad just as well as it can predict that the weather will be bad one day. So, at least when the market is doing what it's meant to, the highest grain prices get reduced and the lowest ones get increased. It's not obvious that that's bad for those not-even-in-the-game people.
(The market will make mistakes, sometimes big ones. In that case, grain may get super-expensive and people will suffer or even die. That's very bad. But it's not specifically a finance problem. Grain can get super-expensive because of mistakes made by farmers or meteorologists, too.)
> Financial trade is just people profiting from people who are worse off to begin with.
There's truth in that. But -- ignoring actual market manipulation, which I appreciate you regard as a major activity of the finance industry -- when someone makes a profit out of your being worse off, they make you better off in the process. Suppose some guy on Wall Street figures out that X is going to get more expensive. You own X but haven't figured it out because you don't have Wall Street's insider knowledge or supercomputers or whatever. So you sell X to Wall Street Guy, and X gets more expensive, and Wall Street Guy makes a profit that you missed out on. Sad. But Wall Street Guy didn't force you to make that trade! Presumably you sold X because you didn't want it any more, or you needed the money. Without Wall Street Guy in the picture, you'd have sold it anyway, and got (very slightly) less for it. So, sure, Wall Street Guy is better off, and you're sad that you missed out -- but you were always going to miss out, and you are a tiny bit better off because Wall Street Guy was there bidding against other people to buy X from you.
I dunno; maybe in practice Wall Street Guy has to do a load of much shadier stuff than merely predicting how the price of X is going to change, and maybe that ends up hurting you. Maybe in practice Wall Street Guy's attempts to react quickly to new information destabilizes things more than his ability to react quickly stabilizes them. But these seem like complicated questions whose answers need a deep examination of the world's financial systems, rather than pointing to a few specific cases where bad things happened and claiming that "traders can't make a profit if they don't manipulate the price".
By this logic, every commodity should only ever be sold at cost. Or, better, for free! Any price higher obviously means some poor person somewhere can't get as much as they need.
Now, this is obviously a silly hypothetical. Very few people are going to produce sheet metal for that poor chap if they can't cover their costs plus at least some profit, leading to nobody having any sheet metal. Now the whole world is worse off and lacking sheet metal, and for what?
Some things in the finance industry are valuable. Insurance and its ability to spread risks springs to mind readily. The joint stock company, and its ability to pool resources to grand ends, has unleashed incredible forces.
Investors also don't produce any value. They get to decide where value should be created. But take all the benefits from it. Other investors however are waiting to eat these investors.
I worked for the biggest market maker in Europe for three years, from 2008 through to 2011.
My experience disagrees with every statement you made, except the job fulfilling part.
Making markets does not add any value to anyone other than the marketmakers and the stock exchanges.
The only decent thing about those places is that they usually do not beat around the bush. "Does your idea help us be faster? Got proof? Go implement. Money is no objection."
Morals did not exist in that world when I was there.
What I was doing, was helping the 0.01% consolidate their power and wealth at the cost of all other living beings on this one habitable planet.
Then I stopped kidding myself and got out of my golden cage.
> Making markets does not add any value to anyone other than the marketmakers and the stock exchanges.
Could you elaborate on this statement? It is my understanding that the value market markers provide is liquidity and tighter spreads. Worst case, they pull orders when informed volume is detected, but then the book is no worse off than what it would be if the market makers weren't there.
Not OP, but I think of jobs like theirs as being about marginal utility - how much better off is the world if trades are executed .001 seconds faster? It seems that for a lot of jobs the answer is not at all.
Yes they provide liquidity. But that is not the reason traders become market makers.
The liquidity is something that the exchanges want so they can provide better services to their other users / customers.
What the market makers get in return is some privileges on the exchange, such as favorable credit exempts or short sale treatments. This depends on the exchange.
But being a marketmaker, basically obliging to be able to quote a price on anything and everything, is regarded as much as a nuisance as it is a benefit.
Liquidity reduces the cost of trading for everyone, which is something you can just empirically verify. What do we care what someone's motivation for doing it is? Presumably everyone's motivation in finance is to make money.
I don't want to just come out and say you're wrong bluntly but...well this debate has happened on HN many times. I'm a little shocked you worked in the industry and can seriously assert all marketing does is consolidate the power of the top n%. More than just about any other service in finance (except maybe credit/lending and consumer banking), market making drives prices down for everyone. It's a prime vehicle for delivering efficiency.
I can understand arguments that the work wasn't fulfilling, or you didn't enjoy your colleagues...but what you're saying seems to be incorrect, strictly speaking. Were you working in marketing making where most/all trades were OTC?
