7 ms·

> A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar. A free trade is where not only equal value

> A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar. A free trade is where not only equal value is exchanged (according to the values assigned by the traders), but both parties benefit from the trade. Otherwise they wouldn't trade. Whether a trade is flipped a short time or a long time later makes no difference. For example, if I buy MSFT for $100 and later sold it for $110, who "lost" $10?

dragonwriter 8y ago
> A free trade is where not only equal value is exchanged (according to the values assigned by the traders), but both parties benefit from the trade. Otherwise they wouldn't trade. This is only true under the perfect information about future utilities assumption, which is false generally and strikingly false when it comes to financial markets. Financial trades often reflect imperfect information and either different risk tolerance or simple information asymmetry what one party has a more accurate estimate of future performance than the other. Neither of these situations involves actual realized mutual benefit.
- skookumchuck 8y ago
  > This is only true under the perfect information about future utilities assumption, which is false generally and strikingly false when it comes to financial markets. There is no such thing as perfect information, and you're not going to get it via government regulation or values fixed by government fiat, either. Free markets do not rely on perfect information at all. They rely on the participants making their own decisions on what the value is to themselves. Even if you are sure they are wrong. > actual realized mutual benefit You also cannot decide for others what is of benefit to them. They may (and surely do) value different factors entirely differently than you do.
  - dragonwriter 8y ago
    > There is no such thing as perfect information Exactly, which is why the microeconomics 101 “free trades have mutual benefit or they wouldn't happen” idea is generally wrong, though it may tolerably approximate reality under the best possible conditions in certain markets.
    - skookumchuck 8y ago
      It is not wrong. The correct phrase is: "Free trades have mutual perceived benefit or they wouldn't happen." What makes a free trade free is the absence of force or fraud, not perfect information. By the way, imperfect information is also called "risk", and risk affects the price of the trade. It's why responsible people can borrow money at lower rates than irresponsible ones. Or why a car that won't start will sell at a far lower price than one that does, even if the repair is reconnecting a loose wire. Or why you'll be willing to pay more for an item from a reputable dealer than an unknown one.
    - antidesitter 8y ago
      > the microeconomics 101 “free trades have mutual benefit or they wouldn't happen” idea is generally wrong You have provided zero evidence to support your claim that this is “generally wrong”.
- antidesitter 8y ago
  > This is only true under the perfect information about future utilities assumption No, perfect information is not necessary.
airstrike 8y ago
Agreed. Both parties are better off because the trade has utility not because they necessarily earn a dollar.
- crimsonalucard 8y ago
  This is also flawed. A stock typically has no utility because the share percentage is so small the only thing you can do with it is sell it to the next fool who wants to start the cycle over again. Do not make the mistake of thinking that a thing has utility because we "think" or "believe" it has utility. The usefulness of a product is more tied to the physical world then it is to our opinions. The act of trading stocks offers no utility to the world and therefore a huge portion of the stock market also offers zero utility to the world.
  - skookumchuck 8y ago
    You may believe it has no utility, but the stock market was a great invention in finance, and no country has been able to economically prosper without one ever since.
    - crimsonalucard 8y ago
      I shouldn't say absolutely no utility. I mean to say after an IPO every transaction or trade of a stock share generates ZERO utility. Here's a picture of a country that has no stock market that prospers: https://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Vista_de_M%C3%B3naco%2C_2016-06-23%2C_DD_13.jpg/1920px-Vista_de_M%C3%B3naco%2C_2016-06-23%2C_DD_13.jpg?1534579849677 https://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Vi...
      - skookumchuck 8y ago
        Do you believe the companies operating in Monaco are not traded on a stock exchange?
        8y ago
crimsonalucard 8y ago
This makes sense. If both parties benefit then we should start an economy that consists of only a stock market. Get rid of farmers, factories and other products. Just have this market of people trading certificates representing Corporations. According to your logic every time a transaction happens both parties benefit and the economy grows! Thus we can continuously grow an economy just by trading paper! Obviously this doesn't make sense.... Utility and value is not a concept that is solely tied to human opinion or imagination. It is not just your opinion that shapes the value of something... your opinion does not change the fact that you need food to survive, try as hard as you might to change your opinion on the value of food, you cannot reduce the utility of food to zero, you cannot change the fact that it is required sustenance for us to survive... Value and utility are intrinsically tied to physical matter and physical energy, it is less abstract than you think. All things of value and all things that have utility are actually things with reduced entropy. I can't say that all things of reduced entropy have value, but all things of value absolutely have reduced entropy. Reduced entropy can be exchanged, moved and created when you input more energy into the system. It is also constantly running out. Because of this it is by far better to think of value and utility from a natural resource perspective, the same way we view energy oil and mined products.
- skookumchuck 8y ago
  > According to your logic every time a transaction happens both parties benefit and the economy grows! That's actually correct. The stock market is a mechanism for investment to be transferred from less productive uses to more productive uses. > Get rid of farmers, factories and other products. That doesn't follow. Just because wheels are very useful, doesn't mean wheels are the only thing that need be produced. > Value and utility are intrinsically tied to physical matter and physical energy, No, they are not. Ideas and execution have value, too. That's why, for example, libraries have value - in the form of the information in the books, not the physical manifestation of the books.
  - crimsonalucard 8y ago
    >That's actually correct. The stock market is a mechanism for investment to be transferred from less productive uses to more productive use No it is not. Imagine a stock market consisting of two people and a single certificate representing a corporation. Now imagine both people constantly trying to sell to each other that certificate at a higher price and buy the certificate at a lower price. This is essentially a scaled down version of the stock market. Nothing of value is created, only a game is played similar to gambling. You can scale this example up to thousands of companies each divided up into shares with thousands of people making transactions, the principle is the same. The act of a transaction is just paper and money being traded. Without farms, food and factories no utility producing action is happening. Issuing stocks can generate utility, but trading stocks generates nothing because you are trading paper. >That doesn't follow. Just because wheels are very useful, doesn't mean wheels are the only thing that need be produced. It does follow. You can have an economy of farmers, factories and other products WITHOUT stocks. Because these things are the primary drivers of an economy. You cannot have an economy of just a stock market without physical goods because the stock market is just an abstraction on top of what is essentially the true nature of an economy: the exchanging of products with utility. A stock certificate only represents utility. >No, they are not. Ideas and execution have value, too. That's why, for example, libraries have value - in the form of the information in the books, not the physical manifestation of the books. What does it take to form an idea? You need to feed yourself food to sustain yourself, you need energy from the physical world to formulate the idea. And it doesn't stop there, an idea by itself has no utility until it is deployed into the physical realm as a physical product or service. The formation of an idea up to it's crystallization into the physical world involve the injection of energy. THe process from beginning to end involves the reversal of entropy. The ideas in a library took energy to form. Additionally even the storage of those ideas require physical tomes in order to be set in stone. An idea, like utility is not as ephemeral as you think. All ideas take physical space to store whether it be on a hard drive, your brain, or the pages of a book.
raincom 8y ago
> For example, if I buy MSFT for $100 and later sold it for $110, who "lost" $10? It is hard to answer at micro level--that is, it is hard to answer who gained or lost. However, at macro level, this question has been tackled from the sectoral balances framework introduced by Wynne Godley. On the aggregate, households spend less than they earn/receive. So, households accumulate net financial assets and tangible/real assets. During a stock boom, the net wealth of households increase. During a crash, the net wealth could become negative.

