4 ms·

That definition sounds plausible but breaks down in practice. Every Chicagoan has snowfall-related risk. And conversely, a lot of those guys legally traded wher

by wpietri 28d ago

That definition sounds plausible but breaks down in practice. Every Chicagoan has snowfall-related risk. And conversely, a lot of those guys legally traded where they were not exposed to risk. They were just gambling.

danielmarkbruce 28d ago
It doesn't break down. If you are creating risk for it's own sake, it's gambling. If you are doing something to hedge risk, it's not gambling. If your position is unrelated to a risk or wildly above the magnitude, you are creating risk for it's own sake. Gambling. The legality of it has zero to do with anything. You can gamble legally and illegally. You can gamble in markets which are made for hedging.
- wpietri 28d ago
  I do think it breaks down in practice for the goal of deciding which given trade/bet is gambling. I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even. That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well. I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers. So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.
  - danielmarkbruce 28d ago
    One side of a trade can be a gamble and the other a hedge. A single transaction doesn't need to be classified as a gamble or hedge - it can be both. As for the market maker themselves - they are definitely not gambling. They are trying to make money while reducing risk to the extent possible. You don't walk into the risk management committee and get an excited response because you increased risk all else equal, right?
    - wpietri 22d ago
      You started out saying it was simple, but now you have a definition where you need to somehow slice trades down the middle, so I think you're starting to see my point. Having worked for market makers, I find it weird to get lectured on what they really are. That never goes down well, but especially not when the lecture is wrong. https://xkcd.com/793/ https://xkcd.com/793/

by wpietri 28d ago

danielmarkbruce 28d ago

It doesn't break down. If you are creating risk for it's own sake, it's gambling. If you are doing something to hedge risk, it's not gambling. If your position is unrelated to a risk or wildly above the magnitude, you are creating risk for it's own sake. Gambling. The legality of it has zero to do with anything. You can gamble legally and illegally. You can gamble in markets which are made for hedging.

wpietri 28d ago
I do think it breaks down in practice for the goal of deciding which given trade/bet is gambling. I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even. That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well. I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers. So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.
- danielmarkbruce 28d ago
  One side of a trade can be a gamble and the other a hedge. A single transaction doesn't need to be classified as a gamble or hedge - it can be both. As for the market maker themselves - they are definitely not gambling. They are trying to make money while reducing risk to the extent possible. You don't walk into the risk management committee and get an excited response because you increased risk all else equal, right?
  - wpietri 22d ago
    You started out saying it was simple, but now you have a definition where you need to somehow slice trades down the middle, so I think you're starting to see my point. Having worked for market makers, I find it weird to get lectured on what they really are. That never goes down well, but especially not when the lecture is wrong. https://xkcd.com/793/ https://xkcd.com/793/