5 ms·

I know next to nothing about trading. But it's become apparent to me that some of the core concepts/terms in trading (long, short, hedge, liquidity, futures, co

by csallen 14y ago

I know next to nothing about trading. But it's become apparent to me that some of the core concepts/terms in trading (long, short, hedge, liquidity, futures, cover, etc) are very useful for modeling things in other walks of life. So, trading-savvy HNers: Are there any books, websites, or habits that you'd highly recommend to help a newbie become familiar with basic trading concepts?

dekayed 14y ago
I've been taking the Computational Investing course on Coursera. I knew next to nothing about trading and its definitely been helpful with the basics. https://class.coursera.org/compinvesting1-2012-001/ https://class.coursera.org/compinvesting1-2012-001/
- ch00 14y ago
  I have also been following this course and am extremely disappointed in its quality -- not just in poor production, but also in the coverage of course material. I would not recommend this as a primer on investing.
  - 1wheel 14y ago
    http://blogs.reuters.com/felix-salmon/2012/11/21/online-course-of-the-day-investing-department/ http://blogs.reuters.com/felix-salmon/2012/11/21/online-cour...
A__MJ 14y ago
Open an account on thinkOrSwim (etrade, whoever), fund it, trade with small amounts of money and research everything as you go. Arbitrarily, SLV, which is an ETF that tracks silver futures. If you want to play with fire (and learn a lot of cool stuff), trade options (that's what I used to do) Websites: SeekingAlpha (side note: financial articles, SA included, are sophisticated-sounding babble put out by someone that has to meet their quota, not well-thought-out logical explanations by people in-the-know) Make a list of terminology and learn directly what it means to your trading. Pretty much any trading term that has general meaning and isn't arcane and quant-y is googleable. I recall Khan Academy also having very useful videos explaining a lot of terminology (Salman Khan used to be a trader) For example, in SLV: Liquidity: How easy (read: cheap) it is to open and close a position. If the spread on an option is $33.00 (sell) and $33.33 (buy), you lose 1% (most people say $0.33 - I prefer to look at the percentages) just by getting in and out of a position regardless of your trade (I'm ignoring commissions), and assuming the trade reliably goes through instantly. The higher the cost (time, risk of nonfulfillment, money) of opening and closing a position, the more illiquid the position is. In the context of houses, the time and effort and money put into maintenance and time and uncertainty involved in buying/selling, etc make them extremely illiquid investments. If you own AAPL stock and it crashes, you can hit a button and sell it. If you own a house and the housing market collapses, good luck! If I were to invest the cost of a house in some high-volume stock with a tight bid-ask ratio and sell it two years later for the same price by hitting a button on my phone, my losses are just the bid-ask difference and I was never really at much risk of being unable to sell it instantly (during market hours at least). It's a very liquid position. That's just one example, but there are plenty out there. Jump in feet first, google all the things, and don't wager stupid amounts of money.
001sky 14y ago
Something like "Options as a Strategic Investment" is probably the shallow end of the big pool of modern trading. Highly recommended. Others might disagree, and say its over-ambitious (without some technical chops). http://www.amazon.com/Options-Strategic-Investment-Lawrence-McMillan/dp/0735201978 http://www.amazon.com/Options-Strategic-Investment-Lawrence-...
bradleyjg 14y ago
Pick up a few books like Liar's Poker, When Genius Failed, and Barbarians at the Gate. That'll give you an engaging intro. Then you can start reading sites like FT, seekingalpha, Bloomberg, etc. A few pieces of advice: under no circumstances do you want to get caught in the weeds of technical analysis, similarly stay away from the gold bugs, and finally learning is good, but don't jump in unless you are prepared to lose your shirt.
- javert 14y ago
  under no circumstances do you want to get caught in the weeds of technical analysis Why is that? (I ask as someone who is genuinely curious and has no prejudice, not as someone who disagrees with you.) similarly stay away from the gold bugs What do you mean? Do you mean, "Don't buy gold," or do you mean something more than that? And, why? (Similar caveat to before, modulo that it looks obvious to me that gold is a much safer store of value than almost anything else and probably even a good investment.)
  - mdda 14y ago
    Quick answers : Technical analysis can give you a false sense of 'knowledge' - when you may only be picking up patterns in randomness. But it's very seductive in its certitude. Gold : If the 'store of value' argument is obvious to you, it's also obvious to a lot of other people. The price of gold tends to balance out the two camps : Anyone who sells you gold believes (naturally) that the price is higher than can be justified (vs. other assets). Gold can certainly go up and down from here. People also used to believe that houses were a fantastic store of value ('everyone has to live somewhere') - that was only 6 years ago. The typical trader's wisdom is that if a taxi driver (or some other version of 'the man in the street') offers an opinion about a 'sure thing' - run in the opposite direction. Currently, taxi drivers love gold. A few years ago, they had friends flipping condos. Before that it was internet stocks, etc...
    - javert 14y ago
