There needs to be a buyer and a seller for any trade. You don't know the stories of the other participants in those transactions - maybe if they didn't get rid of their oil on that day for pennies (or negative dollars), they would have been forced into far worse consequences, defaulted on their legal obligations, or forced into breaking a trade. If you read the terms of the futures market, it is very specific in how you must take delivery and where, and failing to fulfill those requirements exactly would result in way worse consequences (imagine an oil trader who is banned from trading... yeah way worse than losing a bit of money). There is a set of counterparties out there that collectively decided that paying those guys $500M was better than their next best alternative.
A good angle to think of for options trading is that writing out-of-the-money options is like selling insurance. Occasionally you have to make a big payout, but the rest of the time you're getting small payments.
Some of the market participants were effectively insuring others against the price of oil dropping too low.
Derivative trading is usually zero sum. There is a loser for every winner. I don’t understand in what world buying and selling oil on an open market could be considered theft. Everyone knows the rules of the game.
You can always 'create' more oil by pumping it out of the ground once the prices hit a certain amount. So it's not really 'zero-sum'. If the supply isn't locked or restricted it's hard to say that.
Same thing with Tesla shares, or whatever it is. If you can create more Tesla shares its not zero sum (which is done often).
Currencies too are printed when needed. About the only thing really zero sum are some cryptocurrencies.
You could argue in some way that it is zero-sum, but if the price goes down and oil companies don't pump oil out, they don't really lose anything - especially with derivatives as it is on a future outcome.
You can make more money though & you can make more stocks. That's where the notion you're addressing breaks down, even in the perceived sense:
The Hong Kong dollar is pegged at the moment, this also means it's not zero sum for a buyer or seller either, especially at the peg boundary like now. They simply make more Hong Kong dollars or withdraw them.
It is zero sum because it adjusts, no matter what you do. If you pump more oil from the ground, the prices will fluctuate until they reach the new zero-sum level that takes into account the new production level.
A pegged dollar is the same, it only takes a little longer. When they print they dilute the value of the current dollars in circulation but not immediately, because of the peg. But eventually, because it is zero-sum, so much pressure is pent-up trying to maintain that non-zero-sum peg that the system begins to crack and they have to re-peg it. Which happens often with pegged currencies.
This does not mean there are no winners and losers, personal finance is of course not a zero-sum game. And because the adjustments are not instantaneous there is a lot of room to profit if you know what is happening, which gives the impression of it not being zero-sum.
Actually with the lag it changes everything, because you can earn interest/dividends on the amounts. You can die in the meantime so its someone elses. The variations are endless. When someone discusses it as being zero-sum there is always just a scenario you can describe where it isn't, and if even just $1 can't be accounted for the whole argument breaks apart.
It is never really instantaneous and can take more than months, years. You would have thought printing 6 trillion would have changed something but not really.
Well, let’s consider a simplistic example: an obscure currency, let’s call it FAKE, that can be traded for USD.
That currency is only used by people in a small island, and that island only exports clamshells and imports Big Macs.
In this scenario, and unless I’m mistaken, the FAKE/USD rate will vary depending on:
- how much clamshell those people can export and how much US people value them
- how much BigMacs those guys import and how much those guys value them
Enters a day trader - someone who will never buy a Big Mac nor any clamshell. The guy speculates and there are two possible outcomes :
- He fails. Technically he basically gave “value” to either USD holders or FAKE have holders. Too bad for him, but he kinda made this happen.
- He succeeds. Now what? Isn’t that kind of a parasitic behavior? Couldn’t that be considered theft to some extent?
I guess the question may boil down to “why would they even let the day trader be part of this?”.
It's not theft, it's honest trading. Traders buy things from willing sellers and sell to willing buyers, in financial products as in any other market.
There are two ways to make money as a pure market player: connecting buyers and sellers who wouldn't trade directly (and taking your cut) aka arbitrage, or getting paid to take on risk. Maybe the trader notices that people on the far side of the island are hungry but can't get a big mac without a long walk, so he buys as many as he can carry, walks over to the other side of the island, and sells them for a bit more than they'd cost on the dockside - that's the first kind of trading. Maybe a clamshell farmer wants to make sure they can afford enough big macs over the next year. They might agree to sell their next year's clamshell harvest at a fixed price (that's lower than the average), or buy their big macs for the next year at a fixed price (that's higher than the average), or both; the farmer loses value on average, but they offloaded their risk, while the trader makes money on average but has to carefully manage their risk.
