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I'm curious what the answer was. I've read plenty about how the boutique finance sector is basically a parasite that only benefits a small cohort of already wea

by allo37 3y ago

I'm curious what the answer was. I've read plenty about how the boutique finance sector is basically a parasite that only benefits a small cohort of already wealthy individuals, would like to hear what the other side has to say.

gsuuon 3y ago
I think the value add of the speculative markets is (in theory) that people make predictions of what will be valuable -- if they're right they earn and if not they lose out. In effect, it's market research expressed as bets. That information can have utility but my opinion is that our current setup probably over rewards this sort of work.
nameless912 3y ago
Right? Like, I tried really hard to prepare a very neutral answer focusing on taking advantage of arbitrage and fixing over- or under-priced securities, which I think is the closest thing to a benefit you could come up with. And that apparently wasn't good enough for this guy.
- nvm0n2 3y ago
  He was checking if you understand what the actual benefits of trading firms are to the wider market participants. I've never worked in trading and even I know the answer to that: he was looking for a discussion of the value of liquidity and price discovery. Sounds like you gave an answer that didn't mention that at all, and may have presented the firm as merely taking advantage of other people's mistakes to make profit. Clearly that's not how he saw it, and the VP correctly guessed from your social media that you may not actually have understood the part of the finance industry that you were applying to work for. The question was to check whether you'd actually be enthusiastic about the work you were doing and you did indeed fail it. This would be like if you turned up at Google and an interviewer said, "What do we do here" and you said "exploit data to profit from people's ignorance" and when they gave you a second chance you couldn't answer. Frankly you can't get a job at most firms if you can't explain why you think the company should exist.
jerkstate 3y ago
The answer I get from people working at market makers I’ve talked to is that they provide liquidity (so you can buy or sell a security immediately rather than waiting minutes or hours?) and decrease volatility. An example is onions futures; see https://en.m.wikipedia.org/wiki/Onion_Futures_Act https://en.m.wikipedia.org/wiki/Onion_Futures_Act and check the onions price history: https://fred.stlouisfed.org/series/WPU01130216/ https://fred.stlouisfed.org/series/WPU01130216/ compared to a commodity where futures trading in common, like corn: https://fred.stlouisfed.org/series/PMAIZMTUSDM https://fred.stlouisfed.org/series/PMAIZMTUSDM where there are price swings but the volatility and frequency of the swings is lower. I’m a layperson, not involved in finance, but this is the value add I most commonly hear about.
- scubbo 3y ago
  Likewise, this is the answer I generally hear from those folks. IME it's still begging the question - the increased liquidity is still overwhelmingly only meaningful to those already-ultra-rich, unless you subscribe to trickle-down Economics.
- mihaaly 3y ago
  This does not sound as value for the society but advantage for the tradesman.
- abdullahkhalids 3y ago
  One set of markers of a "good" industry or organization is whether they pay for all the harm they create in society and whether their profits are equal to or below the value they create for society. For instance, the oil/car industry pays for basically none of the large negative externalities they create. In this case, I hazard that futures industry captures more value than they create. And that value is extracted from other players in the vertical chain, particularly farmers.
  - scarby2 3y ago
    futures contracts work somewhat well for farmers. There's a level of certainty provided and they are reducing their risk so that a low price at the end of the season doesn't ruin them (however they also don't profit from a higher price). As a farmer i would likely prefer to sell a certain percentage of my goods with a futures contract so that i can have less risk of financial ruin.
m463 3y ago
I wonder too. Some things are really non-intuitive. I really enjoyed "The Rational Optimist" where it explains things like trade, which tends to make everyone wealthy, while generally the people trading think they are both getting the better end of the deal.

by allo37 3y ago

gsuuon 3y ago

I think the value add of the speculative markets is (in theory) that people make predictions of what will be valuable -- if they're right they earn and if not they lose out. In effect, it's market research expressed as bets. That information can have utility but my opinion is that our current setup probably over rewards this sort of work.

nameless912 3y ago

Right? Like, I tried really hard to prepare a very neutral answer focusing on taking advantage of arbitrage and fixing over- or under-priced securities, which I think is the closest thing to a benefit you could come up with. And that apparently wasn't good enough for this guy.

nvm0n2 3y ago
He was checking if you understand what the actual benefits of trading firms are to the wider market participants. I've never worked in trading and even I know the answer to that: he was looking for a discussion of the value of liquidity and price discovery. Sounds like you gave an answer that didn't mention that at all, and may have presented the firm as merely taking advantage of other people's mistakes to make profit. Clearly that's not how he saw it, and the VP correctly guessed from your social media that you may not actually have understood the part of the finance industry that you were applying to work for. The question was to check whether you'd actually be enthusiastic about the work you were doing and you did indeed fail it. This would be like if you turned up at Google and an interviewer said, "What do we do here" and you said "exploit data to profit from people's ignorance" and when they gave you a second chance you couldn't answer. Frankly you can't get a job at most firms if you can't explain why you think the company should exist.

jerkstate 3y ago

The answer I get from people working at market makers I’ve talked to is that they provide liquidity (so you can buy or sell a security immediately rather than waiting minutes or hours?) and decrease volatility. An example is onions futures; see https://en.m.wikipedia.org/wiki/Onion_Futures_Act https://en.m.wikipedia.org/wiki/Onion_Futures_Act and check the onions price history: https://fred.stlouisfed.org/series/WPU01130216/ https://fred.stlouisfed.org/series/WPU01130216/ compared to a commodity where futures trading in common, like corn: https://fred.stlouisfed.org/series/PMAIZMTUSDM https://fred.stlouisfed.org/series/PMAIZMTUSDM where there are price swings but the volatility and frequency of the swings is lower. I’m a layperson, not involved in finance, but this is the value add I most commonly hear about.

scubbo 3y ago
Likewise, this is the answer I generally hear from those folks. IME it's still begging the question - the increased liquidity is still overwhelmingly only meaningful to those already-ultra-rich, unless you subscribe to trickle-down Economics.
mihaaly 3y ago
This does not sound as value for the society but advantage for the tradesman.
abdullahkhalids 3y ago
One set of markers of a "good" industry or organization is whether they pay for all the harm they create in society and whether their profits are equal to or below the value they create for society. For instance, the oil/car industry pays for basically none of the large negative externalities they create. In this case, I hazard that futures industry captures more value than they create. And that value is extracted from other players in the vertical chain, particularly farmers.
- scarby2 3y ago
  futures contracts work somewhat well for farmers. There's a level of certainty provided and they are reducing their risk so that a low price at the end of the season doesn't ruin them (however they also don't profit from a higher price). As a farmer i would likely prefer to sell a certain percentage of my goods with a futures contract so that i can have less risk of financial ruin.

m463 3y ago

I wonder too. Some things are really non-intuitive. I really enjoyed "The Rational Optimist" where it explains things like trade, which tends to make everyone wealthy, while generally the people trading think they are both getting the better end of the deal.