      Your answer on gold has definitely made me think. If the 'store of value' argument is obvious to you, it's also obvious to a lot of other people. I don't know, I mean, there's lots of smart people who think gold bugs are just nutty libertarian types, and then there are other smart people who aren't particularly bullish on gold (such as yourself). But it seems kind of backwards to just "do the opposite of what everyone thinks is a sure thing" (as you said) or "do the same and jump on the bandwagon". Ultimately, in many cases, there will be economic fundamentals (and not just other people's sentiments) that will drive the value of things over time. Which leads me to a more specific question: What kind of event would cause a major "correction" that would drive the gold price down (either over time, but a significant downward trend, or suddenly, like a bubble popping)? I can't really think of one. Can you? I mean, one would be if everybody "sentimentally" just decided gold was in a huge bubble, but that seems quite unlikely without an underlying factual reason. Another would be if there were lots of much better investment opportunities, that would drive wealth stored in gold into factors of production... e.g. a very major, capital-intensive global economic boom. Right? Which is something I would be willing to bet against, at least over the course of the next decade.
brc 14y ago
The best books are the 'Interview' series by Jack Schwager. These date right back to the 1980s until a very recent release last year. They are just interview format books with successful traders from a very wide variety of markets and styles. The key takeaways from the books are 'your investment style must fit your personality' and 'anything is tradeable if you have an edge'. The books will give you a very good grounding in trading concepts as well as open your eyes as to the diversity of people that succeed in the field. It will also help you dismiss 'advice' like 'technical trading is useless' or 'fundamental trading is hopeless', because you will be able to detect the advice-givers bias, and realise that, like anything, it's different strokes for different folks. What matters (in trading, in life) is that you identify an edge you hold, and apply that edge with discipline. And if you don't know what your edge is, you don't have one.
Patient0 14y ago
"A random walk down Wall Street" by Burton Malkiel is the classic layman's introduction to investing. I would also recommend "Fooled by Randomness" for the introduction of the essential idea that most returns are not "normally distributed" - most profit and loss happens via wild swings, and most successful people are lucky rather than good. Finally, for a more technical but very entertaining read: "Trading and Exhanges" by Larry Harris. eg in this book I learnt about "the Brazilian straddle" options position: a naked short option position hedged with a one way ticket to Brazil. (in case the bet goes against you) ;)
deleted 14y ago
[deleted]
bjacokes 14y ago
Like with any other language, I've found that frequent interaction with financial terms improves your literacy and helps you make better connections between ideas. For instance, a few years ago when Southwest Airlines seemed to have much lower prices than everyone else, I read that they had bought futures contracts back when oil prices were low. Right there you have a company that's 'naturally short' oil, who 'hedged' against rising prices by buying 'futures', etc. A couple of good sources for financial news are the APM Marketplace podcast and Felix Salmon's blog on Reuters, and you can look up terms on Wikipedia when needed. Keep in mind that a bunch of the commonly recommended finance books are either a bit pop-finance (Liar's Poker) or somewhat outdated (Intelligent Investor), which is OK if your goal is to be entertained or well-versed, respectively. Most authors have a thesis, and if you were to only devote time to one book and it happened to be something like Fooled by Randomness, you'd find yourself with a very skewed view of things. That's why I'd suggest current news if you're only interested in financial terms as they relate to your job. And finally, like with any other jargon, realize that while it's useful to know and can help formulate ideas, a lot of people overuse it. Not saying this article does it, but I've seen finance people go "short" undesirable menu items at a restaurant. Don't let the gratuitousness make you think these terms are more important than they are :)
alexchamberlain 14y ago
Stocks, Bonds, Options, Futures. Simple, yet effective.
kevinpet 14y ago
Trading and Exchanges: Market Microstructure for Practitioners. Larry Harris. http://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitioners/dp/0195144708 http://www.amazon.com/Trading-Exchanges-Market-Microstructur... This does a really good job of explaining how having people fulfilling different roles viz trader, dealer, investor results in being able to buy and sell whatever you want whenever you want. I wish I could send a copy to everyone who thinks flipping second-hand goods on Craigslist is arbitrage.
- rgovind 14y ago
  Just curious. Can you plz elaborate quickly in one or two sentences why you wouldn't consider it arbitrage? Is it because of costs involved?
chnabeelahmed 14y ago
Last year I was in a kindof similar situation, this stock, investment, trading always intrigued me.Started with random reads i.e. articles at marketplace, FT and looking for terminologies at investopedia. The first formal read was: Trading for dummies (sounds bit noobish) but it proved a top move, with zero distractions and aqcuired the basic fundamental and technical analysis concepts plus lot more. After it, definitley go for some detail read Intelligent Investor, Liar's Poker .
yummyfajitas 14y ago
Wilmott's book if you aren't that great at math: http://www.amazon.com/gp/product/0470319585/ref=as_li_ss_tl?ie=UTF8&tag=christuc-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0470319585 http://www.amazon.com/gp/product/0470319585/ref=as_li_ss_tl?... Neftci's book if you are: http://www.amazon.com/gp/product/0125153929/ref=as_li_ss_tl?ie=UTF8&tag=christuc-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0125153929 http://www.amazon.com/gp/product/0125153929/ref=as_li_ss_tl?... (Both require some calculus.)
dmmalam 14y ago
These are the notes from Computational Finance course at Imperial College. They are particularly useful if your a CS major. https://www.dropbox.com/s/4jib6zc0q3su870/381%20Computational%20Finance.pdf https://www.dropbox.com/s/4jib6zc0q3su870/381%20Computationa...

