So, a lot of people argue, and especially lately, that traders don't actually "add value" to society. They just "move money around." Traders don't improve companies and make them better, they just buy and sell, etc. etc. You all probably have heard these arguments. Does it make people angry when they hear this? I mean, technically no one "adds value." Everyone just moves money around. Say you are a doctor, you are getting paid and taking money from patients and moving it to yourself. Sure, doctors add value in other ways that traders can not, such as saving lives, but this is just from the financial perspective. How do other people respond to this?
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Traders provide liquidity to the markets allowing them to function efficiently. Well functioning markets allow companies to grow and improve which in turn helps society.
does a grocery store add value? all they do is move goods around. they're just a middleman, they don't actually make anything.
the reason people make the assumption that traders don't add any value is because the products they buy and sell are generally just ideas or concepts. use the example of a trader who makes a market in grain between different farmers and you can help people to understand why their job is important.
yes, they allow markets to function efficiently, but how do they provide additional liquidity to the market? Let's be honest here, traders are not as important to society than other professions, just my 2c.
Obviously you have an underappreciation of traders and probably the financial services industry in general. As part of the whole financial system, traders are critical in creating liquidity, without which, the financial system cannot function properly to facilitate its most important role - matching the users and providers of capital.
“If the government is going to be giving away money, it’s our fiduciary responsibility to take it on behalf of our investors,”
the difference between a doctor, to use your example, and a trader is that while there is still a monetary transaction there is actually some tangible value created out of the transaction which is the patient in some way or another getting better from their current condition. You can debate whether we have an effective medical system, nevertheless a good trader at the end of the day is one who isn't greedy but responsive, hence not taking any unnecessary risks while providing liquidity to the financial system. Almost every job you look at is just another ditchdigging job, it needs to be there and it provides value, but it doesn't do everything (unless of course if you're the president of the U.S for instance, but even then there are restrictions).
I'd argue though that trading exists only because of a temporary imperfection in our economic system. Having doctors go to medical school is a prudent division of labor, b/c not only does it provide employment but it also allows people to focus on more constructive activities that progress our standards of living and our ability to sustain civilization. However for a trader there is never tangible value created when they make money for themselves or their firm, it is merely an transfer from one person to another. They are in the business of making money off of temporary dislocations and inefficiencies, I not only have an ethical issue with this but in reality most traders forget that at the end of the day they are also janitors and waiters and our current system allows them to make too much money which makes them feel empowered and hence to take on unnecessary amounts of risk. If traders just came to work every day with the idea that i'm going to do my job to the best of my ability, to make sure things run smoothly (lets say because they want to keep their job and make money for their family). This is absolutely fine, because they know their place in the world and aren't being excessively greedy to not only take advantage of others but putting our financial system at risk.
At the end of the day it seems like the real problem is one of aligning incentives properly, in such a way where they can be the best at their job, make a good living, without them screwing everything up (like the past 2 years). People argue for libertarianism, but how can we possibly have minimal government intervention when we can't even control ourselves? In a perfect world, with minimal greed and a complete focus on merit, there'd almost be no need for a 'large' government presence. But traders have showed to the entire world why, unfortunately, the government needs to have a bigger say. The free markets collapsed because not only the little value traders created, but the massive damage they've done to the balance sheet's of our banking system. Let's not forget that at the end of the day, the financial system is a means to an end, like everything else. We are a part of the puzzle, not the puzzle (even though we make a lot of money), we're only here to efficiently and effectively allocate capital throughout the economy while minimizing risks. I'm not arguing that bankers aren't greedy,but bankers, like doctors, aren't in the same position as traders are to really cause a lot of damage.
Also, the free markets did not collapse.
The only way to respond is show them how rich you are. There really is no other argument lol. Trading is essentially a zero-sum game but who really cares ? As long as you make money and improve the quality of YOUR life, do you really care what some Teach for America hipster thinks of you ?
Who cares what they think. They are just trying to justify their failures, throw a hundred at them and tell them to go plant a tree or something.
I don't think you have a clear understanding what trading and market making are at a financial institution... let alone how there are these people called clients that have specific needs to be addressed, whether it be hedging or appreciation. You talk about how doctors specialization serves a need, why don't financial solutions? A very simple example could be an agricultural company that has commodity price sensitivity. If they would like to limit the volatility in their earnings, they will need to hedge themselves, and like a sick person goes to a doctor or a tax filer goes to a CPA, a hedger goes to a specialist (S&T departments) who has comparative advantage. The actual buying and selling of trading could be considered a zero-sum game, true, but often the solutions are not necessarily so. That is just one small piece of how I think trading actually does add value, and I think a lot of what you are complaining about is very short-sighted and flawed.
