"And it came to pass, that when he was returned, having received the kingdom, then he commanded these servants to be called unto him, to whom he had given the money, that he might know how much every man had gained by trading." - Luke 19:15, KJV, The Bible
The term "Derivatives Trader" paints such a wide brush. You know. I find that my profession, my employment? Is being 'blamed for the ills of the economy'.
That's a little more than infuriating.
What do I do?
What do I provide the economy?
How can I hype this job, but remain honest and moral?
I talk about that, in the following vlog entry ...
(Video Included. If you're seeing this entry elsewhere and cannot see the Video? Click this link to view the entry ...)
The term "Derivatives Trader" paints such a wide brush. You know. I find that my profession, my employment? Is being 'blamed for the ills of the economy'.
That's a little more than infuriating.
What do I do?
What do I provide the economy?
How can I hype this job, but remain honest and moral?
I talk about that, in the following vlog entry ...
(Video Included. If you're seeing this entry elsewhere and cannot see the Video? Click this link to view the entry ...)
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Here is the link to the blip.tv version of this video.
What do they want? To destroy marketplace liquidity and to increase unemployment all in one shot?
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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 13 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.
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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 13 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.
5 comments:
Could you explain derivatives to me. I know the calculus definition of rate of change, but how does that apply to stocks. Are they like options? Thanks for your time.
Basically? A derivative is anything, whose value changes, because the underlying asset changes value.
For instance. I buy a Sugar Contract. The value of that contract on the exchange increases, or decreases, based on what's going on with Sugar.
Or, I buy a Sugar Call Option. It changes value, based on what occurs on the Sugar Market - which goes on with actual Sugar.
The asset that's held, changes based on what is going on with an underlying asset.
All of that stuff, is on an exchange, where everyone can value the asset itself. Everything is transparent.
Or, the CDO's (the evil stuff), were debt obligations packaged up, and sold as a fixed income CDO. Their value changed based on what the debt obligation actually was.
But there are no exchanges for CDO's. There's no transparency for it whatsoever. No one knows where these instruments are at. Who has what. How much they are worth. Nothing is known about them, other than the fact that they exist.
Hope this helps,
Dan
I agree with a lot of what you're saying Dan, but I disagree that the unregulated and non-transparent CDO market is completely to blame.
The simple reason is that if the Mortgage Backed Securities and other debt obligations that made up the CDO were healthy the lack of liquidity, transparency and open exchange would be a bit of a non-factor.
Ultimately Friedman I think is still correct in that he would have said that the underlying root cause of the collapse of the CDO market was interference in the free market by government.
If the government hadn't decided at some point that certain underrepresented segments of the population were non-homeowners and that they were entitled to home ownership, banks likely would never have made many of those loans or bought the underlying mortgages to package up.
The government was actually prosecuting banks they deemed discriminatory.
You can hear Andrew Cuomo state they were practicing "Economic Affirmative Action" for loans, knowing full well that those loans would have a higher default risk.
Did the banks eventually make it their own and go nuts, heck yes they did, but the government got that ball rolling, not the free market.
It used to be if you wanted a home loan a bank would basically come frisk you down at work to make sure you were legit. It's not like they suddenly abandoned a hundred years of loan practices to just go crazy, they did it after the government forced them to and they later found out they were making money hand over fist so they went into overdrive.
P.S. I'm not disagreeing that if the market were clear, transparent and liquid we wouldn't be in a better situation, just that I don't think that's the root cause, otherwise, I'm always in favor of those attributes in a free market.
Hi Dan!
I came across your blog a week or two ago, and became an instant fan! Just a question: Your profile says that you are a trader - do you work for a specific firm, or do you trade your own money for a living? If not the latter, have you ever considered it?
Heyya Adam and Smittie,
First of all, thanks guys!
Adam: I hear ya man. I really do. It's why when people ask me: "Are you going to invest with Obama infrastructure stocks?" I reply that I won't go near them with a 40 foot pole. Trade em' short term? Maybe. But invest with them? No way. Anytime you have business getting involved with government, bad bad things happen. And I agree, that's precisely how we got into the current mess, was government just egging on private business.
Here's the thing with the CDO derivatives though. If they were transparent. If they were on an exchange? The variables of supply, demand, value, and transaction would be more equally met, more quickly. They couldn't have been over-leveraged (well, if the S.E.C. (there's that govt again) would reinstate the leverage restrictions) We could have been to the end of this mess months and months ago. There are illiquid markets on the exchanges - like Oats. Man, if it's one thig traders know in the grains? Steer clear of Oats! :^)
But the price gets hammered out, equitably, because of the transparency. It can only fall so far - because of that. It falls too far, even I'd buy it. Because I could see the price.
Same thing is true here. I truly be
But I totally hear ya on the aspect of governmental interference. As soon as those guys show up to participate in a market place's decision making process? I'm just heading for the door.
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Smittie: Yeup. I trade my own money for a living. It's a much harder road to follow, but I find the freedom to be well worth it.
Regards,
Dan
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