We've all heard of paper trading. I can't count the number of strategies people have tried to get hired with, that we knew wouldn't work in real life.
When you paper trade, you don't know how the market will respond to your presence. You also don't know how YOU will respond to having real money on the line. Try playing online poker. You can tell when you're on a play money table vs a real money table.
I can see why someone might think patents are a good idea. You spent effort inventing something, so you don't want someone taking your idea and your customers (by offering it cheaply due to smaller R&D costs). In return for a temporary monopoly, you reveal how your invention works.
The thing is, these days, with so many high-tech specialized niches, anyone who wants to make use of your patented idea would need to be an expert anyway. I'm pretty sure I wouldn't be able to understand any of the patents behind modern CPUs for instance, unless I spent an awful lot of time reacquainting myself with electronics. In other words, you need to invest in a form of R&D to be able to gain anything from reading a patent. Now, experts in various fields tend to know what is going on in those fields. They know what the hot research topics are, and what kinds of designs people are thinking about. In that sense, everything in that field is obvious to them. It's just a matter of time before someone actually gets xyz algorithm/design to work. Should we really be rewarding the firms with the fastest lawyers?
The reason this might not work is that in a game, it doesn't cost anything to explore all the different paths you can take. Which sword is better? What strategy for build order? Keep playing, and you'll come across everything. The game will act the same, and it won't cost you anything to learn.
In the market, there's no easy way to try out stuff without putting money on the line. Furthermore, the rules change, and the market doesn't necessarily act the same the next time a given event happens. It has memory.
You're right about there being too much micro-management. Perhaps what is needed is a higher-level interface where you can pre-program some of your build/movement orders. That might make the game a bit less frantic. It could also make it a higher level of franticness...
Whether the state serves the rich depends on which state you're talking about. Also, note that equating the rich with the powerful creates a tautology, because the powerful ARE the state.
You might think that things like art, music, and writing are the creative subjects. Well, maybe. But math is a subject that requires real creativity, and yet also a hard framework within which to evaluate what you're doing. So, for instance, if you're trying to prove Pythagoras' Theorem, there's several ways to start. Each way requires some lateral thinking to get to the proof, but there's a lot of ways to do it wrong. With arts, there's a lot written about different tastes (romantic, post-modern, classical, etc...) but there's rarely a satisfying right/wrong about it. It allows you to make a bit less effort, because the intermediate product (eg half finished canvas, a story with an undeveloped character...) is also arguably "a good piece of art." With math, you can be creative, but within a certain framework which constrains you.
As for needing it, well, someone already mentioned probability and statistics. Without knowing something about this, your decisions become very difficult to justify. Should you take a mortgage? Buy some stocks? Get a degree? Have kids? Buy a TV? I'm not saying there's a formula for deciding all these things, but often people make decisions that are downright irrational. Have a look at Kahnemann/Tversky for some scenarios that are completely irrational, but avoidable if you had a good numerical think about them.
Finally, for the young, study math because there's lots of people who don't know any, and will need you. Math related stuff like software engineering, finance, engineering, etc seem like witchcraft to people who don't know any math.
These are not perks of being rich, but perks of being well-connected, especially to the apparatus of state. And your well-connectedness becomes a bigger perk in societies where the state is powerful.
You can sign up with Equinix, who run a number of datacentres at which various exchanges are colocated. They'll do the racking and cabling, but you have to buy the machines and write the software yourself.
The first article you're referring to is about Goldman's aggregate trading PnL, not just the part from HFT. Across the whole trading floor, it isn't so hard for them to make money so much, mainly because
1) GS is a big broker who sees lots of flow. The franchise traders can thus use their knowledge of the flow to get their own positions on. 2) They market make some high margin derivatives, where they can charge big spreads against their fair value calculation. So, for instance, they can make a market in a correlation (which by definition varies from -1 to 1) and make a market something like 0.2-0.4, where they think it's worth 0.3. Thing is, each tick (0.01) can be worth millions. Book a few of those a week, and you make money.
I hadn't heard about the network taps though. Would be interesting, have you got a link? 2ms seems like a lot, considering everyone in the HFT game is colocated. It would hardly take that long to send some messages back and forth within a building.
Judging by what I've read about what this code does, I don't think it's actually that clever. GS are cleverly disguising their lack of cleverness, in order to keep the aura that surrounds the firm.