Well - ok - I may have overstated in that: Yes, market making provides more liquidity. Yes, it makes it more efficient. Yes, for everyone, not just the marketmakers and exchanges.
But no, this is not the reason marketmakers make markets.
They do this in order to make more profit.
The rest is a side effect that they happily spindoctor into their "raison d'etre".
The company I worked for is known for being the primary source of rich people in the Netherlands. And they keep getting richer. Very much the so-called 1%.
Optiver, I presume? I was almost lured into working for them too, being blinded by the high tech playground that it seemed to be. Regarding the adding value, they defend their right to exist as "because of us, instruments are priced properly everywhere and that's good for everyone", isn't it?
One of my ex was a commodity trader in another big player, Cargill. She was not the most moral being to start with (you simply can't be a successful moral trader, period), but even for her trading with edible commodities was the worst moral shithole - your success would easily help cause hundreds/thousands of deaths in some famine/disaster stricken place, usually in Africa.
She was in energy and oil instead - her success would mean that down the line, we all would pay up a bit for her success (selling expensively when demand was high). And also with oil, she would be trying to create as cheap gas/diesel from oil as possible (meaning passing regulations in some 3rd world country), it took her easily 10 fails to get just slightly above the (very low) bar. The result - engines destroyed over time with crappy fuel, environment polluted with less-than-ideal material burned. But nobody gave a nano-fraction of a fck, it was Africa.
Yeah, traders, they think super high about themselves, most are properly broken human beings, a pure net loss for humanity
I'm sure they do, and that's an axiomatic statement that can be horribly, catastrophically wrong but makes them feel better about their lives.
Never underestimate the very human emotional motivation of coming up with a pleasing rationalization. Just because someone earnestly says 'we are helping, so much!' doesn't mean they're correct.
To me this argument always came across as fabricated and empty.
I have seen too many examples internally at that place, where the (to me) obvious moral choice was neglected or even laughed at.
The "because of us, instruments are priced properly everywhere and that's good for everyone" is interesting.
Does that result solely exist because of us making a market? What is 'properly priced' exactly and why would it be a Bad Thing if it were less 'properly priced'? And why is this even a goal that should be pursued? And should that goal be pursued at all (and I do mean ALL) cost?
Those questions were never answered to my satisfaction.
Exactly, that was my experience too. People who were very capable of analytical rigor around cost/benefit tradeoffs suddenly became very handwavey when it came time to analyze whether the company generated enough social benefit to justify level of profit.
> Anyone who puts their money on the line knows the risks, this isn't stealing from the poor.
The problem here is that, for example, at least in the US, not everyone with a pension or who "contibutes" to a retirement plan is comfortable or even aware of the risks. That ignorance is not a defense, per-se, but if you've got blinders on that you're fleecing pennies off the already rich you are sorely mistaken.
I'd go so far as to argue that turning money into more money without providing a good or service in exchange is squarely immoral.
>There is one bit of advice given to us by the ancient heathen Greeks, and by the Jews in the Old Testament, and by the great Christian teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest: and lending money at interest — what we call investment — is the basis of our whole system. Now it may not absolutely follow that we are wrong. Some people say that when Moses and Aristotle and the Christians agreed in forbidding interest (or “usury” as they called it), they could not foresee the joint stock company, and were only dunking of the private moneylender, and that, therefore, we need not bother about what they said.
>That is a question I cannot decide on. I am not an economist and I simply do not know whether the investment system is responsible for the state we are in or not. This is where we want the Christian economist. But I should not have been honest if I had not told you that three great civilizations had agreed (or so it seems at first sight) in condemning the very thing on which we have based our whole life.
>There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of an modes of getting wealth this is the most unnatural.
I mean, I already believe in a lot of basic principles that would horrify a lot of people - free speech, freedom of religion, I don't care at all what someone's sexual orientation is, and so on.
So I don't see where this should stop us from trying to form principles as an alternative to arguing that something must be or must not be true because of what someone wrote down millennia ago.
The service in this case is facilitating a trade. Liquidity is important, but I think it was oversold to pull some of the PR heat off of HFT. Especially since a lot of retail investing advice has turned to index funds, liquidity for individual stocks matters less for them -- it also means they don't have to understand as much financial info before investing (just read the index's prospectus every year vs. reading a whole bunch of company financial filings every quarter).
There should not be an additional layer of risk involved only because people bet on other people.
If I buy a share from company x, the success of that company should represent the share price. But that is partially true.
And NO enough people have no idea what they are doing. In Germany we increased the requirements for trading. You have to read stuff and sign off otherwise the bank will not allow you to buy certain products.
