Mr David becomes a trader. Briefly.
Feb. 25th, 2011 11:13 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
davywavyAs 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.
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
no subject
Date: 2011-02-25 11:33 am (UTC)no subject
Date: 2011-02-25 12:47 pm (UTC)Moreover, considerable energy is required to make it available to the pruchaser. Energy is expended in the human activity required to secure the land in the first place - invading foreign countries and nicking their territory isn't cheap!
no subject
Date: 2011-02-26 11:39 am (UTC)no subject
Date: 2011-02-25 12:24 pm (UTC)no subject
Date: 2011-02-25 12:32 pm (UTC)Which is what ensures these scams will keep happening.
no subject
Date: 2011-02-25 01:00 pm (UTC)In more realistic terms, which is going on right now with silver is that they've sold more silver than exists, so what they have to do is delivery some silver, wait for you to be donwe with it, buy it back, give you the same silver again, buy it back, give you it again, and so on. Simple , if that's what you really want to do.
Example: I have sold you, a factory owner, a ton of silver for delivery in three months. I deliver you half a ton and say "Sorry, don't have the other half ton right now, please accpt a small payment for the delay and I'll deliver you the other half ton in three months." You then use that silver to make silver things in your factory.
I buy those silver things when you sell them, refine the silver back to ingots, and deliver you the same half ton in three months to complete our contract.
Thus I sold you more of something than exists simply by selling you the same stuff twice. Despite this, you're really happy as you're selling all the silver stuff your factory can make.
no subject
Date: 2011-02-25 01:33 pm (UTC)So, yes, Alchemy is real.
no subject
Date: 2011-02-25 12:36 pm (UTC)no subject
Date: 2011-02-25 12:50 pm (UTC)Over a few days like that it may well be volatile - but overall it's been fairly steadily going up, and it's doing it for fairly sturdy reasons, not just speculation.
http://www.google.com/finance?q=agq
But IANA IFA, etc....
no subject
Date: 2011-02-25 01:01 pm (UTC)no subject
Date: 2011-02-25 01:14 pm (UTC)no subject
Date: 2011-02-25 01:31 pm (UTC)I think you're missing something. You did your silver trade using your own money. No wonder it was stressful and unpleasant. You should do what everyone else does and use someone else's money. In fact, I reckon that if you set things up correctly, you could run a small country in this way.
no subject
Date: 2011-02-25 01:40 pm (UTC)no subject
Date: 2011-02-25 01:40 pm (UTC)no subject
Date: 2011-02-25 02:46 pm (UTC)H
no subject
Date: 2011-02-28 10:54 am (UTC)no subject
Date: 2011-02-28 11:08 am (UTC)H
no subject
Date: 2011-02-28 05:53 pm (UTC)D
no subject
Date: 2011-03-01 09:40 am (UTC)In the case you outline, the bloke is still trying to corner the market, but in the future, and by a negative amount, and the uncertain factor (i.e what makes the attempted arbitrage possible) is the individual nature of his hope, and that of other people.
Privileged knowledge apart, therefore, what he is counting upon is that, as individuals, people are irrational; and as individuals, they also each have a "table limit" like casinos - though this is much more flexible than real casinos, owing to the real-life 4d nature of money.
But this is much less true of the market as a whole, which in the long term will tend to be implacable. Which means, I suppose, that even if you start off with "enough money"*, you can still lose it all short selling, if your knowledge and resources are less than those of the market.
H
*I loathe quoting people verbatim back at them on LJ, I know it's rude, but I assume you put "enough money" in as your barrister's tripping-people-up phrase.
no subject
Date: 2011-03-01 01:35 pm (UTC)I agree that the Market will in the end be implacable (about a 10 year cycle is it?). However since rational individuals may have priorities other than investing in an apparently successful company in order to make a reasonable rate of return, is it not at least arguable that one could apply morality to the Free Market? It may be rational to short sell a competitor's shares in order to seize control of his company and thereafter shut him down, but some might consider it immoral.
I completely have no idea what a tripping-people-up phrase is yer 'onour.
D
no subject
Date: 2011-03-01 02:42 pm (UTC)No idea what the market cycle is. Mr Buffett claims to have held some undervalued stocks for decades, secure in the belief that the market will eventually come round, and I suppose we must all assume he knows what he's talking about ... Anyhow, as regards Mr Buffett, he tells us that his own investment strategy is completely transparent and balance-sheet driven, not motivated by revenge, morality, immorality, hunches, trends or any other short-term tactics for trying to buck the market. As he is enormously wealthy, this seems like good empirical evidence for his strategy being the most rational one.
H
no subject
Date: 2011-02-26 01:23 am (UTC)It was realising that it is often in the interests of those with money to seek to destroy the hard won fruits of others' work that turned me into a Marxist...for a fortnight...when I was 16.
D