5 ms·

I come from a similar background (automated trading) but have the opposite opinion. More people ought to understand how the markets work. One good way to learn

by minimax 13y ago

I come from a similar background (automated trading) but have the opposite opinion. More people ought to understand how the markets work. One good way to learn is to trade a small account. Yes you will probably lose a little money (or fail to beat the indexes) but you will also come away with a much better grasp of markets and trading (and hopefully also risk management). If you look at a typical discussion of trading here on HN you will see lots of totally uninformed hyperbolic assertions about what goes on in the market. How everything is rigged and how corrupt the players are. I think trying to scare people out of the markets only promotes that kind of thinking.

lutusp 13y ago
> If you look at a typical discussion of trading here on HN you will see lots of totally uninformed hyperbolic assertions about what goes on in the market. How everything is rigged and how corrupt the players are. Yes, one does see such remarks, but an excellent counterargument is almost never heard-- and that is that (a) business leaders aren't stupid and (b) if the equities market was really significantly rigged or inefficient, these people would refuse to raise capital using equities. The fact that some of the most skeptical, cautious people in existence, people with plenty of practical experience, are willing to fund their businesses with equity capital, means that equity trading is substantially fair and that the efficient market hypothesis is at least approximately true.
- gnaritas 13y ago
  > The fact that some of the most skeptical, cautious people in existence, people with plenty of practical experience, are willing to fund their businesses with equity capital, means that equity trading is substantially fair and that the efficient market hypothesis is at least approximately true. That's a pretty bold claim. Given the financial crash of 08, from what I can tell the EMH has been thoroughly debunked. Markets are not efficient and all data is not priced in. Information is not absorbed quickly into the market so inefficiencies crop up everywhere all the time, those are the profit opportunities that traders make a living off of. If EMH were correct, the systematic risk that crashed the market could not have occurred. Remember, it's a hypothesis, not a theory.
  - gbasin 13y ago
    Your understanding of the claims of EMH are flawed. On the other hand, the true claim is not easily tested. The best test exists in the form of looking at how easy it is to turn a consistent profit from transacting in open and liquid financial markets. Answer: not easy
    - gnaritas 13y ago
      Not easy isn't equal to not possible. Math isn't easy for most people, that doesn't disprove math. If the claims of EHM cannot be tested, then EMH is obviously nonsense.
  - lutusp 13y ago
    > That's a pretty bold claim. Given the financial crash of 08, from what I can tell the EMH has been thoroughly debunked. Not at all. The EMH isn't falsified by people engaging in widespread cheating, and it isn't falsified by big market reversals driven by public psychology. It could only be falsified by the market's inability to accurately set a price on average, across all equities, perpetually. Does an airline disaster contradict the claim that air travel is safe? No, that can only be contradicted by average flight outcomes. It's the same with the equities market. > Markets are not efficient and all data is not priced in. This claim is obviously contradicted by the fact that people are willing to use equities to raise business capital. If the market wasn't efficient, they would think of another way to raise capital -- something more efficient. That's hardly controversial. > If EMH were correct, the systematic risk that crashed the market could not have occurred. The EMH isn't falsified by cheating. Does the fact that insider trading takes place contradict a hypothesis that a market without cheating is fair and efficient? > Remember, it's a hypothesis, not a theory. Yes, and it can never be a theory in the scientific sense -- there's no way to gather objective data in a controlled way. It will probably remain a hypothesis in a pseudoscientific twilight zone forever. But given all the alternatives, the fact that people invest in the equities market argues for the truth of the EMH -- in an unscientific and dubious way.
