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Introduction
Interacting with information is an integral part of a trader's or investor's work. The only question is what kind of information it is and how it is processed. In this area, traders can be divided into two types: those who have access to information, and those who work with superficial data. They can also be subdivided into two categories: those who can influence the market price, and those who cannot.
In this article, I will rely on two concepts: the "uninformed" and the "informed" trader. The first relies on superficial data and is not able to influence the price by their actions, while the second has information and can influence the market.
Assessment
The market works like an auction, where the price is formed through the interaction of buyers and sellers. The problem that William Vickrey wrote about back in 1996 is the assessment of fair value, and this problem remains relevant to this day and, most likely, always will be. How do you understand that the price I paid 5 minutes ago for Apple stock is not too high? And if it is high, then how much? In other words, how long do I have to sit in a drawdown? A month? A quarter? A year? After all, if in a couple of weeks my car is stolen, I will need to close the position and get cash, because without a car in my city, there is nowhere to go.
Everyone has their own assessment of the current price, different motives, financial capabilities, level of emotional control, and the maximum permissible drawdown. In the end, it all comes down to trying to guess how reasonable it is to buy or sell at this particular price, how fair it is for this asset.
If we transfer this problem to the market, factors are added to the factors: the expiration dates of futures, volumes, the political and economic situation, as well as the diversity of participants. All this creates many variables for answering the main question: "When is it right to make a deal?"
After all, there will always be someone who knows more than you.
Informed and Uninformed
It is no secret that money opens up huge opportunities, and hedge funds actively use this. For example, they use weather data to trade coffee futures.
In 2014, large hedge funds began to analyze satellite images of cloud cover and data on droughts in Brazil, the largest supplier of arabica in the world. They noticed that rainfall in key coffee regions had fallen by 50% compared to normal. This meant that the harvest would be worse than expected, and, most likely, coffee prices would rise. Funds began to buy coffee futures before other investors realized the full scale of the situation. When information leaked and everyone started buying - from hedge funds to amateur traders - against the backdrop of general excitement, the price soared sharply.
This is a simple and clear example of how traders with resources (in this case, hedge funds) receive information that is not available to ordinary investors or traders who do not have such opportunities.
Information plays a key role in why large investment companies and hedge funds are concentrated in one place - be it New York, London, Singapore, or Hong Kong. Access and the ability to interact are important, creating a network effect of sharing ideas, insights, and experience, which becomes part of the daily work.
It is equally important to understand what hot research is. Unlike cold research, with a focus on analyzing existing information from secondary sources, hot research includes original research, the collection of primary data, experiments, interviews, surveys, and hypothesis testing. It makes no sense to open an office in Nebraska if all other funds are in New York.
Most uninformed traders rely on the actions of the informed. This is a kind of attempt to repeat the actions of those who have information and / or influence.
An example is the cryptocurrency market, so accessible and primitive that even a child can make a deposit with their mother's credit card. Uninformed crypto traders follow those who have more than $100 or that subjective amount that is considered significant, analyzing the history of these wallets, the political and news background, as well as the number of mentions of a particular coin on social networks. This is neither good nor bad, but just one of the methods of working with information. After all, cryptocurrency itself has no true value, like real currency, and rather serves for speculation. This is not companies like Microsoft with 200,000 employees, stable reporting, and the availability of software in every home. We are talking about coins that represent the solution of non-existent problems in the invented future by their creators in a "free haven".
The futures market is also an excellent example of centralized trading. All players are in the same "sandbox", and a visual analysis of the size of the shovel allows you to estimate the speed of construction of the castle and the amount of sand required in real time, which helps to make more accurate decisions about your own transactions. You can track limit orders using DOM and already concluded market orders using Footprint. This allows you to see where serious actions took place, relying on real market information, excluding randomness and guesswork.
Despite the possibility of obtaining information about the actions of informed traders, there is a problem with the amount of this information.
About two months ago, Bloomberg published an article about the number of transactions concluded through dark pools and, if we don't take penny stocks, about 40% of trading from the total volume takes place outside the exchanges, which means we can rely on 60% of market information. Is this a lot or a little? It depends on the time horizon and the trading style.
Time Horizon
Thierry Foucaud published an interesting study on alternative data, which is becoming more and more accessible thanks to the development of the Internet. Such data includes information from social networks, web traffic, transactions, geolocation, satellite images, employee assessments, and much more. As an example of alternative data, the study examined the StockTwits platform and came to a curious conclusion: since 2000, the accuracy of short-term forecasts of analysts has increased (from 60% to 70%), while long-term forecasts (for 5 years) have become less accurate (decrease from 40% to 30%).
On the other hand, Robert Shiller, about whom we wrote earlier, received the Nobel Prize in 2013, and one of the key theses was: "it is easier to predict for several years than for the next day." I am probably inclined to adhere to this option as more accurate, because although the Foucaud study was quite valuable, he took into account the motives of StockTwits visitors, and for the most part, as in the case of WallStreetBets on Reddit, these are people without a shovel digging the ground in search of gold. In the short term, this is profitable, but focusing on short-term forecasts weakens the accuracy of long-term ones, and this is quite important, because being profitable for a year and for 10 years is a significant difference.
Trading in Ukraine
In my opinion, there are three main problems:
- Lack of knowledge and the educational system
- Lack of a platform and market
- Sanctions and restrictions
Each of these problems is interconnected, so I will start in order.
