Trading creates Value?

Discussion in 'Psychology' started by ctrader, Dec 12, 2008.

  1. Exactly. Trading and speculative trading in particular, is a price discovery mechanism that results in conservation of resources, optimal allocation and balance of demand and supply.

    Speculators gets punished when they are wrong and get rewarded when they bring equilibrium to supply and demand.

    Now, having said that, trading fueled by corruption/greed with insufficient controls/regulations can be damaging.
    #21     Dec 14, 2008
  2. Cutten


    Profitable traders provide:

    i) liquidity (i.e. cheaper and faster transactions for end-users)
    ii) superior information (prices that more accurately reflect the sum of knowledge about the present & future)

    Both are beneficial to society, and thus "services". Superior information, in particular, definitely adds enormous value.
    #22     Dec 15, 2008
  3. Cutten


    Anyone who has tried to sell a house recently would pay quite a lot of $$$ to have more liquidity providers. Once again you reveal yourself as having the highest overconfidence/actual knowledge ratio on this board.
    #23     Dec 15, 2008
  4. sumosam


    when you provide value, you "know" it. perhaps you help out your family...perhaps, trading makes you better at your other you a break

    there are people in "service" professions who are total assholes....pretty hard to judge who does and doesn't provide value to this world
    #24     Dec 17, 2008
  5. It doesn't. But then neither does 90% of the stuff done by 90% of people in any other job.

    If it really bothers you - and personally I have a fair bit of respect for people whom it does bother - either use the earnings to do something genuinely useful/impactful or change professions.

    #25     Dec 17, 2008
  6. Liquidity provision is the result of credit expansion not of production. If I place my order at the bid I don't actually produce anything or provide a service in the traditional sense. Nor do I see any reason why my order would contribute anything to the total sum of knowledge, when it might as well substract from it. The argument that information is contributed that more accurately reflects true value seems awfully contingent to me.

    I agree that markets are essential to a scociety but it's because they are the natural result of property rights. Without the right to buy and sell there really is no private property. I deny though that speculation creates anything meaningful to society at large. It doesn't have to either since it follows from the right to private property. That in itself should be a sufficient argument to validate speculation.
    #26     Dec 17, 2008
  7. Once you again you reveal yourself to be an extremely biased yet clueless individual. Oh, I forgot simple minded as well. You point out an issue that is partially caused by the excessive trading, speculation & paper pushing economy and think that more of the same is the solution?

    If you think that selling paper back & forth to each other provides any real value, then I hope you are not at all dissapointed by the current events. After all, why would ANYONE want to produce anything of real tangible value when you can just trade paper back & forth.

    It really does not matter, as anyone who thinks that the nation & the world can just hum along thanks to liquidity providers is in for a real surprise in the near future.
    #27     Dec 17, 2008
  8. Name some. Just because they give money to charities to embezzle so that they can get write-offs and free P.R., does not make them philanthropic. Just because they start foundations & trust does not either, that is actually a mechanism to hide wealth & shed liability.

    These guys have enough money to revitalize whole neighborhoods and even cities that have been thrown in the gutter over the past few decades. But they don't. And they won't.
    #28     Dec 17, 2008
  9. Cutten


    Liquidity provision can exist in a barter system, so your point about it being dependent on credit expansion (or even credit at all) is incorrect.

    If you own an asset and want to sell it urgently, would you not prefer to be able to sell it fast for close to the current market value, rather than take 1 year to sell, and possibly at a 10-20% discount to the market value? If the answer is yes, then liquidity is valuable to you, it is worth something. A non-physical good that is of value (such as legal advice, the motivation of a fitness trainer, or language instruction) is called a service. Thus, liquidity is a service.

    The service you are providing as a speculator/liquidity provider is the ability of owners of assets to convert them into cash more quickly and at a more competitive price than if your liquidity was not there.

    As for informational value, I did not say that all traders provide that. In fact, many substract information, by making bets that have nothing to do with future value (e.g. trading on tips, BS technical signals etc). That's why (elsewhere IIRC) I said that long-run *profitable* traders contribute informational value. Because they are profitable, each trade on average will be expected to make money, thus the future value of stuff the buy is more than randomly likely to be higher than the current market price. Thus their buying of the asset pushes the price closer to where it should be and therefore improves market efficiency & price accuracy.

    That's the theoretical argument. If you are more of a pragmatic hands-on person than abstract thinker, simply go and transact for a while in some illiquid markets (e.g. low-priced 3rd world residential real estate, antiques, or lumber futures), then transact in
    liquid markets. Tell me whether you find liquidity useful, as an owner/dealer in those markets. Let me know if you think that price transparency and information is superior in the illiquid or the liquid markets. If your experience is anything like mine, you will quickly come to appreciate the benefits of liquidity and price discovery on a visceral level, because they will save your arse time after time - both when you are right (allowing you to transact quickly and cheaply) and when you are wrong (sending price signals, and allowing quick exit from bad investments).

    I agree about the moral argument for speculation. However, since many people don't believe in rights or freedom, I think it's important to demonstrate the utilitarian argument for markets too. Especially since even most free market supporters and traders have no clue whatsoever as to the social effects or benefits of markets & speculation.
    #29     Dec 19, 2008
  10. Cutten


    George Soros spent billions in Eastern Europe, South Africa and other places when they were repressive societies. Paul Tudor Jones started the Robin Hood foundation. That's a couple of examples off the top of my head, I am sure there are more.
    #30     Dec 19, 2008