-This code is meant to be super-fast. There's only so many financial strategies that make sense when you have hardly any time to think about what to do. -If he was working on something really profitable, they would not have left him on a compensation scheme that he would voluntarily leave. Once you've made a few accumulated bucks, they'll promise you more, with the proviso that you're forfeiting it if you go. I know guys in the industry who are stuck in a job they no longer enjoy basically because they're waiting for a bigger and bigger payout. -It's useful having source code, but if you're a competent coder, you know what you wrote, and how you wrote it. It might save you some time to have the code, but you basically have it in your head. -Obviously, he might have been sneaking a peek at someone else's code that was meant to work together with his. If it was really so important to keep it secret, there would have been ways to keep it secret. Segregate the guys, only letting them connect each other's code via an interface. Various other security methods that other people know better than me... -GS most likely were not the only people to think of whatever financial strategy was behind this. The people in this field all come from similar backgrounds, both academic and professional. They think so alike it caused the Global Alpha blip (along with the rest of the statarbs that tanked in 07/08). They don't need to talk to each other to have the same idea.
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else. Given that you, personally, are more likely to get hit by a meteor and then struck by lightning than you are to accumulate your own vast wealth, and given that you, personally, benefit immensely from living in a democratic civil society, you, personally, should be against vast disparities in wealth. This applies to the 99.99 percent of people who will never accumulate more than a million in assets in their lifetime. Why let that.01 percent make the rules? They are making the rules, but you are the majority, meaning, you are letting them make the rules. You don't have to let them do that.
Most people who accumulate a million bucks are fairly ordinary, not the type you tend to hear about on television. Middle aged people who've worked their whole lives and spent frugally.
You're right that people ought to be under the same law, but what makes you think some people are above the law? We regularly hear about CEOs and other types who end up in jail. Apparently really nice jails, but jails nonetheless. Sure, money makes some people more powerful than others, but mostly you have to stay within the law to make a bunch of money.
The real danger is that by trying to right the wrongs, you create a socialist dystopia that's meant to be fair, but isn't. Hand out welfare payments meant for people who can't find a job, and find that suddenly the working poor are worse off than the nonworking. You also end up relying on the state to plan everything, make every decision. Guess what, people who work for the government are fallible too.
I don't know why all games don't simply implement something along the lines of chess ratings. FIFA is the only one I play which comes to mind. With a rating system, everyone can have a somewhat challenging time playing with someone of similar skill.
The worst is things like WoW and MW2, where it's time spent that makes you powerful. All you really guarantee is that people at the top level know what the basic functions of the game are. The guild element in WoW somewhat mitigates antisocial behaviour, but it doesn't guarantee that your mates have read the notes on a given instance.
With MW2, the need for ratings is even more obvious. People who don't have more than a couple of hours a week should not be pitted with people who can headshot you with a Desert Eagle 100m away. This should be pretty easy to implement. You get owned, relegation. You own everyone, promotion.
I think the main argument is that Joe Investor benefits from having more liquidity. He can buy/sell a larger amount of shares than he would otherwise. Remember many people invest via huge pension funds, which have to shift pretty large amounts of shares.
The best explanation I can come up with is that if you don't have a secondary market for people to trade stocks in, fewer people will decide to fund new companies. Basically, if you can't get out, you'd be reluctant to get in. By having a market, you can decide whether you think the future revenue stream (dividends) are going to be worth your while. If not, you can find someone who will take the other side.
What the market participants are doing is generating liquidity, which is beneficial to everyone. If you buy some Apple, and you decide to change your mind, you can sell them again immediately for a only slightly worsened price, to someone who is immediately available. Not so with for instance a house, where it could take ages to get paperwork done, and a buyer isn't available immediately. If you were panicking to sell your house, you'd probably lose a great deal more on the discount you'd have to give.
Another benefit is in the word "shares." Wanna buy a factory yourself, and see if you can sell iPods? No, me neither. But you can buy a tiny little piece of one, in proportion to the risk you want to take.
TFA is pretty sensible. Get a degree so you can get a job in an established business. Then learn about the industry while you're being paid a salary. And then, if you like, try opening your own shop.
I've worked for a few failed startups, right after college, as well as in an established financial business. I'm now running my own in partnership with some friends I met at a previous job. You can't really get in without the credentials, and it's worthwhile to learn a few things in college anyway. The problem with the alternative is that in any business, there's a load of unknown unknowns (thanks Donald). If you just leap into it, you won't know anything about industry norms, and you'll have to hope that a VC comes by and teaches you. To put it simply: you've either got a stunning new product that will change the world. Or you're a clown who should have known why that wouldn't work. Zuckerberg got pretty lucky.
I'd add this: Roll the dice a few times with startups. It's fun, and you'll probably be able to get back on the ladder when things go wrong. But you can't roll the dice forever, as you might want to have a family. So if you don't make it big, you've at least tried, and are still able to feed yourself. But definitely try. Forget the ladder while you're in your mid 20s.
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Obligatory /. user stereotype joke...
We've all heard of paper trading. I can't count the number of strategies people have tried to get hired with, that we knew wouldn't work in real life.
