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Mr David becomes a trader. Briefly.
Feb. 25th, 2011 11:13 amAs a general rule if you ask someone what money is, if they've ever really thought about it you'll get a reply along the lines of "It's a representative mechanism of exchange." This answer is true as far as it goes, but ask them further what it represents and the description starts to flag a bit. You might get "Finished goods and services", which is a pretty good answer but incomplete, but I really don't think most people ever stop to think about what money actually does represent. Speaking personally, I have a theory - money, in it's purest form, represents energy. Be it potential energy, stored energy, even expended energy, and energy of any sort - it can be oil, solar, food... moreover all this eventually comes back to human labour. It's been observed that the global ecopnomy has expanded at an average of about 1.5% per annum for the last few thousand years; essentially what we're doing is capturing human work and representing it, ultimately, as cold hard moolah. I find this fascinating.
What's more interesting is that money allows us to manipulate this energy in four dimensions: as an example look at the current debt which many countries are busily running up. What they are essentially doing is promising to expend energy in the future in order to maintain a standard of living now. I bet their kids are going to be delighted to disconver they've been born into indentured servitude to pay for their parents flat screen TV.
Iain M. Banks, author of the culture novels, once observed that "A market economy gleams towards it's objectives, but a planned economy lasers!", or something like that. I was always impressed by this observation, simply because I'd never seen anyone demonstrate they didn't understand either economics or quantum electrodynamics in a single sentence before. However, his creation of the culture - a society of effectively limitless free energy and hence no need for money to manipulate limited energy resources - was what perhaps put me on course for my conclusion.
As money is a universally transferrable representative system - it can represent silver just as easily as it can sunlight - this has allowed the trading markets to become berserkly complex. Almost certainly more complex than it's possible for a single human mind to comprehend. So naturally I decided to have a go.
You see, by allowing us to manipulate money in four dimensions, the markets allow for the creation of futures markets which are tricky things to say the least. Take silver, for example (there's a reason I'm picking this one, as you shall see). You'd think that to trade silver, you'd buy some, hang onto it until the price goes up, and then sell it.
Well, that's one possibility, but it's not really how it works. Most commodities like silver are traded as futures, with very little of the real stuff actually moving about. Say, for example, that I buy a three-month silver contract. What this means is that someone out there wants some real silver delivered to them (probably an electronics factory) in three months time and are prepared to pay for it in advance. What I've done is bought a contract to do that without owning any actual silver in the hope that the price of silver will go down over the next few months so I can buy some later, arrange for it to be delivered, and make a profit on the transaction. If the price of silver goes up, then I'm stuffed. In reality, what I'll actually do is that as the delivery date gets closer I'll sell on the contract to an actual silver delivery company and hope to make a marginal profit on fluctuations in what's called the spot price - the actual cost of a lump of silver here and now - in the process.
If you think that's complex, then you probably won't be getting a job at Goldman Sachs any time soon (I won't either) as this is the easy stuff.
Anyway, I said I'd mentioned silver for a reason, and here's why. A few years ago, before the crash when commodity prices were quite low, Bear Stearns (subsequently taken over by JP Morgan) took out a huge short position in silver. In case you don't know, a short position is when you sell something you don't have right now in the hope that the price is going to go down, so you can buy it cheaper later to give it to the buyer.
Anyway, Bear Stearns took out a huge short position in silver. A massive short position. The only problem is, ever since then the price of silver has been resolutely rising and so to close the short (i.e. to actually buy the silver) would have meant a huge loss for first Bear Stearns, then JP Morgan, and now HSBC (who run JP Morgan these days) and now the US Federal Reserve, who've underwritten some of this stuff. It's a problem. What's even more of a problem is that the delivery date for this silver is next Tuesday, which means that by the middle of next week some of these sharp financial brains are going to have to find a hundred and twenty billion dollars worth of silver which they sold, as their customers will be wanting it.
And that's more silver than there is in the entire world.
What will actually happen is that the short will be 'rolled over'. They'll sell even more silver (which doesn't exist) on a long term short position to hold the price down as much as possible to allow them to buy some to deliver off some of the outstanding short. It's all very complex, but the global economy won't collapse next week. Don't worry.
What will happen is that the price of silver will be very volatile for a week or two as people try to force the price up as they know there's a huge forced buyer in the market meaning that there's short term profits to be made. And that's where I come in.
You see, for some years I've held a share dealing account with one of the high street banks which allows me to trade on what is known as "T3". This is just an ease of use mechanism, in which they allow me to buy shares on credit and I've got to get the money to cover the purchase into my account within three days or I'm in trouble. It's standard practise, but I've always recognised the dangers and so I've never tried playing with it as I'm not hopelessly insane. An interest-free, three-day loan to play casino capitalism with against the banks? I'd have to be mad.
Well...
You can see where I'm going with this, can't you?
Let's just say that at 8am on Wednesday morning I owned (on paper) some silver. Quite a bit of it, in fact.
There then followed what I can only describe as the most miserable, stressful day of my entire life. Barely daring to look away from my computer in case the price crashed, I spent much of the day obsessively hunched over my keyboard tapping F5. Some people out there do this every day, but I can't see how. Day traders, as they are known, ride the waves of the market every day on borrowed cash, pocketing small percentages but never truly paying for their purchases. Christ alone knows how they don't all die of heart attacks. It was awful. I got the blurry vision of an oncoming migraine, but I didn't - couldn't - dare look away. If I learned one thing, it's that gambling is not for me. Ever.