dragonwriter 8y ago

> A free trade is where not only equal value is exchanged (according to the values assigned by the traders), but both parties benefit from the trade. Otherwise they wouldn't trade. This is only true under the perfect information about future utilities assumption, which is false generally and strikingly false when it comes to financial markets. Financial trades often reflect imperfect information and either different risk tolerance or simple information asymmetry what one party has a more accurate estimate of future performance than the other. Neither of these situations involves actual realized mutual benefit.

skookumchuck 8y ago
> This is only true under the perfect information about future utilities assumption, which is false generally and strikingly false when it comes to financial markets. There is no such thing as perfect information, and you're not going to get it via government regulation or values fixed by government fiat, either. Free markets do not rely on perfect information at all. They rely on the participants making their own decisions on what the value is to themselves. Even if you are sure they are wrong. > actual realized mutual benefit You also cannot decide for others what is of benefit to them. They may (and surely do) value different factors entirely differently than you do.
- dragonwriter 8y ago
  > There is no such thing as perfect information Exactly, which is why the microeconomics 101 “free trades have mutual benefit or they wouldn't happen” idea is generally wrong, though it may tolerably approximate reality under the best possible conditions in certain markets.
  - skookumchuck 8y ago
    It is not wrong. The correct phrase is: "Free trades have mutual perceived benefit or they wouldn't happen." What makes a free trade free is the absence of force or fraud, not perfect information. By the way, imperfect information is also called "risk", and risk affects the price of the trade. It's why responsible people can borrow money at lower rates than irresponsible ones. Or why a car that won't start will sell at a far lower price than one that does, even if the repair is reconnecting a loose wire. Or why you'll be willing to pay more for an item from a reputable dealer than an unknown one.
  - antidesitter 8y ago
    > the microeconomics 101 “free trades have mutual benefit or they wouldn't happen” idea is generally wrong You have provided zero evidence to support your claim that this is “generally wrong”.
antidesitter 8y ago
> This is only true under the perfect information about future utilities assumption No, perfect information is not necessary.

airstrike 8y ago

Agreed. Both parties are better off because the trade has utility not because they necessarily earn a dollar.