When you paper trade, you don't know how the market will respond to your presence. You also don't know how YOU will respond to having real money on the line. Try playing online poker. You can tell when you're on a play money table vs a real money table.
You have to use real money.
I can see why someone might think patents are a good idea. You spent effort inventing something, so you don't want someone taking your idea and your customers (by offering it cheaply due to smaller R&D costs). In return for a temporary monopoly, you reveal how your invention works.
The thing is, these days, with so many high-tech specialized niches, anyone who wants to make use of your patented idea would need to be an expert anyway. I'm pretty sure I wouldn't be able to understand any of the patents behind modern CPUs for instance, unless I spent an awful lot of time reacquainting myself with electronics. In other words, you need to invest in a form of R&D to be able to gain anything from reading a patent. Now, experts in various fields tend to know what is going on in those fields. They know what the hot research topics are, and what kinds of designs people are thinking about. In that sense, everything in that field is obvious to them. It's just a matter of time before someone actually gets xyz algorithm/design to work. Should we really be rewarding the firms with the fastest lawyers?
What I'm saying is the game can change so fast you don't have time to learn what the rules are at a given point...
Anyway, I do think it could be interesting to see some of these guys in the market. Have a look at Turtle Traders.
The reason this might not work is that in a game, it doesn't cost anything to explore all the different paths you can take. Which sword is better? What strategy for build order? Keep playing, and you'll come across everything. The game will act the same, and it won't cost you anything to learn.
In the market, there's no easy way to try out stuff without putting money on the line. Furthermore, the rules change, and the market doesn't necessarily act the same the next time a given event happens. It has memory.
You're right about there being too much micro-management. Perhaps what is needed is a higher-level interface where you can pre-program some of your build/movement orders. That might make the game a bit less frantic. It could also make it a higher level of franticness...
Whether the state serves the rich depends on which state you're talking about. Also, note that equating the rich with the powerful creates a tautology, because the powerful ARE the state.
You might think that things like art, music, and writing are the creative subjects. Well, maybe. But math is a subject that requires real creativity, and yet also a hard framework within which to evaluate what you're doing. So, for instance, if you're trying to prove Pythagoras' Theorem, there's several ways to start. Each way requires some lateral thinking to get to the proof, but there's a lot of ways to do it wrong. With arts, there's a lot written about different tastes (romantic, post-modern, classical, etc...) but there's rarely a satisfying right/wrong about it. It allows you to make a bit less effort, because the intermediate product (eg half finished canvas, a story with an undeveloped character...) is also arguably "a good piece of art." With math, you can be creative, but within a certain framework which constrains you.
As for needing it, well, someone already mentioned probability and statistics. Without knowing something about this, your decisions become very difficult to justify. Should you take a mortgage? Buy some stocks? Get a degree? Have kids? Buy a TV? I'm not saying there's a formula for deciding all these things, but often people make decisions that are downright irrational. Have a look at Kahnemann/Tversky for some scenarios that are completely irrational, but avoidable if you had a good numerical think about them.
Finally, for the young, study math because there's lots of people who don't know any, and will need you. Math related stuff like software engineering, finance, engineering, etc seem like witchcraft to people who don't know any math.
These are not perks of being rich, but perks of being well-connected, especially to the apparatus of state. And your well-connectedness becomes a bigger perk in societies where the state is powerful.
You can sign up with Equinix, who run a number of datacentres at which various exchanges are colocated. They'll do the racking and cabling, but you have to buy the machines and write the software yourself.
The first article you're referring to is about Goldman's aggregate trading PnL, not just the part from HFT. Across the whole trading floor, it isn't so hard for them to make money so much, mainly because
1) GS is a big broker who sees lots of flow. The franchise traders can thus use their knowledge of the flow to get their own positions on.
2) They market make some high margin derivatives, where they can charge big spreads against their fair value calculation. So, for instance, they can make a market in a correlation (which by definition varies from -1 to 1) and make a market something like 0.2-0.4, where they think it's worth 0.3. Thing is, each tick (0.01) can be worth millions. Book a few of those a week, and you make money.
I hadn't heard about the network taps though. Would be interesting, have you got a link? 2ms seems like a lot, considering everyone in the HFT game is colocated. It would hardly take that long to send some messages back and forth within a building.
Judging by what I've read about what this code does, I don't think it's actually that clever. GS are cleverly disguising their lack of cleverness, in order to keep the aura that surrounds the firm.
-This code is meant to be super-fast. There's only so many financial strategies that make sense when you have hardly any time to think about what to do.
-If he was working on something really profitable, they would not have left him on a compensation scheme that he would voluntarily leave. Once you've made a few accumulated bucks, they'll promise you more, with the proviso that you're forfeiting it if you go. I know guys in the industry who are stuck in a job they no longer enjoy basically because they're waiting for a bigger and bigger payout.