You'll be pleased to learn that silver gained about 2-3% on Wednesday, but I'm not doing it again. Writing this is kinda therapy to relieve the stress. Having now done it, I've got one piece of advice when it comes to gambling against the market. Don't. Just don't. Get a nice cosy job, work hard, and save you money wisely instead. Cripes, it was a rotten day.
What's more interesting is that money allows us to manipulate this energy in four dimensions: as an example look at the current debt which many countries are busily running up. What they are essentially doing is promising to expend energy in the future in order to maintain a standard of living now. I bet their kids are going to be delighted to disconver they've been born into indentured servitude to pay for their parents flat screen TV.
Iain M. Banks, author of the culture novels, once observed that "A market economy gleams towards it's objectives, but a planned economy lasers!", or something like that. I was always impressed by this observation, simply because I'd never seen anyone demonstrate they didn't understand either economics or quantum electrodynamics in a single sentence before. However, his creation of the culture - a society of effectively limitless free energy and hence no need for money to manipulate limited energy resources - was what perhaps put me on course for my conclusion.
As money is a universally transferrable representative system - it can represent silver just as easily as it can sunlight - this has allowed the trading markets to become berserkly complex. Almost certainly more complex than it's possible for a single human mind to comprehend. So naturally I decided to have a go.
You see, by allowing us to manipulate money in four dimensions, the markets allow for the creation of futures markets which are tricky things to say the least. Take silver, for example (there's a reason I'm picking this one, as you shall see). You'd think that to trade silver, you'd buy some, hang onto it until the price goes up, and then sell it.
Well, that's one possibility, but it's not really how it works. Most commodities like silver are traded as futures, with very little of the real stuff actually moving about. Say, for example, that I buy a three-month silver contract. What this means is that someone out there wants some real silver delivered to them (probably an electronics factory) in three months time and are prepared to pay for it in advance. What I've done is bought a contract to do that without owning any actual silver in the hope that the price of silver will go down over the next few months so I can buy some later, arrange for it to be delivered, and make a profit on the transaction. If the price of silver goes up, then I'm stuffed. In reality, what I'll actually do is that as the delivery date gets closer I'll sell on the contract to an actual silver delivery company and hope to make a marginal profit on fluctuations in what's called the spot price - the actual cost of a lump of silver here and now - in the process.
If you think that's complex, then you probably won't be getting a job at Goldman Sachs any time soon (I won't either) as this is the easy stuff.
Anyway, I said I'd mentioned silver for a reason, and here's why. A few years ago, before the crash when commodity prices were quite low, Bear Stearns (subsequently taken over by JP Morgan) took out a huge short position in silver. In case you don't know, a short position is when you sell something you don't have right now in the hope that the price is going to go down, so you can buy it cheaper later to give it to the buyer.
Anyway, Bear Stearns took out a huge short position in silver. A massive short position. The only problem is, ever since then the price of silver has been resolutely rising and so to close the short (i.e. to actually buy the silver) would have meant a huge loss for first Bear Stearns, then JP Morgan, and now HSBC (who run JP Morgan these days) and now the US Federal Reserve, who've underwritten some of this stuff. It's a problem. What's even more of a problem is that the delivery date for this silver is next Tuesday, which means that by the middle of next week some of these sharp financial brains are going to have to find a hundred and twenty billion dollars worth of silver which they sold, as their customers will be wanting it.
And that's more silver than there is in the entire world.
What will actually happen is that the short will be 'rolled over'. They'll sell even more silver (which doesn't exist) on a long term short position to hold the price down as much as possible to allow them to buy some to deliver off some of the outstanding short. It's all very complex, but the global economy won't collapse next week. Don't worry.
What will happen is that the price of silver will be very volatile for a week or two as people try to force the price up as they know there's a huge forced buyer in the market meaning that there's short term profits to be made. And that's where I come in.
You see, for some years I've held a share dealing account with one of the high street banks which allows me to trade on what is known as "T3". This is just an ease of use mechanism, in which they allow me to buy shares on credit and I've got to get the money to cover the purchase into my account within three days or I'm in trouble. It's standard practise, but I've always recognised the dangers and so I've never tried playing with it as I'm not hopelessly insane. An interest-free, three-day loan to play casino capitalism with against the banks? I'd have to be mad.
Well...
You can see where I'm going with this, can't you?
Let's just say that at 8am on Wednesday morning I owned (on paper) some silver. Quite a bit of it, in fact.
There then followed what I can only describe as the most miserable, stressful day of my entire life. Barely daring to look away from my computer in case the price crashed, I spent much of the day obsessively hunched over my keyboard tapping F5. Some people out there do this every day, but I can't see how. Day traders, as they are known, ride the waves of the market every day on borrowed cash, pocketing small percentages but never truly paying for their purchases. Christ alone knows how they don't all die of heart attacks. It was awful. I got the blurry vision of an oncoming migraine, but I didn't - couldn't - dare look away. If I learned one thing, it's that gambling is not for me. Ever.
You'll be pleased to learn that silver gained about 2-3% on Wednesday, but I'm not doing it again. Writing this is kinda therapy to relieve the stress. Having now done it, I've got one piece of advice when it comes to gambling against the market. Don't. Just don't. Get a nice cosy job, work hard, and save you money wisely instead. Cripes, it was a rotten day.