by csallen 14y ago

dekayed 14y ago

I've been taking the Computational Investing course on Coursera. I knew next to nothing about trading and its definitely been helpful with the basics. https://class.coursera.org/compinvesting1-2012-001/ https://class.coursera.org/compinvesting1-2012-001/

ch00 14y ago
I have also been following this course and am extremely disappointed in its quality -- not just in poor production, but also in the coverage of course material. I would not recommend this as a primer on investing.
- 1wheel 14y ago
  http://blogs.reuters.com/felix-salmon/2012/11/21/online-course-of-the-day-investing-department/ http://blogs.reuters.com/felix-salmon/2012/11/21/online-cour...

A__MJ 14y ago

Open an account on thinkOrSwim (etrade, whoever), fund it, trade with small amounts of money and research everything as you go. Arbitrarily, SLV, which is an ETF that tracks silver futures. If you want to play with fire (and learn a lot of cool stuff), trade options (that's what I used to do) Websites: SeekingAlpha (side note: financial articles, SA included, are sophisticated-sounding babble put out by someone that has to meet their quota, not well-thought-out logical explanations by people in-the-know) Make a list of terminology and learn directly what it means to your trading. Pretty much any trading term that has general meaning and isn't arcane and quant-y is googleable. I recall Khan Academy also having very useful videos explaining a lot of terminology (Salman Khan used to be a trader) For example, in SLV: Liquidity: How easy (read: cheap) it is to open and close a position. If the spread on an option is $33.00 (sell) and $33.33 (buy), you lose 1% (most people say $0.33 - I prefer to look at the percentages) just by getting in and out of a position regardless of your trade (I'm ignoring commissions), and assuming the trade reliably goes through instantly. The higher the cost (time, risk of nonfulfillment, money) of opening and closing a position, the more illiquid the position is. In the context of houses, the time and effort and money put into maintenance and time and uncertainty involved in buying/selling, etc make them extremely illiquid investments. If you own AAPL stock and it crashes, you can hit a button and sell it. If you own a house and the housing market collapses, good luck! If I were to invest the cost of a house in some high-volume stock with a tight bid-ask ratio and sell it two years later for the same price by hitting a button on my phone, my losses are just the bid-ask difference and I was never really at much risk of being unable to sell it instantly (during market hours at least). It's a very liquid position. That's just one example, but there are plenty out there. Jump in feet first, google all the things, and don't wager stupid amounts of money.