crimsonalucard 8y ago
This is also flawed. A stock typically has no utility because the share percentage is so small the only thing you can do with it is sell it to the next fool who wants to start the cycle over again. Do not make the mistake of thinking that a thing has utility because we "think" or "believe" it has utility. The usefulness of a product is more tied to the physical world then it is to our opinions. The act of trading stocks offers no utility to the world and therefore a huge portion of the stock market also offers zero utility to the world.
- skookumchuck 8y ago
  You may believe it has no utility, but the stock market was a great invention in finance, and no country has been able to economically prosper without one ever since.
  - crimsonalucard 8y ago
    I shouldn't say absolutely no utility. I mean to say after an IPO every transaction or trade of a stock share generates ZERO utility. Here's a picture of a country that has no stock market that prospers: https://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Vista_de_M%C3%B3naco%2C_2016-06-23%2C_DD_13.jpg/1920px-Vista_de_M%C3%B3naco%2C_2016-06-23%2C_DD_13.jpg?1534579849677 https://upload.wikimedia.org/wikipedia/commons/thumb/4/48/Vi...
    - skookumchuck 8y ago
      Do you believe the companies operating in Monaco are not traded on a stock exchange?
      - 8y ago

crimsonalucard 8y ago

This makes sense. If both parties benefit then we should start an economy that consists of only a stock market. Get rid of farmers, factories and other products. Just have this market of people trading certificates representing Corporations. According to your logic every time a transaction happens both parties benefit and the economy grows! Thus we can continuously grow an economy just by trading paper! Obviously this doesn't make sense.... Utility and value is not a concept that is solely tied to human opinion or imagination. It is not just your opinion that shapes the value of something... your opinion does not change the fact that you need food to survive, try as hard as you might to change your opinion on the value of food, you cannot reduce the utility of food to zero, you cannot change the fact that it is required sustenance for us to survive... Value and utility are intrinsically tied to physical matter and physical energy, it is less abstract than you think. All things of value and all things that have utility are actually things with reduced entropy. I can't say that all things of reduced entropy have value, but all things of value absolutely have reduced entropy. Reduced entropy can be exchanged, moved and created when you input more energy into the system. It is also constantly running out. Because of this it is by far better to think of value and utility from a natural resource perspective, the same way we view energy oil and mined products.

skookumchuck 8y ago
> According to your logic every time a transaction happens both parties benefit and the economy grows! That's actually correct. The stock market is a mechanism for investment to be transferred from less productive uses to more productive uses. > Get rid of farmers, factories and other products. That doesn't follow. Just because wheels are very useful, doesn't mean wheels are the only thing that need be produced. > Value and utility are intrinsically tied to physical matter and physical energy, No, they are not. Ideas and execution have value, too. That's why, for example, libraries have value - in the form of the information in the books, not the physical manifestation of the books.
- crimsonalucard 8y ago
  >That's actually correct. The stock market is a mechanism for investment to be transferred from less productive uses to more productive use No it is not. Imagine a stock market consisting of two people and a single certificate representing a corporation. Now imagine both people constantly trying to sell to each other that certificate at a higher price and buy the certificate at a lower price. This is essentially a scaled down version of the stock market. Nothing of value is created, only a game is played similar to gambling. You can scale this example up to thousands of companies each divided up into shares with thousands of people making transactions, the principle is the same. The act of a transaction is just paper and money being traded. Without farms, food and factories no utility producing action is happening. Issuing stocks can generate utility, but trading stocks generates nothing because you are trading paper. >That doesn't follow. Just because wheels are very useful, doesn't mean wheels are the only thing that need be produced. It does follow. You can have an economy of farmers, factories and other products WITHOUT stocks. Because these things are the primary drivers of an economy. You cannot have an economy of just a stock market without physical goods because the stock market is just an abstraction on top of what is essentially the true nature of an economy: the exchanging of products with utility. A stock certificate only represents utility. >No, they are not. Ideas and execution have value, too. That's why, for example, libraries have value - in the form of the information in the books, not the physical manifestation of the books. What does it take to form an idea? You need to feed yourself food to sustain yourself, you need energy from the physical world to formulate the idea. And it doesn't stop there, an idea by itself has no utility until it is deployed into the physical realm as a physical product or service. The formation of an idea up to it's crystallization into the physical world involve the injection of energy. THe process from beginning to end involves the reversal of entropy. The ideas in a library took energy to form. Additionally even the storage of those ideas require physical tomes in order to be set in stone. An idea, like utility is not as ephemeral as you think. All ideas take physical space to store whether it be on a hard drive, your brain, or the pages of a book.

raincom 8y ago

> For example, if I buy MSFT for $100 and later sold it for $110, who "lost" $10? It is hard to answer at micro level--that is, it is hard to answer who gained or lost. However, at macro level, this question has been tackled from the sectoral balances framework introduced by Wynne Godley. On the aggregate, households spend less than they earn/receive. So, households accumulate net financial assets and tangible/real assets. During a stock boom, the net wealth of households increase. During a crash, the net wealth could become negative.