One of my observations, to make a living you need an angle. This isn't necessarily 'bad'. A mechanic has years of experience and tools, and a lift. In return for parting with cash he'll do something for you (hopefully). Trading houses use their angle to do something to you, namely siphon off some of your money without providing you anything.
In Germany we increased the requirements for trading. You have to read stuff
and sign off otherwise the bank will not allow you to buy certain products.
We have that in the US too. While ordinary "retail" investors can buy stocks and
bonds (which they can do in Germany too, I presume), most of the "exotic"
products that people complain about are restricted to "accredited" investors. In
order to be an accredited investor in the US, you have to be one of the
following:
- a bank, insurance company, registered investment company, business
development company, or small business investment company
- an employee benefit plan, within the meaning of the Employee Retirement
Income Security Act, if a bank, insurance company or registered investment
adviser makes the investment decisions, or if the plan has total assets in
excess of 5,000,000 dollars
- a charitable organization, corporation, or partnership with assets
exceeding 5,000,000 dollars
- a director, general officer, or partner of the company selling the
securities
- a business in which all the equity owners are accredited investors
- a natural person who has individual net worth or joint net worth with the
person's spouse that exceeds 1,000,000 dollars at the time of purchase or
has assets under management of 1,000,000 dollars or above, excluding the
value of the individual's primary residence
- a natural person with income exceeding 200,000 dollars per year in each of
the two most recent years or joint income with a spouse exceeding 300,000
dollars per year in those years and a reasonable expectation of the same
income level for the current year
- a trust with assets in excess of 5,000,000 dollars not formed to acquire
the securities offered whose purchases a sophisticated person makes
So as you can see, there are already quite stringent requirements for trading
most "exotic" derivatives in the US. You either have to be a millionaire, have
the backing of an institution, have government certification or all of the above
in order to trade things like mortgage-backed securities and government bonds.
I have zero ethical qualms about winning when I know that the other people I'm
competing against are millionaires, have institutional backing, have government
approval or all of the above.
Cool, so my measly pension is invested in a pension fund (as it has to be, legally). The pension fund managers then buy some exotics, which gives me exposure to the same exotics. then something bad happens, such as 2008, and I lose my future.
Thanks guys, the stringent requirements really worked in my favour there!
I think the point was that having smart people participate is wasting their time when they could be doing something more productive, not who is losing. Like for instance work on robotic arms so we can all have a household robot to do the house chores.
Medical research on non-life-threatening things is still creating value for people with less-than-fatal problems.
Physicists working on physics research might be a problem if those physicists could just divert money elsewhere in the economy into their own research programs. As it is, there's a complex system of controls so that public research money is generally used for some reasonably good purpose.
Except when the finance industry creates (directly or indirectly) a financial crisis like in 2008. Its the poor, that never stood to gain from the financial system in the first place, that end up hit the worst.
Perhaps. My point is that the poor or less well off get impacted by the bad effects without any of the good effects. For example, here, there was an income levy introduced to bail the banks out. For the less well off, that money has much more impact on their lives than on the rich, even though those people never stood to gain at all.
That’s besides the point, which is that these people never stood to gain anything, while the finance industry stood to gain and then when it messed up, the less well off still lost even if they didn’t take part in the game themselves.
Many of them got to live in really big mcmansions they should not have been allowed to 'afford' for about 10 years. The labor spent building those houses could have been spent building twice as many small houses.
Those people got foreclosed. The banks got bailed out, took property off the market, and prevented the market to properly settle. Tons of people are still locked out of the market in order to protect everyone else’s “investment” by artificially propping up the value.
Wasn't the risk shared between those who got to live in mcmansions and those who gave them the money for that?
Why does one party get to reap all the benefits but pay none of the consequences?
Many people didn’t have this at all and we’re still very negatively impacted by the recession due to loss of employment or raised taxes (eg I personally did not benefit from the pre-recession as I was too young and my family wasn’t particularly well off nor had a mortgage and I entered the job market right in the midst of the recession and I was hit with an income levy introduced to bail the banks out — I was personally lucky as tech wasn’t particularly heavily affected but many people were not so lucky).
I've tried to grapple with this notion over the last 10+ years. When I entered finance (I work for a derivatives trading desk), it was just as Facebook etc were just starting and were becoming the 'cool' places to work.
However, nowadays the banking tech sector here in the UK seems to be more mature. Our traders are quite often from a STEM background which gives them an understanding of technology, and they don't adhere to the dicky stereotype you often hear about. But most of all, I've always found my tech colleagues to be extremely smart but also down to earth, pragmatic and meritocratic which is the reason why I've ended up remaining in banking.