    - jjarmusch 13y ago
- dllthomas 13y ago
  "(a) business leaders aren't stupid and (b) if the equities market was really significantly rigged or inefficient, these people would refuse to raise capital using equities." Wouldn't that depend on who the market is stacked for/against, by how much, and what their alternatives are?
  - lutusp 13y ago
    But the most basic premise of a fair market is that it's not "stacked" at all -- that everyone has an equal chance to react to market moves and price changes. For example, a business cannot possibly get one cent more than the purchasers of their stock offer in the marketplace, and because of transaction fees, somewhat less. And an investor has the same experience -- he can't possibly get more than the market value of his shares on the day of sale. Brokerage houses are in competition to offer the lowest transaction costs and the most reliable environment for trading. That competition reduces transaction prices for everyone. Conclusion? Not stacked in general. Insider trading is a crime, betting against your own customers is a crime, and these things happen, but they're prosecuted.
    - krisgee 13y ago
      >that everyone has an equal chance to react to market moves and price changes. A rich person or big trading house can buy rack space close to New York or whatever city their market is based on, a regular person cannot. This ability gives a significant advantage to rich people/business owners, therefore the market is not fair at all.
    - dllthomas 13y ago
      I'm not sure just how much I can say, in the context of my employment, so I'm going to drop out here.
- justincormack 13y ago
  No, whether people finance with equity capital has no bearing on whether markets are fair or efficient. People finance with VC money when there is not even usually a market. People who want capital have little choice, they have to pay the ridiculous fees and have it traded in the existing market. But they don;t really care about the non competitive cartel of investment banks anyway, as running a public company means you can pay your self almost unlimited amounts of the shareholders money anyway. Whats not to like? Who cares if the market is efficient?
Alex_MJ 13y ago
Thank you for saying this! IMO there's way too much fearmongering (largely from people who have no experience trading, or from traders who don't want to see other people do better than them) about this. I've traded options on a very volatile commodity ETF before (SLV) and came out quiet well on top by playing with patterns and timing. This was in 2010, but there was the same "THE COMPUTERS CONTROL THE MARKETS AND YOU'LL GET CRUSHED" fearmongering hyperbole as there is today. It'll be there four years from now, too. There's smart money and super fast algorithms and all that for sure, but there's plenty of dumb money moving around too. There are also plenty of people (I will note: often nontechnical individuals) who make a good living day trading. You basically just have to find a pattern ANYWHERE, IN ANYTHING and trade it over and over until it stops working (...and catch on quick). You might lose money (especially starting out), but it's not at all the experience of "you will step in and BE CRUSHED BY EXPERT TRADING ALGORITHMS" that people portray it as. Start a brokerage account, do some reading, put in a sum of money that's consequential but that won't break you if you 100% lose it, and play around a little bit. Try focusing on one specific (preferably fairly liquid) security. You'll be amazed at how sometimes you make the right call and magically you have more money than you started with, and how you don't immediately die and get shot and lose all of your money to some corrupt evil high-speed algorithm while being eaten by wolves because, you shameful Icarus fool, you dared to trade on the public markets by yourself. Risk-averse people (especially programmers) who have no experience trading will think you're completely insane and lambaste you, especially if you make money.
- gbasin 13y ago
  No offense but it sounds like you just got lucky and quit while you were ahead
  - ScottBurson 13y ago
    In fairness, quitting while one is ahead is one of the rare yet essential skills. Some people just have it. Alas, I'm not one of them...

