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What is Your Definition of the Trading Business?

Hey Guys,

I was wondering if you guys can help a bit. If you had to define the trading business, what would you say it is? Here is the challenge, when you write your definitions, you can not use the word Trade/Trading or the word Market.

Thank you for your help on this. I am doing it for a very specific reason which I will share once I get enough input from you guys.

Thank you,

Matt Z
Optimus Futures

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@Mod-MattZ, this sounds like a fun project!

I’m trying to come up with some stuff and wondering if you can give a quick example?

To describe the market I’d something like:

An instrument that allows entities and individuals to buy and sell an underlying asset.

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I think this is a definition of the marketplace more than the trading business.
If someone made me come with a definition of the trading business, I would approach it like this:

  1. What do I do day to day in my trading business?
  2. What is the purpose of my trading as a goal?

Thanks,
Matt Zimberg
Optimus Futures

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Buying and selling financial instruments with the goal of having the sum of profits be greater than the sum of losses and expenses.

Edit: I thought about it a little more and think the first definition that I wrote doesn’t encapsulate the probabilistic nature of the business enough so I’m changing it to this:

Buying and selling financial instruments with a quantifiable edge to increase the probability of having the sum of profits be greater than the sum of losses and expenses over a series of trades.

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Excellent!

Matt Z
Optimus Futures

The first part of my job is to predict the future price of an asset. [Analysis]

The second part of my job is to identify where and when I should buy or sell the asset so being wrong results in a small loss vs a large profit when I am right. [Execution]

The third part of my job is to manage risk, to ensure I can overcome probability and random events. [Risk Management]

The fourth part of my job is psychology, to be able to deal with the pressures of working in a probability based environment, dealing with large sums of money, and understanding and managing natural human characteristics such as bias, ego and other emotions which interfere with the correct process. [Psychology]

Actually, that list is backwards!

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Thanks @autobahn
Indeed everything you described is involved in trading.
But, what you want is to come up with a shorter definition because once you have it defined, it can serve as a foundation for your overall philosophy of trading.
I will also add my definition of trading or investing once we get a few more comments, but just as an FYI, my definition does not even involve the words buying or selling. Buy/Sell are actions that are a result of your decision-making, so they are secondary.

I do agree with you on the “backward” because, in my personal opinion, it is not your market predictions powers that would yield positive results; it’s the management and the psychological discipline that could help you spot your edge.

Matt Z
Optimus Futures

Difficult one. I will have a think.

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Trading Business

The process of redistribution of wealth from the over leveraged, under capitalized, over speculative, often low skilled individuals with unrealistic and excessive return seeking expectations to the more knowledgeable, better capitalized and systematic.

My first draft also included unlucky but in reality with good risk management and leverage being unlucky is just a speed bump.

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Nice! That is quite a new angle from a definition standpoint! :clap:

Matt Z
Optimus Futures

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Short term investing

Attempt 2:

I’m looking for short term market inefficiencies caused by many other market participants being forced to trade when time is more important than price.

(Explanation): Why might another trader may be forced to trade?

  1. Stop loss
  2. Margin call
  3. Wanting to fill their orders before going-home time
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When I set to define trading activity as a definition, I wanted to achieve several goals:

  1. Address the fact that it’s a decision-making activity
  2. Avoid trading related terms
  3. Demonstrate that emotions have very little or no room in trading
  4. Your goal is to have a P&L that is positive.

I wanted to avoid trading related terms because most think of trading only in terms of dollars and get caught in psychological traps, whether through FOMO, fear, and greed. Therefore we must take action and goals to counter that type of symptoms.

Also, I wanted to address that you MUST use a method. This means, no “gut-feel” based actions.

Here is what I came up with:
A Decision-Making Activity where you must choose Reality-based actions rooted in a Logical Method where reward must outweigh risks for a positive overall outcome.

Matt Z
Optimus Futures

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