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UBS Rogue Trader Loses $2 Billion In Unauthorized Trades
PolygamousRanchKid writes with this snippet from Reuters that sounds like a ready-made movie script: "Switzerland's UBS said on Thursday it had discovered unauthorized trading by a trader in its investment bank had caused a loss of some $2 billion. 'The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion,' the bank said in a brief statement just before the stock market opened." Asks the RanchKid: "I wonder how this will reopen the debate about the role of computer systems in the trading and the safeguards that are supposed to protect against these risks. But if microseconds mean millions in trading ... who has time for checks?"
The stock market is not a zero-sum game.
How does a human being engaged in $2B worth of fraud say anything about computer algorithms and millisecond-level trading?
Liberty in your lifetime
Sometimes you don't win at gambling. What do they expect? If he had been lucky and instead made a 2 billion profit you would not be reading this.
"Don't belong. Never join. Think for yourself. Peace." V.Stone, Microsoft Corporation
At a competitor? Hell, this man is CEO material. You can't let assets like that get away.
"I use a Mac because I'm just better than you are."
These "rogue trader" stories come out from time to time, among employees of all the more respectable class of casino, and they leave me deeply skeptical...
Either these outfits are, in fact, handing people the keys to gigantic piles of risk with controls roughly on par with the ones used to keep bored 16-year-old cashiers from skimming the till, or there is a substantial amount of tacit looking-the-other-way as Mr. Golden Boy flouts the rules and makes huge piles of money, and then, if things go south, his actions were "rogue".
Honestly, I find it hard to believe the former. This industry is riddled with perverse incentives toward taking on outsize risk loads(that hopefully won't blow up until you leave, or will blow up in somebody else's face) in exchange for rewards now. Am I supposed to believe that Poor li'l UBS just got plumb slickered by some smooth talker, or that "rogue" is simply the PR response to those who operate particularly close to the risk/reward envelope and happen to stop producing the numbers that HQ wants to see?
So, if you lose money, you're "rogue". But if you win money, you're "managing director"?
High-Frequency Trading is a bet, not much different than counting cards at a Las Vegas blackjack table.
You're betting that:
- You get your trade in milliseconds or less before the opportunity vanishes.
- Your coders are not missing anything that would cause you to fail.
- Your coders are sharper than the other coders our there, or...
- You are taking from the humans, and aren't at risk from other HFT code.
- Nothing goes bad in all of this, from comm links to the market platform.
And of course you can always beg the SEC to unwind the transactions, claiming it was a programming glitch. That's been done before. The SEC is no longer an effective watchdog over the industry. It has in effect been 'captured'. Game Over unless Mary can turn it around. Unlikely.
When you dig into how the NYSE actually works today, with DMMs and 'liquidity providers', that one entity can account for 10-20% of total volume, and all of that is HFT, you may realize that the days of humans trading on news and speculation are over. If you want to hold for a duration and take profits over the span of years, just hope you don;'t need to cash out on the same day as the machines have decided they see opportunity in trashing your holdings. Nothing personal, it was an algorithm you know. Just happens.
It's a genuine miracle that we don't see more flash crashes and >$1B fails than we do. HFT is going ot destroy the market, but only for actual humans. One day, when we realize that 70% of the market volume is HFT, we will then understand that the NYSE in particular is a house of cards. Then what?
deleting the extra space after periods so i can stay relevant, yeah.
I doubt they'd be calling it unauthorized if he'd made them 2 billion.
I hear UBS is going to go to 100% bitcoin. A spokesman said, "basically there aren't enough computers on the planet to handle a billion bitcoin transactions per hour, so it will be days before the money is actually transferred. This gives us time to roll back anything, plus we can get interest on the float while we wait for the transaction to close."
Bitcoin, is there any problem it can't make better?
Some drink at the fountain of knowledge. Others just gargle.
More to the point, isn't it interesting how losing money from "unauthorized" trades is a problem that crops up from time to time; but nobody who makes money on a trade is ever "unauthorized"?
So. What I want to know is...
Who has this 4 Billion now?
I invoke Teslacle's Deviant to Fudd's Law: "It Comes In, It Must Go Out"
If no one GOT this money? It never existed. Like the money I 'lose" when my stock-options lose value.