by minimax 13y ago

lutusp 13y ago

> If you look at a typical discussion of trading here on HN you will see lots of totally uninformed hyperbolic assertions about what goes on in the market. How everything is rigged and how corrupt the players are. Yes, one does see such remarks, but an excellent counterargument is almost never heard-- and that is that (a) business leaders aren't stupid and (b) if the equities market was really significantly rigged or inefficient, these people would refuse to raise capital using equities. The fact that some of the most skeptical, cautious people in existence, people with plenty of practical experience, are willing to fund their businesses with equity capital, means that equity trading is substantially fair and that the efficient market hypothesis is at least approximately true.

gnaritas 13y ago
> The fact that some of the most skeptical, cautious people in existence, people with plenty of practical experience, are willing to fund their businesses with equity capital, means that equity trading is substantially fair and that the efficient market hypothesis is at least approximately true. That's a pretty bold claim. Given the financial crash of 08, from what I can tell the EMH has been thoroughly debunked. Markets are not efficient and all data is not priced in. Information is not absorbed quickly into the market so inefficiencies crop up everywhere all the time, those are the profit opportunities that traders make a living off of. If EMH were correct, the systematic risk that crashed the market could not have occurred. Remember, it's a hypothesis, not a theory.
- gbasin 13y ago
  Your understanding of the claims of EMH are flawed. On the other hand, the true claim is not easily tested. The best test exists in the form of looking at how easy it is to turn a consistent profit from transacting in open and liquid financial markets. Answer: not easy
  - gnaritas 13y ago
    Not easy isn't equal to not possible. Math isn't easy for most people, that doesn't disprove math. If the claims of EHM cannot be tested, then EMH is obviously nonsense.
- lutusp 13y ago
  > That's a pretty bold claim. Given the financial crash of 08, from what I can tell the EMH has been thoroughly debunked. Not at all. The EMH isn't falsified by people engaging in widespread cheating, and it isn't falsified by big market reversals driven by public psychology. It could only be falsified by the market's inability to accurately set a price on average, across all equities, perpetually. Does an airline disaster contradict the claim that air travel is safe? No, that can only be contradicted by average flight outcomes. It's the same with the equities market. > Markets are not efficient and all data is not priced in. This claim is obviously contradicted by the fact that people are willing to use equities to raise business capital. If the market wasn't efficient, they would think of another way to raise capital -- something more efficient. That's hardly controversial. > If EMH were correct, the systematic risk that crashed the market could not have occurred. The EMH isn't falsified by cheating. Does the fact that insider trading takes place contradict a hypothesis that a market without cheating is fair and efficient? > Remember, it's a hypothesis, not a theory. Yes, and it can never be a theory in the scientific sense -- there's no way to gather objective data in a controlled way. It will probably remain a hypothesis in a pseudoscientific twilight zone forever. But given all the alternatives, the fact that people invest in the equities market argues for the truth of the EMH -- in an unscientific and dubious way.
  - jjarmusch 13y ago
dllthomas 13y ago
"(a) business leaders aren't stupid and (b) if the equities market was really significantly rigged or inefficient, these people would refuse to raise capital using equities." Wouldn't that depend on who the market is stacked for/against, by how much, and what their alternatives are?
- lutusp 13y ago
  But the most basic premise of a fair market is that it's not "stacked" at all -- that everyone has an equal chance to react to market moves and price changes. For example, a business cannot possibly get one cent more than the purchasers of their stock offer in the marketplace, and because of transaction fees, somewhat less. And an investor has the same experience -- he can't possibly get more than the market value of his shares on the day of sale. Brokerage houses are in competition to offer the lowest transaction costs and the most reliable environment for trading. That competition reduces transaction prices for everyone. Conclusion? Not stacked in general. Insider trading is a crime, betting against your own customers is a crime, and these things happen, but they're prosecuted.
  - krisgee 13y ago
    >that everyone has an equal chance to react to market moves and price changes. A rich person or big trading house can buy rack space close to New York or whatever city their market is based on, a regular person cannot. This ability gives a significant advantage to rich people/business owners, therefore the market is not fair at all.
  - dllthomas 13y ago
    I'm not sure just how much I can say, in the context of my employment, so I'm going to drop out here.
justincormack 13y ago
No, whether people finance with equity capital has no bearing on whether markets are fair or efficient. People finance with VC money when there is not even usually a market. People who want capital have little choice, they have to pay the ridiculous fees and have it traded in the existing market. But they don;t really care about the non competitive cartel of investment banks anyway, as running a public company means you can pay your self almost unlimited amounts of the shareholders money anyway. Whats not to like? Who cares if the market is efficient?

Alex_MJ 13y ago

Thank you for saying this! IMO there's way too much fearmongering (largely from people who have no experience trading, or from traders who don't want to see other people do better than them) about this. I've traded options on a very volatile commodity ETF before (SLV) and came out quiet well on top by playing with patterns and timing. This was in 2010, but there was the same "THE COMPUTERS CONTROL THE MARKETS AND YOU'LL GET CRUSHED" fearmongering hyperbole as there is today. It'll be there four years from now, too. There's smart money and super fast algorithms and all that for sure, but there's plenty of dumb money moving around too. There are also plenty of people (I will note: often nontechnical individuals) who make a good living day trading. You basically just have to find a pattern ANYWHERE, IN ANYTHING and trade it over and over until it stops working (...and catch on quick). You might lose money (especially starting out), but it's not at all the experience of "you will step in and BE CRUSHED BY EXPERT TRADING ALGORITHMS" that people portray it as. Start a brokerage account, do some reading, put in a sum of money that's consequential but that won't break you if you 100% lose it, and play around a little bit. Try focusing on one specific (preferably fairly liquid) security. You'll be amazed at how sometimes you make the right call and magically you have more money than you started with, and how you don't immediately die and get shot and lose all of your money to some corrupt evil high-speed algorithm while being eaten by wolves because, you shameful Icarus fool, you dared to trade on the public markets by yourself. Risk-averse people (especially programmers) who have no experience trading will think you're completely insane and lambaste you, especially if you make money.

gbasin 13y ago
No offense but it sounds like you just got lucky and quit while you were ahead
- ScottBurson 13y ago
  In fairness, quitting while one is ahead is one of the rare yet essential skills. Some people just have it. Alas, I'm not one of them...