> I've gained a huge knowledge of low level programming
This is really interesting. I'm at least passingly aware about high speed/frequency trading, but don't know much about the topic in depth.
How low is low in this field? I'm picturing RTOSes running AVX512-heavy hand-optimized code, FPGA farms, custom network ASICs... how overly optimistic am I being here? Heh
Of course, such a vision is very lop-sided, since HFT depends heavily on high-level intelligence. So perhaps it's realtime(ish) Linux and lots of GPUs.
Not realtime, because that only enforces 'precision', not low latency per se.
When I was working in this field, 2008-2011, there were guys doing fpgas, custom tcp/ip stacks, custom network drivers, dedicated networks and network cards for exchange data coming in and for going out. Mostly linux.
Hardware and lowlevel fun.
Allthough the fastest trades were always done by this one catalonian guy using Windows and .NET. I kid you not.
How does realtime enforce precision and not latency? I was referring to hard realtime.
And wow, so I wasn't too far off the mark. FPGAs and exotic networking. Huh.
I remember reading a story about a trading floor running on SQL Server, which was doing continuous throughput of 6000 queries/second. I didn't know enough at the time to discern what percentage of that was writes, but I think the point may have been that it was all of it. This was quite a few years ago. So perhaps Windows isn't actually the slowe{st,r} system out there for certain tasks.
As I've always understood (but I'm no RTOS expert) is that
RTOS does not guarantee LOWER latency. It guarantees A latency.
But again: not an RTOS expert. We had a lab that would constantly test configurations of hardware and software. And I remember them finding RTOS not being helpful.
That's right, real-time does not mean real-fast. In a hard real-time system, there is a deterministic worst-case bound for response times. "Real fast" CPUs, like the latest and greatest Intel CPUs, are actually pretty difficult to get deterministic bounds on. There are factors like unpreventable SMI events, possibility of L1/L2/L3 cache misses, etc. Often systems that need to be really deterministic, like say an engine controller in a car, run on simple CPUs like the Cortex-R series from ARM.
> "Real fast" CPUs, like the latest and greatest Intel CPUs, are actually pretty difficult to get deterministic bounds on. There are factors like unpreventable SMI events, possibility of L1/L2/L3 cache misses, etc.
Oh yeah. I remember reading something along the same lines about x86 a while back. I guess it didn't really go in properly, heh. Thanks
I'd say AVX512 is maybe not so great, because it can cook your CPU to the point where it slows down the clock. AVX2 probably required. But above all test. Have a bunch of compilers, read about all the options, see what is fastest.
FPGA feed handlers are common, but now that can also be rented.
Whether you're using GPUs depends on what you're up to. A lot of the strategy testing requires a bunch of computing power but not speed. You then take your conclusions and implement something fast that doesn't necessarily use the GPU.
Realtime, but soft real time. It's not like a vehicle ABS system where you have to brake within x milliseconds or someone gets killed. I've seen places where they see the degradation over time and eventually decide it's time for the newest hardware, again.
TIL about FPGA feed handlers. (http://redd.it/56tw4n, one of the first hits for the term, was mildly interesting)
Hmm, good point about not needing speed. Yeah, 24 execution units each capable of 3 billion ops/sec is probably more performance than is needed :)
Interestingly, I would have imagine HFT as needing ABS-style hard realtime. But no, it neither needs that nor is simple enough to be encapsulated by that sort of embedded-style approach.
> We also try to turn money into more money, it's pretty much the game of life whether you play it or not.
That is definitely not the "game of life". Most business works by creating value for others. It's generally positive sum. Indeed, the only way people in zero-sum industries (e.g., betting, a lot of advertising, many kinds of finance) or negative-sum ones (e.g., scams) have anything to siphon off is because of people doing productive work.
One of reasons I'm most glad to get out of finance is that I could stop trying to justify it to myself. As Upton Sinclair wrote, "It is difficult to get a man to understand something when his salary depends upon his not understanding it!"
Do you have any suggestions for someone who wants to get into the fintech space with no financial experience but 10-12 years of Enterprise software development/architecture and some management?
Is the job fulfilling? Depends on your goals - for me I've gained a huge knowledge of low level programming, and front line experience on how far one can go with both software and hardware to 'win' against other competitors in the space. That's invaluable stuff for me.
Is the job moral? Anyone who puts their money on the line knows the risks, this isn't stealing from the poor. People who invest must understand risk, and risk is really the only way things move forward in the first place. But it also implies there can and will be people who lose out.