If someone - or many someones - GOT this money, then there's the possibility of collusion to be investigated.
I think this little fish is sombody's patsy. But who remembers Barings Bank and Nick Leeson?
"Flyin' in just a sweet place,
Never been known to fail..."
"you can't buy that kind of experience."
Yes you can. For a mere $2 Billion, USD. :-)
"Flyin' in just a sweet place,
Never been known to fail..."
I think it is increasingly clear that the more developed this trading gets, the more risk it offers the world's economy. It is also recognized that "safeguards" need to be in place to prevent certain things from happening. These same safeguards also serve to decrease that highly sought-after and desirable "leverage" power when making trades. These market people have been pushing regulators to remove such safety restrictions which have apparently been connected with all manner of troubles including the most recent market failure.
I wouldn't be against banning the markets entirely. I think Hitler had it right in his analysis of why speculating is such a problem for economic stability. (Just as in the legal system, the only real winners are the lawyers)
Of course the world's bankers would never allow any governments to take their playground away, but that's what I think should be done.
First of all, he'd worked in the back office, so he'd know both people and procedures.
Second of all, anyone who's ever worked in finance can tell you big banks are chaotic. It's not really that strange that he can go about his business undetected for a while, because there's loads of traders with loads of portfolios. And most people on one desk are not going to be experts on the business of another. UBS has had a number of restructurings since the financial crisis. People are moved on, some desks are closed, some are merged, it's gonna be a mess. Makes it easier to hide.
Third, risk officers are not what you think. They are not the internal police, vigilantly keeping an eye out for every possible transgression. They look at the positions, calculate the risk (big can of worms, don't ask), and when someone is over their limit, they show up at the trader's desk and are told to fuck off.
Finally, it is not at all clear that technology played an important role in this fraud. Yes, some HFT market makers trade ETFs, but it's not clear his desk was. That doesn't mean a software error caused it, or that the fraud could not have occurred without whatever system he was using. From efinancial (which you need a subscription to read) the latest rumour is that he messed up a hedge in EURCHF, and his attempt to fix it made it worse.
They're investigating now. Apparently it was this guy:
@
Report anything to the nearest K. Last seen running toward a > .
Don't think of it as a flame---it's more like an argument that does 3d6 fire damage
No offense but a successful career in a high-stakes environment like the military is no preparation for being a complete waste to society and eventually losing $2B on top of it all... For that you need a business degree.
This was a trader, not HFT. He was manually calling in trades, either through a computerized system or through UBS's trading desk. The money was lost over a period of time in which he was probably exploiting loopholes in the controls of UBS. It's really disturbing seeing the trend against HFT when there is no evidence to show how it's being perceived. The flash crash last year was not caused to to HFT but due to a fund selling $4.1bn in E-Mini S&P futures.
From Wikipedia...
http://en.wikipedia.org/wiki/2010_Flash_Crash
The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day.
Still lacking sufficient demand from fundamental buyers or cross-market arbitrageurs, HFTs began to quickly buy and then resell contracts to each other – generating a “hot-potato” volume effect as the same positions were rapidly passed back and forth. Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.
"a large fundamental trader (a mutual fund complex) initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position."
--- end quoting
I just roll my eyes... "portrayed a market so fragmented and fragile that a single large trade could..." It was a sell order for $4.1bn let me type that out... $4,100,000,000. Anybody have any idea what that does to available liquidity? No time in the history of the US markets could they have withstood this type of hit. HFTs provided liquidity during that time, higher spreads but without the HFTs the bottom would have fallen out. The drop would have been MUCH MUCH worse.
Right now HFTs are the target of a smear campaign by the SEC, it's a scapegoat. HFTs almost uniformly lost their butts that day. Read between the lines and stop drinking the Kool-Aid.
Two more things I'll hold your hands on... a large FUNDAMENTAL trader, this means somebody who trades on fundamentals not technical analysis, which is critical to HFT, initiated a trade for 75K contracts. HFTs passed that around for a volume of 27K almost 1/3 of that... So if you try to take the worst slant on that they provided liquidity to 1/3 of the order that started this. hmmm... what if HFTs weren't trading that day... others would have had to absorb over 33% of that hit. The result, Armageddon!
