Where hedge funds fit into the market ecosystem
Reprinted with the kind permission of Dr. Victor Niederhoffer from his book The Education of A Speculator. Thanks Vic!
Model 1: The Ecology of Markets
A System Diagram of the Major Market Relations.
The Market Ecosystem
In The Education of a Speculator, Victor Niederhoffer proposes that "... each futures and foreign exchange market is held together by a web of public, dealer, large speculator, and broker players interacting with each other and their market environment" (Niederhoffer 355).
Key Points:
The public & gov., in the form of losses, provide food & energy. Herbivores= investment brokers & banks Carnivores= large hedge funds such as Quantum, Tiger and Omega.
"At each step, the orders and volatility are broken down into manageable slices and recycled among the participants in the web by decomposer species such as floor traders and telephone brokers" (355).
*The Publics are typically futures traders, stock flippers, market timers, systems clubs and tape watchers, but Niederhoffer makes an interesting point that these publics might better be described by behavior: "inflexibility, ignorance, arrogance, myopia, hesitancy, undercapitalization, overconfidence, spendthrift ways, and hopefulness" (355).
The following table that shows the relations of typical ecosystems in the earth's biota:
Model 2: The Relations of Typical Ecosystems in the Earth's Biota
| | Producer | Herbivore | Primary Carnivore | Secondary Carnivore | Decomposer | | Tundra | Lichen, reindeer moss | Caribou,
reindeer | Wolves, Arctic Fox | Polar bears | Low, microbes, effects of freezing temperature | | Pond | Algae, phyloplankton | Zooplankton, crustaceans | Dragon flies, mollusks | Bass, trout | Bacteria, fungi | | Meadow | Herbaceous, angiosperms | Flies, bees, spiders | Beetles, wasps | Sparrows, crows, deer, ferrets | Bacteria, fungi | | Ocean | Blue-green algae | Amoebas, radiolarians | Crabs, lobsters | Tuna, swordfish, shark, turtle | Barnacles, coral | | Savanna | Grasses, sedges, acacia trees | Zebras, wildebeasts, impalas | Cheetahs, hawks | Lions, leopards, jackals | Vultures, hyenas, bacteria | | Market | Public, government | Dealer | Large Speculators | Large hedge funds | Locals, vulture investors |
Note: It is with the kind permission of the author, Victor Niederhoffer, that we publish this information. To purchase Dr. Niederhoffer's book, The Education of a Speculator, from Amazon.com, go to HFC's Book Shop.
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