JPMorgan to pay nearly $1B for metals market manipulation
bloomberg.com
bloomberg.com
Time and again I'm convinced that it is extremely difficult to succeed as a retail trader. The odds of you succeeding given false signals like this are just depressingly low. And this is just one instance where the prosecution was able to prove wrongdoing.
So $1B paid will stop further investigations? Meaning it can continue to manipulate and the fee is just the cost of doing business?
If the shareholders cared to avoid these sorts of judgements, they'd require that the firm operate more conservatively.
The vast majority of retail traders who have better returns than an index fund are just lucky, not skilled. Sometimes you can flip a coin ten times and come up heads every time.
So if we had a game where 1 million people flipped a coin 10 times coins, we'd expect nearly 1,000 to get heads on every flip.
if there are 10 million robinhood "traders" doing their tenth big trade today, then 9,765 of them could make a fortune by luck and think they are geniuses.
can you expound on this?
> jpmorgon might have to pay a 1B fine, but they might have made more than 5B in the transaction.
why don't they just make ill gotten gains illegal?
no.
"why don't they just make ill gotten gains illegal?"
follow the money
The reason why retail traders rarely succeed is because the ones that are good move to the institutional level (as it is almost impossible to support yourself by trading alone). The bad ones invariably trade down their portfolio until they are forced to get a real job.
This isn't to say that you shouldn't retail trade, but rather, don't rely on it as your sole source of income (unless you have at least 2mm-5mm dollars to trade with).
I won't believe this without a citation to an academic study. This affects the underlying price of raw materials, which has a direct impact on the stock price of companies using those materials. The stock price of many of those companies has a direct impact on people's retirement and the solubility of pension funds, among other things.
White collar crime does has victims.
No it doesn't if you spoof orders it has only very short term effects.
If orders are spoofed during the start of day or end of day auctions or during other specific times when indexes are calculated then this impacts the settlement prices which has a knock on impact to other features of the market. It’s like the LIBOR rigging and the FX manipulation.
It's not tolerated, that's why they're being fined
Algorithmic traders just happen to be the ones taken advantage of here because they move fastest. If there were no algorithmic traders and everything was done manually the distortion in the market would still exist. An imperfect analogy: imagine you go out to the gas station to buy gas and see that there is a line of cars at the gas station charging $2.00/gal but there is no line of cars at the gas station charging $2.01/gal. You go to the $2.01/gal gas station, because you see that there's huge demand and you need gas now. As you drive back, you pass all of the $2.00/gal cars and realize they are all empty. You've been cheated by spoofing.
Whether this is paternalistic or not is up for debate.
Does this logic apply to non-financial field? If someone (person X) creates a fake demand for a SaaS service Y and company Z builds service Y, should X pay money because Z decided to build Y, without a written contract between X and Z?
Putting out a press release, or RFP, saying 'we want to buy X quantity of Y' without the intent to follow up isn't illegal. However, getting to the point of a handshake agreement with a specific vendor but then backing out means that you will be expected to pay compensation even though no formal contract was signed.
Absolutely but simply stating interest or saying "We want to buy X quantity of Y", without having any agreement with a company or stating company name isn't agreeing to purchase nor should be seen (except certain situations) as bad
If yoy want to buy the cards to play, are you affected by the unregulated spoofing, market manipulation? Are you allowed to print your own?
There is a thriving second hand market (both paper and digital) with prices going from a few cents (or less) for bulk commons to ten of thousands for first edition power 9. The cheapest (but still very expensive) way to play the game is to buy the cards you need on the market instead of opening up packs and hoping to find what you need.
Speculators are known to buy up less liquid (printing of) cards to simulate demand, then unload them when the price is up. Not all (or even most) price spikes are due to speculators of course.
Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information.
You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows.
> Also there are often spikes of certain older cards before new sets are released which happen to contain new cards that work well these old cards, suggesting that insiders of Wizard of the Coast or retailers are leaking and/or trading on non public information.
This obviously sucks
> You can't print your own cards to participate in sanctioned tournaments, but of course, when playing with friends you can do whatever your playgroup allows.
If you are a casual player, planning to play with friends only, are you actually hurt in any way by the speculators?
At the end of the day Magic is also about collecting, and even if your playgroup allows playing with proxies, I would say that most players do at least desire to actually own the cards they play with; in fact many players are willing to even pay (often significant) extras for specific editions (foils for example) of cards for their pet deck.
I lost you here probably due to my unfamiliarity with some financial instruments. I am only aware of two types of an order: market and limit. The first one is unaffected for obvious reason.
In case of a limit order, let's say you are trying to sell. You think fair price is X, while currently market only offers (X-a). So you put limit sell order at X. What do you mean in this situation by "market moves against me"? The price goes further down? If that is the correct interpretation, when putting your order you actually have to reduce the limit price in order to increase the chances of your order to succeed, thereby increasing liquidity.