Sometimes I don't know why I try... I guess the Kool-Aid is too tempting.
If at first you don't succeed, skydiving is not for you.
Ultimately, it is, because ultimately, every trade has a winner and a loser, and ultimately, the value of every stock goes to zero. We just haven't seen the game played out long enough yet (though we came pretty close recently).
No, it isn't (except in the 'in the long run we are all dead' sense). Consider the dot com boom. Over-inflated dot com stock valuations caused large amounts of additional investment in dot coms which were never going to make money, or quite possible provide any useful service at all. The economy wasted resources in pointless rubbish, thus reducing the amount available for consumption and investment in other things.
Stock market valuations and stock market investors motivated by them affect many decisions. Things like: should company x buy company y? What minimum rate of return should we require internally on our investments/what should we take our internal cost of capital to be? Should the current managers be retained? Should we raise money via a new share issue or IPO? What should I, as a VC or private equity investor, invest in and how much money do I get (from sales of businesses) to spend on new investments? What interest rate must the government pay me for me to lend to it instead of buying stocks?
I'm not going to claim stock markets do these well. I don't know the answer and I don't know what to compare them to. Nor will I claim there isn't a great deal of zero-sum or near zero-sum activity going on - that described in the article is almost certainly near-zero-sum (probably somewhat negative). It's quite plain, though, that these decisions have to be made and that they're important. They affect economic growth rates. They affect the distribution of wealth (amongst ordinary people, not just those in the industry). They are most certainly not zero sum.
Meh. He's nothing special. We've got a congress full of people like this.
bah.
Right; you just don't have the killer instinct it takes.
badda da booom
Thanks folks I'll be here all week. Just drop by and take in the show.
=~ s,(.*),<sarcasm>$1</sarcasm>,g if any_point_you_wish();
A whole lot of effort in that post, and I still want HFT firms and the people who work there gutted. Good luck with that.
http://www.zerohedge.com/news/goodbye-high-frequency-trading-regulators-seek-secret-hft-codes
The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.
``It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace,'' he said in an interview.
The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.
The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral.
Fucking scumbags is what HFT firms are.
Dot-com shows up IPO'd overvalued at $100. Shrewd investor spends $100. I: -$100; IPO: +$100. Total: $0.
Market frenzy overvalues dot-com at $350/share. Shrewd investor sells his stock to Sucker for $350. I:+$250. IPO:+$100. S:-$350. Total: $0
The IPO gained the company $100 per share. Investor spent $100, so he was down by $100. Then the value went up to $350. Investor sold, got $350, some other sucker went down by $350. The investor has made $250, as he just got $350 after giving $100 to the IPO. The IPO got $100. Suckerballs is at -$350 and if the stock drops to $250 and he sells then he's at -$100 and someone else has -$250 and a $250 valued stock, bringing the total value overall to ... the value of the stock ($0 plus stock valued at $250).
If you ever add the value of stock to the value of money that's gone into and come out of the market, you find it always equates to zero. That doesn't mean that there's as much money floating around anymore... which, by the way, will adjust out. If you put $1000 monies in and buy $1000 stock, there's $1000 monies for people who IPO'd $1000 of stock, while the money injectors have $0 monies and $1000 of stock. If you pull that $1000 of monies out (the IPO holders are no longer interested--and neither is anyone else), then since nobody wants to buy your $1000 of stock, it becomes worth less--$500, $200, $100, $1. If it becomes worthless, you put in $1000 and $1000 came out; if someone buys it at $1, you are at -$999, they are at -$1, and $1000 has gone out. There is now a $1 share and $1 in the market.
Zero sum.
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> If no one GOT this money? It never existed.
Nearly all our money originated with fractional reserve loans, making it fictional money. Take the entire US money supply, subtract Fort Knox and the Strategic Oil Reserves, and the difference is all vaporware.
