Peer pressure

Traders are those who attempt to profit from very short-term, high-frequency changes in asset prices. They are similar to gamblers, in that they are seeking instant gratification, but they are also different: the odds are not stacked against them and are not usually measurable. There can be a very high reward to sophisticated understanding in trading, which is rarely the case in gambling. Are traders in any way useful? If they are it is probably because they provide liquidity, which serves to reduce transaction costs for investors (Black 1987: 152).

Two traders argue about the price of oil. One is a recent recruit to Alpha. He confides this selectively to his peers. He fears that some might question his intellectual competence. He recently read a newspaper article about peak oil: the hypothesis that we are close to the point of maximum global oil extraction. It is a theory that resonates with some of his other apocalyptic views. So he puts forward “his” new opinion that the oil price will rise indefinitely. The colleague he argues with also defies the trader stereotype. He is not flash and aggressive. He would be thrown by a cocktail menu, let alone a line of coke. He studied economics and mathematics, and is naturally diffident and inarticulate.