Financial markets are somewhat gambling; Keynes already pointed it out with his concept of the beauty contest: the successful investor is the one who anticipates the movements of other investors, and since everyone tries to anticipate the rest, “we have reached the third degree in which we dedicate our intelligence to anticipate what The average opinion expects it to be the average opinion.” The market does not always work like a casino; The degree depends on the asset being bought and sold. And also of the moment. There are times, particularly times of cheap money, when the incentive to take risk is higher and, therefore, investments tend to be more speculative. And then there are the structural trends.
This week Robinhood, the American broker that offers free operations (in exchange for selling the information about these orders to large investors) has announced that it will launch “derivatives” on the elections in the United States that allow clients to “invest” in the elections Americans. The lexicon is interesting. The firm talks about event contracts without openly saying bets. A financial derivative is a contract on a price
It’s nothing new. Derivatives are actually a bet on something happening, but they have a financial underlying and economic sense in terms of hedging (although it can be used as speculation). Contracts for differences (which cannot be advertised in Spain), or binary options (prohibited) have a lot of betting and financial operation, just the name. Cryptoactives deserve a separate chapter, one more investment style, but also a version of the Keynesian beauty contest: we bet that the world will believe in it (for now with great success). And, in a second layer are the memecoins, assets that do not represent anything nor aspire to it; They are openly an empty shell. And derivatives on memecoins would be the third layer of speculation.
But the traditional market is by no means free from gambling addiction. A good part of the stocks that move daily in the United States derivatives markets have one-day expiration, that is, they expire when the session closes. “They provide certain investors with a lottery-like reward, with extremely high but highly unlikely returns,” the BIS said. Specifically, the average annualized return is -32 but, when appropriate, the average capital gain is 79,000%.
Financial markets are somewhat gambling; Keynes already pointed it out with his concept of the beauty contest: the successful investor is the one who anticipates the movements of other investors, and since everyone tries to anticipate the rest, “we have reached the third degree in which we dedicate our intelligence to anticipate what the average opinion expects it to be the average opinion.” years at high rates), nor have social networks been more than a simple accelerator. Perhaps the reason is even simpler, and it is that a good part of the market participants, professionals but especially individuals, have not experienced a crisis. Lehman passed 16 years ago; any investor under 35 has only seen the S&P rise. How not to wander around.
