Why I trade & the future

[Kitno]

There's a lot of discussion [hyperbole] at present about the future because there's a new database design that's been 'invented'. It will solve everything. No, really it will. Take the blue pill. If you don't take the blue pill you might recall 2000/2001 and we don't want that.



I've heard some pretty dire reasons as why blockchain will solve our liquidity woes from 22 year olds who haven't seen a blotter let alone an ISDA confirmation or failed trade penalty.



What you old sweats are too old or stupid to know is that liquidity is solved because everything is shared, privately, man.



Anyway, I've tried to explain to the well-intentioned technologists that dealers will always be needed. Aside from pointing them towards Reminisces of a Stock Operator I wanted to elucidate the rationale for being a full time trader, I came up with:



I may seek to trade even in a perfect market but the willingness to provide my own balance sheet/capital gives me information from sellers/buyers which I otherwise wouldn't receive. I become the first choice in the execution of their risk transfer.



I think that's pretty crappy. This is a bit economics 101 but I wanted to hear dealer thoughts because this bullshit forced me back to the crux of what we do and why.

[svisstack]

Maybe I'm complete noise here because i can't relate to something what you referring too in way you are.



But for me interpretation of trading is something like side effect of creating money and rules related to it. Blockchain can change rules or not, people who are living from trading will need to adapt or leave if will;

I'm not good in history of trading but i will bet that rules was changed several times already in past.

If you are seeking for prediction about: it will change rules, what new rules will look like, how it will look at terminal, then I can't help.



Your stage looks like Denial+Anger+Bargaining, but no matter where are you, things will unfold same way, 22 year olds are probably wrong but i think its worth researching, banks are riding this hype.



Good starting point?

Imho something like this http://www.bankofengland.co.uk/research/Documents/conferences/ah0515.pdf

your thinking is on very detailed and technical level, there is a bigger picture here.

[rftx713]

svisstack, thanks for posting that presentation, it was interesting to get an alternative view. However, despite its author, it really does read more like a BTC enthusiast's sales pitch than a nuanced discussion about how changing part of the payments system will revolutionize "the financial world," which also includes raising funding for companies, providing liquidity for all kinds of things, giving advice to non-experts, managing surplus funds, providing ancillary services to companies, and so on. One example that jumped out at me was how he pointed out that credit card companies charge ~2% to facilitate payments, but BTC can do it cheaper. He doesn't continue to discuss, or even mention, how society at large demands fraud protection in almost all of their payments and demands to be able to recover funds in the event of fraud. Whether a blockchain-based system can actually do this, let alone for cheaper than CapitalOne currently does, I don't know - but he doesn't even make a note of this.



As the author mentioned, the technology to get around some of the "constraints" in the industry has actually been around for awhile. I think that what he is missing is that many of these problems are not actually technological in nature, as they were with factories, but political. (Although I understand there were pockets of fierce resistance by labor groups who did not like being replaced by machines - but in this case they could not actually do better work than the machines.) While people may say that a "trustless" system is bad, it seems to me that people actually very much prefer having an entity, or entities, that they can point their finger at. To date, blockchains have done a horrible job of proving their superiority, particularly in security, to our current system. When was the last time all of the funding in your checking account got stolen, and if that happened, when was the last time you didn't get it all back? Now, what about your BTC account? Your DAO investment? Your MtGox account?



Put simply, what I'm trying to say is that people haven't begun re-imagining processes based on these new "electric motors" in a meaningful way because these new motors are actually proving to make things worse, not better - and any advantages they claim to offer we already somewhat have, or they aren't actually advantages to the (majority) chunk of society that doesn't know about BTC nor need to make anonymous online payments...



To respond to Kitno, I would simply put it as: willing buyers and willing sellers will (almost) never naturally cross paths - and go from there. But I also am not fully satisfied with that explanation.



I started to type some stuff about long-term demographics, how the world is changing, how there is now a surplus of capital, and how finance fits into that... but maybe that's outside the scope of the immediate question at hand.