-It's useful having source code, but if you're a competent coder, you know what you wrote, and how you wrote it. It might save you some time to have the code, but you basically have it in your head.
-Obviously, he might have been sneaking a peek at someone else's code that was meant to work together with his. If it was really so important to keep it secret, there would have been ways to keep it secret. Segregate the guys, only letting them connect each other's code via an interface. Various other security methods that other people know better than me...
-GS most likely were not the only people to think of whatever financial strategy was behind this. The people in this field all come from similar backgrounds, both academic and professional. They think so alike it caused the Global Alpha blip (along with the rest of the statarbs that tanked in 07/08). They don't need to talk to each other to have the same idea.
Vast disparities in wealth are incompatible with democracy and civil society. You can't have either when one small group of people gets to play by a completely different set of rules than everyone else. Given that you, personally, are more likely to get hit by a meteor and then struck by lightning than you are to accumulate your own vast wealth, and given that you, personally, benefit immensely from living in a democratic civil society, you, personally, should be against vast disparities in wealth. This applies to the 99.99 percent of people who will never accumulate more than a million in assets in their lifetime. Why let that .01 percent make the rules? They are making the rules, but you are the majority, meaning, you are letting them make the rules. You don't have to let them do that.
Most people who accumulate a million bucks are fairly ordinary, not the type you tend to hear about on television. Middle aged people who've worked their whole lives and spent frugally.
You're right that people ought to be under the same law, but what makes you think some people are above the law? We regularly hear about CEOs and other types who end up in jail. Apparently really nice jails, but jails nonetheless. Sure, money makes some people more powerful than others, but mostly you have to stay within the law to make a bunch of money.
The real danger is that by trying to right the wrongs, you create a socialist dystopia that's meant to be fair, but isn't. Hand out welfare payments meant for people who can't find a job, and find that suddenly the working poor are worse off than the nonworking. You also end up relying on the state to plan everything, make every decision. Guess what, people who work for the government are fallible too.
You don't think they deserve due process? You don't think any of them might have legitimately acquired their wealth?
I don't know why all games don't simply implement something along the lines of chess ratings. FIFA is the only one I play which comes to mind. With a rating system, everyone can have a somewhat challenging time playing with someone of similar skill.
The worst is things like WoW and MW2, where it's time spent that makes you powerful. All you really guarantee is that people at the top level know what the basic functions of the game are. The guild element in WoW somewhat mitigates antisocial behaviour, but it doesn't guarantee that your mates have read the notes on a given instance.
With MW2, the need for ratings is even more obvious. People who don't have more than a couple of hours a week should not be pitted with people who can headshot you with a Desert Eagle 100m away. This should be pretty easy to implement. You get owned, relegation. You own everyone, promotion.
I think the main argument is that Joe Investor benefits from having more liquidity. He can buy/sell a larger amount of shares than he would otherwise. Remember many people invest via huge pension funds, which have to shift pretty large amounts of shares.
The best explanation I can come up with is that if you don't have a secondary market for people to trade stocks in, fewer people will decide to fund new companies. Basically, if you can't get out, you'd be reluctant to get in. By having a market, you can decide whether you think the future revenue stream (dividends) are going to be worth your while. If not, you can find someone who will take the other side.
What the market participants are doing is generating liquidity, which is beneficial to everyone. If you buy some Apple, and you decide to change your mind, you can sell them again immediately for a only slightly worsened price, to someone who is immediately available. Not so with for instance a house, where it could take ages to get paperwork done, and a buyer isn't available immediately. If you were panicking to sell your house, you'd probably lose a great deal more on the discount you'd have to give.
Another benefit is in the word "shares." Wanna buy a factory yourself, and see if you can sell iPods? No, me neither. But you can buy a tiny little piece of one, in proportion to the risk you want to take.
TFA is pretty sensible. Get a degree so you can get a job in an established business. Then learn about the industry while you're being paid a salary. And then, if you like, try opening your own shop.
I've worked for a few failed startups, right after college, as well as in an established financial business. I'm now running my own in partnership with some friends I met at a previous job. You can't really get in without the credentials, and it's worthwhile to learn a few things in college anyway. The problem with the alternative is that in any business, there's a load of unknown unknowns (thanks Donald). If you just leap into it, you won't know anything about industry norms, and you'll have to hope that a VC comes by and teaches you. To put it simply: you've either got a stunning new product that will change the world. Or you're a clown who should have known why that wouldn't work. Zuckerberg got pretty lucky.
I'd add this: Roll the dice a few times with startups. It's fun, and you'll probably be able to get back on the ladder when things go wrong. But you can't roll the dice forever, as you might want to have a family. So if you don't make it big, you've at least tried, and are still able to feed yourself. But definitely try. Forget the ladder while you're in your mid 20s.