Are you all sure this entire story is not a huge lie, that this one trader is not used as a scapegoat, a fall guy for a larger systemic problem at the bank? On one hand knowing how Credit Swiss and UBS handle customers I can sort of believe that there is large level of confusion and things are not, as you would expect them, at least not what engineering types would expect it to be. It's like you are always trying to build a better system, a system that handles transactions properly, a system that does not allow errors, but when you deal with some banks, it's as if they are still ran with pen and paper, it's amazing. (though it's not true, they do have computer systems, but sometimes it feels like their computer systems have routines there, that create chaos, havoc and confusion on purpose). But seriously. 2 billion dollars in this case. There was a guy who lost 6-8 billion a year ago or so in some French bank.
Maybe, maybe. Or maybe the bank is using this guy as a stooge, a sap, somebody to take the fall in case some shady deals go wrong. After all, do you hear about banks catching such cases, where money was made and not lost? I mean if somebody used bank resources to trade and to make money for themselves personally, they would have to draw that money out somehow.
--
In other news the Federal reserve bank and national banks of UK, Switzerland (fuckers) and Japan came out with a strategy to ensure that the paper currencies are destroyed even faster by printing more of it to buy all the outstanding short term securities that USA is issuing or that are maturing. It's all nonsense, it forced a bunch of people to cover a bunch of short positions in a bunch of commodity markets (those who hedge against their dollar and other currency reserves by using commodities), because this news of the national banks is more inflation, the relative prices of commodities must go higher, so people are buying to cover shorts.
The DOW and other markets go up in dollar and other currency terms of-course, because again, this is more inflation.
Interesting times, as always, wrong solutions driven by wrong understanding of economics, as always.
You can't handle the truth.
First, I almost worked at Teza in Chicago (a high frequency trading firm). I think, between the job interview and speaking to people there, I'm qualified to comment on the subject to an extent. Also, while not a professional economist, I have enough knowledge with regards to market liquidity to understand that HFT firms aren't required to provide the liquidity they so often proclaim is such a wonderful function of what they do.
HFT firms provide no value; they are a check valve sucking cash out of whatever market they're interacting within. If you work for an HFT firm, while I can't wish ill against you, I wouldn't exactly shed a tear if you were on the street. I'm not saying they're the only problem, but proclaiming "BUT! BUT! They're are other bad guys too!" is like trying to justify being a rapist because murders still exist.
Fuck HFT firms.
They should revoke his Imperial Warrant!
HFT accounts for 60-70% of volume every day, news or not, events or not, doesn't matter.
If you trade on current events, you do live and die by that sword. But the quants implement trader speculations and blend them into the stream of HFT that is pure arbitrage, on a microsecond scale.
Yes, other than the occasional flash crashes caused by interacting or misperforming algorithms, market swings are often driven by news and events. And these swings usually correct well, with exceptions.
HFT distorts this by playing the game on an entirely different scale.
deleting the extra space after periods so i can stay relevant, yeah.
Dot-com shows up IPO'd overvalued at $100. Shrewd investor spends $100. I: -$100; IPO: +$100. Total: $0.
Add up all the money people give to others. Take away all the money people receive from others. Total: $0. (Neglecting changes to the money supply which isn't really relevant here). This doesn't mean your economy has zero output. It doesn't mean your economy is a zero sum game. Prices affect decisions. Decisions affect production and consumption. Production and consumption affect human welfare. Human welfare (ideally, but conceptually tricky) or output is what you're summing, not transactions.
Market frenzy overvalues dot-com at $350/share. Shrewd investor sells his stock to Sucker for $350. I:+$250. IPO:+$100. S:-$350. Total: $0
Hypothetical Situation A: Market frenzy overvalues dot-coms in general. Investors pile money in to starting and buying dot-coms, thus causing resources available for investment to be used to start dot-coms. Dot-coms consume economic resources: developers' work, office space, computers, bandwidth. Dot-coms produce few useful products. Add all the transactions: Total: 0. Add up output: amount 'a'.
Hypothetical Situation B: Market correctly values all companies. Resources available for investment are channeled to the best possible investments, all decisions correctly risk and value adjusted. Those companies consumer resources. Some of those companies product useful products. People use those useful products. Add all the transactions: Total; 0. Add up output: amount 'b' > 'a'.