Lack of Knowledge and Educational System
After gaining independence in 1991, Ukraine faced a number of economic and social challenges. The transition from a planned economy to a market economy was difficult and was accompanied by a lack of knowledge and resources to create an effective educational system in the field of finance and trading. Throughout the 1990s and early 2000s, there were no broad educational programs in the country focused on trading and the market economy, which exacerbated the problems with training in this area. Only since the 2010s has there been an increase in interest in trading and financial markets, which has led to the emergence of specialized educational institutions, such as, for example, the Kyiv School of Economics. However, the historical legacy of the Soviet economic system still affects the level of knowledge and educational standards, especially in provincial regions, where access to quality training in the field of finance is limited.
We do not take into account Internet courses, since 10 out of 10 are built on earning money by selling a dream to young minds on social networks, and not on teaching the functioning of the market, not to mention the fact that the mentors themselves do not understand what they are talking about, and their motive for work is salary, not market profit.
Lack of a Platform and Market
Why do you need professional traders if there is no place to trade? The so-called "Ukrainian Exchange" was founded on May 15, 2008, by participants in the Ukrainian securities market, but, since its independence was still dependent on the nipple of a drunken bear nearby, this took place in cooperation with the Russian stock exchange RTS. As a result, as of 2022, 24.26% of the shares of the "Ukrainian Exchange" belonged to the Russian Federation, and before the war, this was allegedly "not noticed". But everything turned out to be quite simple and obvious: they took away the license, and the exchange no longer exists. There is a second one - "PFTS Stock Exchange", which has retained its license and continues to work, but due to low liquidity, limited instruments, terrible infrastructure, and regulatory risks with the unstable economic situation in Ukraine, no one needs it.
Comparative indicators show how far Ukrainian trading is from adequate figures.
Sanctions and Restrictions
If you trade in the cryptocurrency market, then, probably, you have absolutely no restrictions - even the homeless in El Salvador beg in cryptocurrency. If we are talking about CFD brokers, then there is no problem either - this is an over-the-counter market, where the counterparty is the broker, and not another trader, and your transactions do not go to the real market. If we are talking about prop companies, then everything is also simple - these are virtual accounts. But if you decide to trade on the real market through a prop company, be it Topstep, Apex and the like, or brokers like Tradovate, CQG - it will not work. They refer to "We have to follow OFAC regulations because we are a US-based company and several countries, including Ukraine, are on their suspended list".
From all this, we can draw an excellent conclusion: if you want to be a trader - there is no educational system. Want to trade in the local market - it's dead. Want to trade in the liquid Western market - you are under sanctions.
I think this is an excellent answer to the question "Why there is no trading in Ukraine". All that is available is CFD brokers and prop companies, well, and the crypto market, which absolutely does not protect your investments in the event of the exchange being closed, unlike the stock market with regulation and insurance.
Opinions
I asked several people from my environment to describe the problems they see or have encountered. Here's what happened:
ISO 4217 (Independent CFD Trader)
The main problem of the Ukrainian is helplessness in the face of the prop-firm system. It seems that you can put pressure on the company with negative reviews, but this illusion disappears at the first case of fraud. All you can do is write to the support of the same people who deceived you and leave negative feedback. This is where your levers of influence end. Previously, prop firms valued their reputation, but now complaints don't matter. The broker closed? Your problems. The prop firm refused to pay? It happens. You work here until you are allowed to. Each payment is not a guarantee, but a favor. The balance in your personal account means nothing, and now it's more obvious than ever.
Critical (Futures Trader effe)
Most people in Ukraine come to trading through courses that they found by chance or on the recommendation. As a result, it is presented not as a real profession, but as a way of quick earnings, promoted by info products, and not by state institutions. Because of this, a novice immediately tries to understand which button to press, instead of studying the basics. After all, a surgeon is not given a scalpel and three videos from YouTube with the words "cut"? The simplicity with which trading is presented has turned the market into an online shooter, where the prop company's machine gun destroys 99 out of 100 dreamers of the sweet life.
Adding the profession "trader" to the classifier will not change anything. We need mass enlightenment: who a trader is, where there is a real market with employers in the form of funds, and how everything is arranged legally and technically. Until this happens, trading as a profession in Ukraine is dead.
Zeph (Stock Trader effe)
Our society does not perceive trading as a profession, but considers it a gambling game where you can accidentally get rich. Yes, such cases happen, as do rare winnings in a casino, but this is where the understanding of trading is limited.
The problem is not in trading, but in mass consumption. In a country with a deficit of production and innovation, intermediaries and "story sellers" dominate. Value is shifting from creating products to packaging promises. Around-trading projects are examples of this approach, feeding a trusting population.
For this to change, the word "trader" should be perceived no less honorably than "engineer". This comparison can be viewed skeptically, but the development of economies is directly related to capital markets, where professional traders are an important link in the mechanism. While a trader is a "topic", and not a profession in the perception of people, the market remains dead.
Conclusion
Given the lack of the ability to conduct hot research, the lack of technology and innovation, the lack of a full-fledged market and culture, as well as restrictions and sanctions, a Ukrainian can only be an uninformed trader, trying to repeat the actions of the informed. His opportunities are limited to the crypto market, prop companies, and a few brokers. You will not notice how, step by step, everyone will start switching to L2 Market Data, trading objective market data instead of candlestick patterns. This is for the better, but not a panacea.
That is the reality today. I want to believe in change, but…
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