The third thing is to actually take an active position in the market, if you can predict what's coming. E.g. if you realise the clamshell harvest will be big this year, maybe you sell a bunch of clamshells short. That should send a useful signal to all the farmers, and it means you make money if you predicted right.
A speculator does one thing only: takes assets not in (peak)demand today and bets they are gonna be in demand in the future. He takes a calculated risk and a lot of times it doesn't pay off. Everybody involved is getting paid and all the transactions are voluntary.
If you think that is theft then I don't know what to tell you.
Well, one could argue that they are just smarter than other people and manage to find market opportunities. Good for them I guess. But technically since it’s mostly a zero-sum game would it be wrong to consider that they use their smarts to deprive other people of value?
> Too bad for him, but he kinda made this happen ... Couldn’t that be considered theft to some extent?
why is it "too bad for him" when he loses (to the people he gave value to), but "theft" when he takes value from the people? That's just a double standard.
And you also mis-understand derivatives trading's purpose - to offload risk to a third party that is willing to take it.
The double standard question is totally legitimate and a very good one!
My point of view is that the trader willingly entered the market with the sole intent of trying to make a profit, whereas the other two just wanted to actually trade goods.
Which is why the situation is asymmetrical in my opinion, and why the way we judge it could be as well.
Everyone's intention is to profit, even the con artist, but the buyer and the seller are providing and receiving goods, meaning they actually have a reason to be involved in this specific trade. One party produces oil, a second party consumes oil, and the third party is just there to take his cut because he thinks he's smarter than everyone else.
It shouldn't be surprising when one of these parties isn't trusted by the other two...
It's essentially scalping. Do you trust the people who buy concert tickets in advance and sell them to you at a 100% markup? They're serving the exact same role in society as these market players. No one likes them for a very good reason.
making a profit and trading goods are the one and same goal. it's not asymmetrical at all. After all, isn't the point of trading goods to produce excess value after the trade (i.e., profit)?
If you were selling oil and had the option of either getting $45/barrel for all the oil you sell next month or somewhere in the $0-$100 range, which decision would you take?
This would essentially mean that most winners on every trade in equities, crypto, forex (except for central banks I guess) etc. are committing theft. When individuals enter a trade on these markets its soley to make a profit, very rarely is it to take physical delivery of a good that will be used. You make a trade based on your assumption of which way the price of that asset will go. Someone else makes an equal and opposite trade. One person is right. There is not always a loser on every transaction as one person can think an asset has peaked and exit in profit while the asset continues to gain value, but eventually there will be a loser.
Its a game that people play and there are winners and losers, but if everyone willingly enters then it is not theft.
It could be considered legalized gambling I guess but everyone involved is a gambler.
I believed the idea was originally popularised by the slogan “La propriété, c'est le vol”, where vol does translate to theft. But violence would certainly be quite similar to Proudhon‘s original meaning for the phrase.
Marx didn’t like the idea because he said it presupposes that property exists, which he obviously had a problem with. Fun fact, this disagreement was the primary conflict that split the IWA into seperate anarchist and Marxist movements. With the anarchists later going on to adopt national socialism, which at the time was known as fascism.
Youn are kindsupporting his proposition - that nothijg evonomically productive has happened. Of trading is a zero sum game, liek OP is proposint, their winning just take from other parts of ecobomy
Yeah, I understand the “when people gamble most will lose and someone will be lucky”. But the big difference I see in this case is that many legitimate businesses work with crude oil so not all of those people are gambling / willing to gamble.
>But the big difference I see in this case is that many legitimate businesses work with crude oil so not all of those people are gambling / willing to gamble.
But those aren't going to be the losers. Oil producers typically sell their future contracts immediately to lock in a good price. Likewise, oil consumers are typically going to be buying oil futures early, hold them until they expire, and take delivery. In either case they're not going to be affected by the price going negative on the day of expiry.
You redefined a word with an accepted meaning (theft) to mean something different than the generally accepted definition - e.g. what you would see in the dictionary.
That in itself is ok, but you need a compelling argument as to why the two ideas of theft are equivalent or at least similar. And you haven't provided any argument let alone a compelling one.
The point of an internet forum is to debate ideas on their merits (in the best case). Asserting something not generally accepted, without argument, tends to annoy people because you're not even attempting to convince people of your idea's merits, which is the entire point of the game.