Result: not zero sum
The IPO gained the company $100 per share. Investor spent $100, so he was down by $100. Then the value went up to $350. Investor sold, got $350, some other sucker went down by $350. The investor has made $250, as he just got $350 after giving $100 to the IPO. The IPO got $100. Suckerballs is at -$350 and if the stock drops to $250 and he sells then he's at -$100 and someone else has -$250 and a $250 valued stock, bringing the total value overall to ... the value of the stock ($0 plus stock valued at $250).
You missed out: company spent $100 dollars per share (or the founders founded or VCs invested in the company in the hope of receiving $100 per share) on getting people to do stuff. The stuff they did produced no useful output. Had the company not got them to do that most (or possibly all) of those people would have done other stuff....stuff which quite possibly would have produced useful output.
If you ever add the value of stock to the value of money that's gone into and come out of the market, you find it always equates to zero.
Erm, no. Your terms don't appear to be conceptually sound, but I'll try. Suppose you define the 'value of stock in the market' as (current trading price) x (outstanding shares). Let's say $100m goes 'in to the market', as you put it, in an IPO (money transferred from investors to company and/or original owners) in the form of 100m shares x $1. Then suppose that one trade of 100 shares goes through at $2. Current trading price = $2. Outstanding shares = 100m. 'Value of stock in the market' = $200m. Suppose you define 'money in to the market' as 'money spent on shares' and 'money out of the market' as 'money received by individuals selling shares plus dividends', and suppose that we neglect commissions and so forth. Money in = $100m+$200. Money out = $200. Money in + money out + value of stock in the market = $100m+$200 - $200 + $200m != 0. Possibly you mean money in - money out = value of stock in the market ($100m+$200-$200=$200m), which still isn't true. And I haven't even started on dividends.
You need to start with better terms, at least. The '(fundamental) value of a stock' is the net present value of all of its future dividends (including any final one on liquidation). This is determined by its products, its decisions, future consumer sentiment and preferences, t
You missed out: company spent $100 dollars per share (or the founders founded or VCs invested in the company in the hope of receiving $100 per share) on getting people to do stuff. The stuff they did produced no useful output. Had the company not got them to do that most (or possibly all) of those people would have done other stuff....stuff which quite possibly would have produced useful output.
I don't want to deal with the extremely complex socio-economic arguments in an argument about whether the stock market makes money vanish or not. The stock market is not a place where money goes to die; it is a place where people go to gamble... or, not quite, more of a game of skill against risk. Risk is controllable, whereas in gambling it's stacked such that risk is fixed. Still, the model fits: you put money in, someone else puts money in, and the lot of you hope to get your hands in the pot when it's full of everyone else's money.
All of your arguments apply to the gambling industry as well: people show up, dump money in, and a few come out rich; most come out poor; and for the most part the bulk of the money goes to the casino. The casino produces no useful output (arguable: it provides valuable entertainment; however, the gambling aspect is damaging and most people aren't coming to spend $500 on the privilege of enjoying blackjack so much as they're coming with a fantasy that they'll make $5000 on blackjack).
The money isn't disappearing though. The stock market is a zero sum game: any money you put in will come out, one way or another. You will leave with more or less. If you leave with less, someone leaves with more; if you leave with more, someone must leave with less. If you leave with the same amount you showed up with, it is guaranteed that every single person in the market besides you will also leave together with the sum total of every single cent they brought, but distributed differently amongst themselves.
Social economics are a different beast, and I direct you to Barack Obama's stupidity and just about every other politician's failed ideal of "improving the economy" by "creating jobs" in which we use tax money to pay people to build temples or dig holes and fill them back in again. Also see Orwell's discussions of economics, and the Parable of the Broken Window (because it explains this shit nicely, directly by going to a subtle and complex example that people will argue about with you because they're too short-sighted to understand the wider impact).
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"The problem here is that trading faster than humanly possible is pointless in itself - there is no intrinsic benefit."
So building cars faster than humans with computerized machinery has no intrinsic benefits? That's the logic you are utilizing.
As to making the money, where does it come from? It comes from the market makers on the floor. Just as manual labor is being replaced so are the floor traders that used to provide the liquidity. When there were no computers the traders on the floor, market makers, were competing to get ahead of the others, their competition. Now that we have computers with algos that simulate what the MMs do they are competing with other algos. The computer reacts much faster than a human so it is only natural that they compete in the microsecond realm, soon to be nano second. The benefit is tighter spreads which means better price discovery which means better market efficiency which means a better price for Joe Trader. The profit that goes to HFT didn't come from Joe Trader, it came from the MMs who had wider spreads because they couldn't react as fast.