Revsly is absolutely correct. And to the other poster about prop traders: people/institutions who holds vast sums of money need to properly allocate that money to protect against inflation, gain appreciation, etc. Prop traders are helping people retire, mitigate college costs, and manage risk through trading for pension, endowments, and insurance funds.
TeamLRAM http://teamlram.wordpress.com
@Revsly
That is true of traders working for clients... but what about prop traders? Do they still add value in the same way?
...i am a buyside trader. I add nothing to society. I play a zero-sum game vs housands of other people everyday, thats it. Who cares tho? Very few people have the luxury of "adding value to society". I am like a poker player...i add value to my own wallet when i am trading well and i add value to someone elses when im not and thats it.
Not to sound naive, but what about your clients? Whos to say the wealth your creating for your clients is not being used to "add value to society".
I agree with bondarb. I am happy to play a zero sum game. In life there are winners and losers trading is no different it cant be win-win. You can still add value by adding liquidity and by exploiting market inefficiency making it more efficient but outside of that I dont really care. I just want to make a lot of money.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
to state the obvious, if traders added no value, this business wouldn't have lasted as long as it did and make as much money as it does.
by providing liquidity sell side traders lower the cost of capital for end users. This goes from corporations to consumers. Without sell side traders providing hedging solutions, providing balance sheet, and creating innovative risk mitigation techniques, it would be a lot more difficult for homeowners to buy a house, harder for a corporation to raise money for their business, harder for insurance companies to hedge long dated liabilities, and the list could go on forever. primary markets only work when there are properly functioning secondary markets.
sell side traders also match buyers and sellers. This may sound very basic but is extremely important and is NOT zero sum. This arguement only holds because depending on the product different clients NEED to put on different positions on the market. IE: mortgage originators need to sell mbs to hedge their pipelines. money managers need to buy for their portfolios. Thus matching these guys up who would normally not know each other CREATES value. Sure the buy and the sell net out, but there is business value that these two clients in this example created by being able to transact efficiently.
buy side trading is harder to justify, however - I work on a distressed opportunity proprietary trading desk, and I can argue that when we buy portfolios of distressed assets off liquidating sellers we are helping them clean up their balance sheet. We are able to create value on both sides of the trade because we understand how to identify and handle these special situations.
did my response to this get deleted? lol
margincalling - the site crashed and all posts made after like 5:30am yesterday were lost.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
oh well i'll say it again. normally i don't bother responding to people who ask me this question but:
1) traders and the finance profession allow the efficient allocation of capital, which is very important 2) they transfer wealth from the dumb to the less dumb 3) in 'capitalism,' no one has to justify what they do based on its social value. if they're making money, it's because they're creating value.
also, OP's post is wrong... EVERYONE adds value, EXCEPT the govt, which uses force to steal from us.
Maybe I'm biased because I'm a trader as well, but I definitely think it adds some value to society.
I trade power. Say I can sell electricity for $25 out of my power pool, to a utility not in a pool whose next incremental unit is a $35 gas plant. If I sell him power for $30, we both come out ahead. He saves $5 a MW, which in turn can be invested in other ways (plant maintenance, renewables, etc).
The same train of thought can be applied to many other commodities.
...i agree that the markets as a whole serve society in the function of allowing businesses to lay off uncertainty to people who want that risk. If the whole market shut down it would be a disaster and it would really hurt society. But any individual trader dosent marginally add anything in my opinion now that speculators are the vast vast majority of almost every market. It is just a big poker game with a few hedgers that make donations to the pot.
But as I said before most people in life add nothing to society...there is nothing wrong with just doing a job that you like and that supports you, your family, etc. Its not like you are hurting society. Besides, one can do good for society through charitable work in ur spare time and just by being a decent human being in general.
Bondarb:
do you really think that speculators are the majority in markets where the commodity is an economic input? Agricultural commodities, industrial metals, etc.
Trading is inherently a self-interested profession but it also depends on what kind of trading you are doing.
Securities firms and hedge funds have the purpose of profiting based on dislocations. But individual wealth also depends on the (eventual) liquidity in their portfolios so trading is an essential function.
Chasing Consultants, Breaking Bankers http://chasingconsultantsbreakingbankers.blogspot.com/
Grocery stores benefit from economies of scale and supply chain management integration which allows for a cheaper product for consumers.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
INFORMATION Aggregation
INFORMATION Processing
markets are just the most effective way to collect everybody's information and process it ... they provide an incentive for doing so. we are all together smarter than any single one of us.
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