Its not that you're wrong, its that you didn't try to convince people you are right.
Let's take an example. If I buy a stock at $20 from Arthur and sell it the next day for $60 to Bob, have I made $40 of value? Yes.
Without people like me, Arthur might have gotten a much worse deal (possibly $0). Again, without people like me, Bob might have gotten a much worse deal (possibly $100, or maybe he wouldn't be able to buy at any price).
That's the service that active traders provide to everyone else in the market.
It's not for you to judge whether the $40 is "worth" $40. It is.
The situation in the oil trading story is the same, in essence. It is "worth" $500M. Unless the traders intentionally manipulated the prices, which may nor or may be true. The same scenario could play out either way. So it could be that such a trade is worth $500M.
$500M may sound like rich compensation for this type of work, but everybody's compensation is determined by supply and demand, i.e., the rarity of people who can perform that work, and its utility. [1]
(There was also a lot of risk involved, and capital allocation is how a market economy coordinates its activities, but that feels too big to get into here.)
When you accuse honest people of theft, that's nasty. That's probably why you are being downvoted. Then again, people also get downvoted unfairly all the time, so who knows.
[1] Well, except when the government alters the curve. For instance, $500M can pay for 14,000 American teacher-years. But the government forcibly operates an education cartel and artificially holds down the salary of teachers. They are certainly worth far more than the $35K a year I used in that calculation.
> It's not for you to judge whether the $40 is "worth" $40. It is.
What other sensible quantative way of defining value is there?
The question is do we think the position leveraged to extract that value is fair. You seem to think that price manipulation (presumably of some explicitly prohibited forms) can be unfair. So I assume you amenable to some extrinsic definition of fair play.
In your example what might be the form of advantage you exploited? It could be informational or it could be based on capital. Perhaps your informational advantage is based on diligent study of a situation or perhaps it is based on cronyism. Similarly perhaps your ability to take on the risk is based on hard work or inherited wealth. I'm not saying any of these is inherently wrong but people can and do take moral/social positions on such advantages exploited for profit. Even though that discussion might be rather intractable.
So we can define the value of the trade by the spread but that says little about whether the information/capacity asymmetries were fair. If a well functioning market is meant to approximate fairness with sufficient diversity of participants then a market anomaly like this seems like more like an exception to that rule.
There are two kinds of fairness. Let's call them A and B.
Type A is when all the players in a basketball game are the same height.
Type B is when all the players in a basketball game play by the same agreed-upon rules (i.e. don't cheat).
Trying to eliminate Type A fairness from the world is not in anyone's self-interest, except (maybe) the people who are extremely low in the hierarchy of wealth/earning power. (But I think they would be better served by climbing the hierarchy than trying to make the world type-A fair.) This is quite a claim that I won't try to justify here; just think about it.
Type B fairness is in the interest of almost everybody. If you think you can cheat successfully, you may be against Type B fairness. But that's foolish. Creating a rigged system in one game opens up the doors for others to rig the systems in the games where I don't have an advantage (or cannot sustain the cheating advantage). For instance, Republicans in power now are undermining property rights, and that will hurt them more than it helped when they are out of power. Even if there are a few people who can get away with this (e.g. if you are an elderly Republican who is about to die maybe you don't care), the rest of us should reign these people in, as we are the majority.
If we want, we can call these two types egalitarian-fairness and rule-fairness.
Going back to oil trading: it may or may not be Type B fair. It probably is fair, though, because there aren't many rules in trading. The regulators try to create some rules, but few of those (if any) are actually recognized as real rules by the players; rather, they are obstacles. If you can get around them, you're just a better player of the game. (I'm not a professional trader, but that's my assumption about most of what goes on in trading; a professional trader may be less cynical about it.)
If you break a real type-B rule, you are cheating if it's a game and committing fraud if it's business. However we judge that, it's in the interest of the majority to punish that, to dis-incentivize rule-breaking.
but you are just adding possible unfair/unethical things that might have happen.
What about good things?
The 1st seller was aware there was a big chance for the stock to grow, but was in need of liquidity for other ventures or needs.
And the second buyer, know that it was bought much cheaply, but he is bullish on that stock.
If the trade happened that means it was the best possible trade on those moments, but there will always be external factors because we are all humans, we all have different reasons, different needs and different experience and knowledge.