[svisstack]

>> One example that jumped out at me was how he pointed out that



this thread is some continuation of something? because it looks like you are both referring to something that is not in this thread.



>> However, despite its author, it really does read more like a BTC enthusiast's sales pitch than a nuanced discussion



at least we have some balance now for clarification i'm not BTC enthusiast and I dont think BTC is a final solution but i like this trend very much for various reasons.



of course things that you pointed out like unable to reverse fraud transactions etc, its all true, there are problems out there that need to be addressed and solved, i dont claim that "BTC" is now anywhere around final version and i will not encourage to use in "production" for society.



On other hand if you believe in fraud protection: recall of sepa credit transfers are joke, you can't do it if target account have insufficient funds at time of recall message delivery to beneficiary bank which takes time, so good luck at recovering your funds.

Real world example: fraud domestic transfers in my client company on amount approx. 100k$ in 12 transfers and only 10% of that recovered, some virus changed account number on employee computer. I'm definitely not buying "we are fraud protected by banks".



If you are talking about credit cards which are insured to some amount, you need to pay it, so its a just business where you are managing risk and pricing it to customers with premium.



If you are talking about accounts, yes its true, because infrastructure is created properly, it's stable, tested by time, cost a lot of money etc etc, it also need to be created for digital currency on what people working right now, learning on exchange defaults, imho.

[ronin]

It is economics 101.



My 2p:

For every trade, you need:

- somebody who is taking risk off

- somebody who is putting risk on

- intermediary who is oiling the wheels.



Most technologists talk about replacing the intermediaries. Intermediating can be automated to a large degree, and it is subject to 80-20 rule - you can automate 80% of markets for 20% of effort, and the last 20% takes 80% of effort.

At one point the automation will stop simply because it is not worth the effort.



On the other hand liquidity crunch happens when nobody is putting risk on. You can't automate that away by fiddling with intermediation.

[Toto]

Hi all; I'm new to NuclearPhynance! I've been attracted here by a Scott Locklin on Science website's article "On Beating Roulette" in particular Dr. Thorp efforts.



Randomness and I have a history in common that appeared soon after my interests in exchanging money when I was a kid. My advances come not too far away and after the 2008 LB crisis and I've comitted a murder, Yes I've assasinated Kolmogorov!



And I have said "advances" not "become a profitable trader" simple because I've lost enough to remain some years to recover and yes I do have to work to earn myself a living.



But it happens a market is too complex to put it in a database, notwithstanding people without such knowledge also trades. You need your eye to see the whole picture.



I do not criticize if you earn a hedge with your HFT algorithms enough to pay for the expensive microwave/optical redundant connections! Or if you buy books written by Nobel Prizes that cannot agree the single price with others. If they did there is no trade!



I like Prof. Didier Sornette's efforts, but specially his comments about the bathtub; "you can meter the waves; but it comes the time when the plug is pulled out"



Have a good time and take care!





Toto



https://youtu.be/XKWi-LKSzys

[goldorak]

Didn't you get the memo? Neutrino beams are a bare minimum for HFT trading nowadays.

[EspressoLover]

Neutrino beams are old hat. Infinite improbability drives, powered by social media block-chains, are now de rigueur.

[goldorak]

Never without my towel.

[Rashomon]

Kitno, I'm missing why BTC would obviate dealers.



A. People want to liquidate assets, to the highest bidder.

B. People agree to gather around the Buttonwood tree to exchange paper.

C. Enterprising folks who don't want to work notice there is a place where paper changes hands, at differing prices throughout the day/week/year.

D. Those with a view on drift, vol, or flows—and the balance sheet to play—start hanging around the buttonwood tree. Their "work" becomes holding and exchanging paper.





If the transaction was done in BTC that doesn't mean that valuations won't change over time, making space for a trader/speculator.





Added: Something like this makes more sense to me—or making any microcurrency / special-purpose currency.