When things go wrong, they go WRONG. Please observe
http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average
9 of the top 10 largest percentage drops in the Dow Jones happened before 1990. This would ague the fact that algo trading has stabilized the markets. The flash crash was about 9% drop which would be #5 on the list if it closed at the day's low. DISCLAIMER: One data point is always "bad" when attempting to draw conclusions but I'm not attempting to conclude the matter. There are many more far more informed and intelligent than I who have attempted this.
Also there is a lack of clear communication. What you are referring to is Ultra High Frequency Trading (UHFT.) I have worked with HFT that would buy/sell many different products as the algo adjusted then hold when it came to a "final" decision. This hold could extend over hours if not longer. This is the scarey part because it exposes the Black Box that I alluded to earlier. HFT means different things to different people which allows anybody to say anything and make up their own facts.
If at first you don't succeed, skydiving is not for you.
And how would a delay help? As soon as trading resumed, it would be speed of light machines v.s my fat fingers.
You know that game in casinos with the spinning wheel and the little ball?
"Players" place their chips on numbers they think the ball's going to land on. At some point, the croupier announces "No more bets." Then he spins the wheel and launches the ball. When it lands, winners and losers are tallied, then you start over at the beginning.
Your fat finger trades and the HFT trades can go on side by side until the moment trades are executed. HFT can get a lot more trades done than you and your fat fingers in that time, but HFT will be constrained from gaming the system via milking the milliseconds between trades.
Or, that's the theory.
"Tongue tied and twisted, just an Earth bound misfit
I don't want to deal with the extremely complex socio-economic arguments in an argument about whether the stock market makes money vanish or not.
Good. Nor do I. It's not money that's important, except as a mechanism. The payoffs to the game are goods and services people consume, not money. I claim two things: 1. These payoffs are not zero sum. 2. The total of these payoffs across all players are affected by the existence and operation of the stockmarket.
The stock market is not a place where money goes to die; it is a place where people go to gamble... or, not quite, more of a game of skill against risk. Risk is controllable, whereas in gambling it's stacked such that risk is fixed. Still, the model fits: you put money in, someone else puts money in, and the lot of you hope to get your hands in the pot when it's full of everyone else's money.
No, it doesn't fit. The pot varies in size based on whether the investments are good investments or not and whether stock market pricing is good or not. It does this because it affects the investment decisions of firms, amongst other things, which in turn affects the productive capacity of the economy and dividend paying capacity of the companies. Finally, there is a time delay element which does not exist as a necessary part of gambling.
Gambling: the act of paying someone to deliberately increase the risk to which you are exposed for your pleasure (or through addiction). (The opposite is insurance). The risk is typically purely synthetic. No doubt some people do use the stockmarket for this. Most people do not. Saving: the act of giving up your ability to consume some of your share of current economic output in exchange for the ability to consume part of future economic output, possibly with some sort of risk element attached. Typically this risk is real risk (of product failure, crop failure, changes in consumer tastes, refusal of a borrower to repay his mortgage) which has to be borne by someone. Investment: the use of some of current economic resources to product something (a factory, a new house, a new product) which will produce a stream of future output.
Most stock market participants on the demand side are savers - they do it to exchange consumption now (eg, while working) for consumption in the future (eg, while retired). Companies participating are investors. They try to use the current resources the savers have chosen not to consume in order to create things which produce future output (part of which is the future output those very same savers will end up consuming in the future). Participants on the supply side (brokers, liquidity suppliers, exchanges, etc.) are, collectively, suppliers. Not necessarily good ones. They supply the mechanisms necessary for savers and companies to make their exchanges in exchange for as much of the right to consume output as they can get. These three things are not gambling.
All of your arguments apply to the gambling industry as well: people show up, dump money in, and a few come out rich; most come out poor; and for the most part the bulk of the money goes to the casino. The casino produces no useful output (arguable: it provides valuable entertainment; however, the gambling aspect is damaging and most people aren't coming to spend $500 on the privilege of enjoying blackjack so much as they're coming with a fantasy that they'll make $5000 on blackjack).