001sky 14y ago

Something like "Options as a Strategic Investment" is probably the shallow end of the big pool of modern trading. Highly recommended. Others might disagree, and say its over-ambitious (without some technical chops). http://www.amazon.com/Options-Strategic-Investment-Lawrence-McMillan/dp/0735201978 http://www.amazon.com/Options-Strategic-Investment-Lawrence-...

bradleyjg 14y ago

Pick up a few books like Liar's Poker, When Genius Failed, and Barbarians at the Gate. That'll give you an engaging intro. Then you can start reading sites like FT, seekingalpha, Bloomberg, etc. A few pieces of advice: under no circumstances do you want to get caught in the weeds of technical analysis, similarly stay away from the gold bugs, and finally learning is good, but don't jump in unless you are prepared to lose your shirt.

javert 14y ago
under no circumstances do you want to get caught in the weeds of technical analysis Why is that? (I ask as someone who is genuinely curious and has no prejudice, not as someone who disagrees with you.) similarly stay away from the gold bugs What do you mean? Do you mean, "Don't buy gold," or do you mean something more than that? And, why? (Similar caveat to before, modulo that it looks obvious to me that gold is a much safer store of value than almost anything else and probably even a good investment.)
- mdda 14y ago
  Quick answers : Technical analysis can give you a false sense of 'knowledge' - when you may only be picking up patterns in randomness. But it's very seductive in its certitude. Gold : If the 'store of value' argument is obvious to you, it's also obvious to a lot of other people. The price of gold tends to balance out the two camps : Anyone who sells you gold believes (naturally) that the price is higher than can be justified (vs. other assets). Gold can certainly go up and down from here. People also used to believe that houses were a fantastic store of value ('everyone has to live somewhere') - that was only 6 years ago. The typical trader's wisdom is that if a taxi driver (or some other version of 'the man in the street') offers an opinion about a 'sure thing' - run in the opposite direction. Currently, taxi drivers love gold. A few years ago, they had friends flipping condos. Before that it was internet stocks, etc...
  - javert 14y ago
    Your answer on gold has definitely made me think. If the 'store of value' argument is obvious to you, it's also obvious to a lot of other people. I don't know, I mean, there's lots of smart people who think gold bugs are just nutty libertarian types, and then there are other smart people who aren't particularly bullish on gold (such as yourself). But it seems kind of backwards to just "do the opposite of what everyone thinks is a sure thing" (as you said) or "do the same and jump on the bandwagon". Ultimately, in many cases, there will be economic fundamentals (and not just other people's sentiments) that will drive the value of things over time. Which leads me to a more specific question: What kind of event would cause a major "correction" that would drive the gold price down (either over time, but a significant downward trend, or suddenly, like a bubble popping)? I can't really think of one. Can you? I mean, one would be if everybody "sentimentally" just decided gold was in a huge bubble, but that seems quite unlikely without an underlying factual reason. Another would be if there were lots of much better investment opportunities, that would drive wealth stored in gold into factors of production... e.g. a very major, capital-intensive global economic boom. Right? Which is something I would be willing to bet against, at least over the course of the next decade.

brc 14y ago

The best books are the 'Interview' series by Jack Schwager. These date right back to the 1980s until a very recent release last year. They are just interview format books with successful traders from a very wide variety of markets and styles. The key takeaways from the books are 'your investment style must fit your personality' and 'anything is tradeable if you have an edge'. The books will give you a very good grounding in trading concepts as well as open your eyes as to the diversity of people that succeed in the field. It will also help you dismiss 'advice' like 'technical trading is useless' or 'fundamental trading is hopeless', because you will be able to detect the advice-givers bias, and realise that, like anything, it's different strokes for different folks. What matters (in trading, in life) is that you identify an edge you hold, and apply that edge with discipline. And if you don't know what your edge is, you don't have one.