You grow wheat. You want to make sure that you can get $X for your wheat in 6 months and you are willing to risk the upside of a wheat shortage for protection against the downside of a wheat glut. Your counterparty makes bread. They're willing to lock in a price of $X now for wheat delivered in 6 months at the inverse cost of your reasoning. You've both hedged. The world is better because I can buy bread made from wheat in 6 months at a reasonable price. Traders and Wall Street came along and perverted this, but it is still a primary purpose of the market at its bedrock. If the bakers and the farmers disappear, there is no wheat market for the traders to pervert. It is the foundational hedger that the prohibition protects.
Compare: you trade crypto. You want to sell your crypto for dollars. Later, you want to buy your crypto for dollars. When the hell does anyone else care about your crypto? Why would we care about the integrity of price discovery in the crypto market when it has (or should have) no impact on the real world outside of your economic gains/losses? If we don't care about price discovery and its integrity, we have no need for the prohibition.
After 2008, the big algo traders got involved and spoofing was a huge issue because algos are often based on market depth. And the law was changed overnight (and the heavy-handed way that the federal govt came down on individuals, often at the request of algo traders, is unusual).
Just generally: "spoofing" was always seen as unethical but it rarely mattered before 2008 because humans learned fairly quickly that when someone piled in orders around the price, it wasn't necessarily real. Equally, what we have also seen is that certain order types that were being used to conceal intention from algos (concealing your intention is a fundamental part of how markets operate) were also being lumped in with "spoofing".
On JPM specifically, everyone knew they were spoofing for decades before this. I am not aware of an IB that did spoofing like JPM, and the reason why is that they did a ton of volume in these markets and used spoofing to control the price.
It doesn't say much for society's conception of value that there's more money to be made through finding ways to squeeze more revenue out of socially useless financial transactions rather than by solving real problems.
A talented person will make as much money or perhaps more money in software engineering than financial services. Most people in financial services make very little money, 60k-150k being a common range.
There are occasional scams like this in financial services, just as there are occasional scams in any industry. To uniquely demonize financial services as a result is not fair.
I'm thinking more of things like hedge funds, HFT outfits, and the groups that devised synthetic mortgage-backed securities, that put ivy league-level talent towards socially useless and/or economically dangerous activities.
We'd all be better off if the people with the quantitative and social skills to be effective in these spaces put their talents towards things like carbon capture or battery R&D rather than e.g. finding ways to con people into pouring money into hedge funds that under-perform the markets.
The alternate reality you imagine, with no hedge funds etc, can not exist. The only alternative reality that can plausibly exist is a significantly more inefficient investing and trading sector that sucks more talent from the economy than it currently does.
Their business model is to draw in investors who are willing to pay extremely high fees in exchange for the hope of beating the market. In practice, hedge funds underperform the market, so their investors are paying fees for nothing. The only winners are the hedge fund managers. Enriching people for providing negative value to their customers isn't socially useful.
Along similar lines, the crowning achievement of the synthetic asset quants was the creation of a mountain of toxic three-card-monte mortgage debt that exploded in 2008, bringing down the global financial system, crashing the world economy, impoverishing hundreds of millions of people, and creating the political environment that lead to both Trump and Brexit. Blowing up the world certainly isn't socially useful.
I don't see any downside to reducing the FIRE sector's share of GDP back to what it was in 1960. The economy worked for the median person then; it doesn't work for the median person now, and the amount of wealth the FIRE sector sucks out of the economy to pay for these kinds of games has a great deal to do with that.
I'm going to circle back to what I originally said. The alternative reality of zero hedge funds is not a reality that can possibly exist. The reason it can't exist is because the lack of hedge funds will create edge in the market, which will incentivize the creation of hedge funds (or other trading companies). So, given that zero hedge funds is not possible, then what is the best thing for society? The answer is that we want the best and most efficient hedge funds to extract all available edge with the minimum possible resource input. Once this happens, we achieve perfect competition and new talent no longer had an incentive to perform this activity and can go and do more useful things for society. This is the value add of hedge funds in our society. If we have one good hedge fund that extracts all edge, then the thousands of other would-be investors and traders can now go off and be scientists or engineers.
But we don't know if that is true. The old societies that didn't have those financial transactions were objectively pretty terrible and not the sort of place any of us would choose to live. We're using the same people as back then the only changes are systems and research. Writing off the major control system is hasty!
It isn't always good, but having the smartest people choosing what does/doesn't get financed and what amount of effort to dedicate is, fundamentally, extremely socially valuable. Notwithstanding that this particular case which is a scam in anyone's books.
Plus, globally, compare poverty in Asia then and now and the difference is astounding. That was enabled in no small part by these faceless megacorps.
So if you build an algorithm that "learns" this behavior, it's OK since human intent is removed?
> The total fine includes a penalty of $437 million, restitution of $311 million and disgorgement of $172 million, the CFTC said. Disgorgement is the requirement to pay back profits that were illegally earned.
It appears that they made less than $200M in profit (spoofing is usually a relatively low margin trade).