No, my arguments do not apply to gambling. Take my hypothetical scenarios, A and B. Whether you bet on red or black or not at all makes no difference to the size of economic output, except for any entertainment value and the resources used supplying casinos. Whether you choose poor investments (A) or good ones (B) does. The amount you get to consume in the two cases is different, and that extra output in case B does not come at the expense of someone else. It is not zero sum.
The money isn't disappearing though. The stock market is a zero sum game: any money you put in will come out, one way or another.
Again: what has money got to do with it? Why does the conservation of money mean that the game is zero sum?
And the winner for worst advice ever given goes to...you!
Right...nobody ever gets busted for anything on the internet ever. It's a safe haven! You can do what you want here with no chance of repercussions. The RIAA doesn't exist, the Feds don't troll chat rooms looking for pedophiles, cops don't check Facebook pages and bust parties. These are all rumors.
Hey, as much as I'd like to hear what happened at the interview - an NDA is an NDA. They have you sign them for a reason. And it takes only one lawyer to ruin your whole entire life.
Weaselmancer
rediculous.
The Swiss recently did a jaw droopingly stupid desperation move on their currency. They pegged it to the euro, in the attempt to stem their own currency's appreciation, which was ruining their trade with other countries, being thought of as "safe" in a time of turmoil, when so much cash was out of the other markets due to fear (the rest was going into gold). This resulted in a HISTORIC move of over 8.5% in something that normally moves .1% at most a day, overnight...That's a big enough move to really hurt (or help, depending on which side of a trade you're on) a normal trader. Now, with 100x leverage -- wow - even a tiny bet adds up very quickly, for or against you. With 100x leverage, everything is multiplied 100x -- except the money you have to put down to open the trade. In a gross oversimplification, you can bet $1, but lose $100 in that case. Meaning he might not even had had that huge a bet on. A lot of "safety obcessed" individuals also got hammered on this one. (and soon enough, on T bills when the bond vigilantes come out and treat us like the bankrupt jerks we are -- they'll be around as soon as BenB and TimG stop buying them in debt monetization).
Most people figured that when that happened, the safe trade would switch entirely to gold. The thing is, the Swiss needed tons of instant dough to buy Euros with all of a sudden. So they sold tons of gold (literally) and tried to do it when the western markets weren't open. That was too much for the Asian retail investors to eat, so gold went down too -- they (for reasons that should be obvious) didn't give anyone a heads up on this, except perhaps a few special friends, so the whole deal caught everyone completely off. It will fail, but the Swiss had no choice but to try it or face ruin anyway - their currency was so overvalued that they could sell nothing to anyone else, and no country can live with that very long.
Y'all might want to go look at zerohedge (no link, their servers are chronically overloaded as is - but a few more snarks won't hurt the place, just not all slashdot please) for some more on this. Sometimes they publish microsecond graphs of what the *headline reading* bots are doing too, they don't like HFT either, but it had nothing to do with this one. I used to think with my signal processing experience I could blow those bots off, as some of them seem pretty stupid. But they are a little ahead of most slashdotters in text understanding -- they actually can read the news tickers and adjust based on the headlines and content(!).
The SEC is more or less completely owned by the people they are supposed to regulate. Too small, they don't care about you. Too big, they're already bribing you. Middle size is all they do, and they do little of that. It's like with drugs where the big dealer turns in the smaller competition once in awhile to the bribed cops, so everyone gets a benefit -- cops look good, getting a bust, big dealer gets rid of competition, all go home happy, well...almost all. It's a dirty game, but you can still win at poker even with a cheating dealer, if he's not after you personally.
Why guess when you can know? Measure!
> If no one GOT this money? It never existed.
Nearly all our money originated with fractional reserve loans, making it fictional money. Take the entire US money supply, subtract Fort Knox and the Strategic Oil Reserves, and the difference is all vaporware.
Yes, and when you buy a car or computer with this non-existent money, you don't actually own it. And if you take out a mortgage on a house and don't receive the loan in gold bars you don't actually owe it to anyone. Oh, wait...
To have a right to do a thing is not at all the same as to be right in doing it