Patient0 14y ago

"A random walk down Wall Street" by Burton Malkiel is the classic layman's introduction to investing. I would also recommend "Fooled by Randomness" for the introduction of the essential idea that most returns are not "normally distributed" - most profit and loss happens via wild swings, and most successful people are lucky rather than good. Finally, for a more technical but very entertaining read: "Trading and Exhanges" by Larry Harris. eg in this book I learnt about "the Brazilian straddle" options position: a naked short option position hedged with a one way ticket to Brazil. (in case the bet goes against you) ;)

deleted 14y ago

[deleted]

bjacokes 14y ago

Like with any other language, I've found that frequent interaction with financial terms improves your literacy and helps you make better connections between ideas. For instance, a few years ago when Southwest Airlines seemed to have much lower prices than everyone else, I read that they had bought futures contracts back when oil prices were low. Right there you have a company that's 'naturally short' oil, who 'hedged' against rising prices by buying 'futures', etc. A couple of good sources for financial news are the APM Marketplace podcast and Felix Salmon's blog on Reuters, and you can look up terms on Wikipedia when needed. Keep in mind that a bunch of the commonly recommended finance books are either a bit pop-finance (Liar's Poker) or somewhat outdated (Intelligent Investor), which is OK if your goal is to be entertained or well-versed, respectively. Most authors have a thesis, and if you were to only devote time to one book and it happened to be something like Fooled by Randomness, you'd find yourself with a very skewed view of things. That's why I'd suggest current news if you're only interested in financial terms as they relate to your job. And finally, like with any other jargon, realize that while it's useful to know and can help formulate ideas, a lot of people overuse it. Not saying this article does it, but I've seen finance people go "short" undesirable menu items at a restaurant. Don't let the gratuitousness make you think these terms are more important than they are :)

alexchamberlain 14y ago

Stocks, Bonds, Options, Futures. Simple, yet effective.

kevinpet 14y ago

Trading and Exchanges: Market Microstructure for Practitioners. Larry Harris. http://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitioners/dp/0195144708 http://www.amazon.com/Trading-Exchanges-Market-Microstructur... This does a really good job of explaining how having people fulfilling different roles viz trader, dealer, investor results in being able to buy and sell whatever you want whenever you want. I wish I could send a copy to everyone who thinks flipping second-hand goods on Craigslist is arbitrage.

rgovind 14y ago
Just curious. Can you plz elaborate quickly in one or two sentences why you wouldn't consider it arbitrage? Is it because of costs involved?

chnabeelahmed 14y ago

Last year I was in a kindof similar situation, this stock, investment, trading always intrigued me.Started with random reads i.e. articles at marketplace, FT and looking for terminologies at investopedia. The first formal read was: Trading for dummies (sounds bit noobish) but it proved a top move, with zero distractions and aqcuired the basic fundamental and technical analysis concepts plus lot more. After it, definitley go for some detail read Intelligent Investor, Liar's Poker .

yummyfajitas 14y ago

Wilmott's book if you aren't that great at math: http://www.amazon.com/gp/product/0470319585/ref=as_li_ss_tl?ie=UTF8&tag=christuc-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0470319585 http://www.amazon.com/gp/product/0470319585/ref=as_li_ss_tl?... Neftci's book if you are: http://www.amazon.com/gp/product/0125153929/ref=as_li_ss_tl?ie=UTF8&tag=christuc-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0125153929 http://www.amazon.com/gp/product/0125153929/ref=as_li_ss_tl?... (Both require some calculus.)

dmmalam 14y ago

These are the notes from Computational Finance course at Imperial College. They are particularly useful if your a CS major. https://www.dropbox.com/s/4jib6zc0q3su870/381%20Computational%20Finance.pdf https://www.dropbox.com/s/4jib6zc0q3su870/381%20Computationa...