I would agree on the whole, as I just wrote. I'd add that the original post was about how laypeople perceive what traders do (and the implications for telling people that's what you do), so there may be some value-added here in how to express oneself to a layperson to allay their reservations. Insults probably aren't the right approach, but a concise expression of the paradoxical "value" gained by the "losing party" like yours probably is. I won't pretend that I didn't gain a helpful perspective by hashing this out with those who were willing to approach the topic in a mature fashion. I appreciate your comments.
what subject? i was in wharton undergrad, financial engineering at iit and am now in gsb for mba. you've got to realize you're attacking their profession. anybody with any feelings with feel animosity towards that. dude, you know, trading in the derivatives markets, just because they are zero sum games doesn't automatically make traders not respected. the general population is risk averse, and when people spend their time at home or at an office doing "risky" stuff, they are characterized negatively. maybe because they don't dress well or whatever, but because they don't go to work, do the normal things it makes them stand out and people generally don't like people who stand out. as i said before, just because this is a zero sum game doesn't mean that there is no value created. risk transfer is a huge thing you missed. i'mjust curious why you don't view stock traders with such disdain as futures or options traders. they are speculating just the same. just because that the market is not zero sum? that is not valid. zero sum by definition allows extremely effective risk transfer. you can't say that about stocks. in fact, it is impossible to hedge using equiyt only, even if you are "equity market neutral" becuase even if the betas match, you are dollar neutral, the price of stock a will never move in such a way to perfectly hedge stock b. thus there is value in such a perfect risk transfer. a corporate finance guy will probably tell you more about how hedging using options will enable a company to pursue investment opportunities even when their cash is limited in a downturn of thier business. why does this apply only to zero sum game markets? average investors lose in the stock market. oops, after posting all of that you said it in the last sentence
wow you are fast in replying. haha yeah we crossed posts.. i would say gambling is putting a bet in a game that you know the odds are against you in the hope of a huge payoff that has a negative expected value. this would differ from trading strategies that are backtested and show a positive expected value with a statiscial edge. edit: hmmm i just re-read your post and you said it would not be productive to argue what is gambling... oh well.
to a layperson, a trader is looked down upon because success is measured differently. to the layperson, climbing the corporate ladder and getting a title or something embedded in our culture. however, to a trader, success is bottom line. to me, success is to have a sharpe ratio >2 glad to have someone like you on this board.
PhD, applied math. Numerics for partial differential equations. Applications in computational physics. Yeah, I think we're on the same page. You're a breath of fresh air in this thread. Thanks for putting up with my naivete.
The sign of the expectation of a bet is one way to look at it, but I don't think it's the common view. I play irrefutably positive expectation poker and I'll be damned if I can convince even a few people that it's not gambling. Keeping it in quantitative terms but trying to match that up to how people "feel" about it, I think it has more to do with the magnitude of the "risk of ruin," (suitably defined) which of course still exists for positive expectation bets, and is a function not only of expectation but also the ratio of bet size and bankroll, as we call it in the gambling world. I believe you call that "money management." I think people associate gambling with any activity with a significant risk of ruin, even if it has positive expectation. If I can bet $1 to win $100 on 1:98 odds, and have a $3 bankroll to work from, I think most people would think of that as gambling, even though the expectation of each bet is positive. Because I'm very likely to go belly up if I play the game.
that's an interesting point. come to think of it, it may well sum up what laypeople would view as gambling. the very possibility that there is a large loss will constitute gambling, as the average person is risk averse. true, money management is a critical factor not in itself, but as a function to enable us to take on positive expectation bets when they occur. you must play 1 mean hand in poker. heh
Couldn't say it better.... flat5, if you really do have that level, then do a search for 'Minority Game' on the net. Read a little and you'll discover what has been found and proved. From a toy market like this one, which displays stylized facts comparable to real markets, it is shown that speculators are a necessary group in a market. http://arxiv.org/abs/cond-mat/9909265 http://arxiv.org/abs/cond-mat/0101326 http://arxiv.org/abs/cond-mat/0103024
Define "f***ing idiot" and I might even agree with you for a suitable definition (although I'm probably giving you too much credit, and should consider your post an emotional epileptic fit.) However, "there can little hope" is not a sentence in the English language.