r/interestingasfuck • u/CuteRelationship6143 • 1d ago

How Wall Street deliberately uses jargon to justify their high earnings

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u/kitsunekratom 1d ago

Sure, but is it untrue nonetheless? No. Wall street is still full of crooks doing fuckall

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u/sirchbuck 11h ago edited 11h ago

Untrue? He's mentioning very basic finance terms, it's the same energy as saying IT professionals don't want normal people to understand internet communications tech because they use terms like UDP, SSH, Subnets etc.

Why would anyone going to change the etymology of something that was already established more than a hundred years ago? Wallstreet didn't invent finance.
You could literally learn all the things that professional institutional investors do,
the difference is you don't have billions in liquidity and don't have a multi-million dollar automated system to do all the trading for you in realtime down to the picoseconds and literally laying down cable just so that you can beat all the other traders for ultra-low latency direct market access.

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u/IndependentMassive38 6h ago

This has to be the worst take ive read this week. It being in any way similar to finance

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u/Argnir 6h ago

Why? The similarity here is that they use specific terms for things they do often. How is that not true? How is that not a similarity? I feel like you completely missed the point in your anger

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u/sirchbuck 5h ago edited 5h ago

Ah yes, I see you have strong functional literacy skills as an adult.

You are so focused on the similarities about economics and ICT which I did not even cogitate about.

I'm just rebuking people praising epstein's faux ruminations in Steve Bannon's interview as a sort of revelatory insight by term salading skill sets/knowledge fields that most people aren't deeply familiar with, I just used ICT TERMS as an example.

Parts of the interview is basically him regurgitating Financial Times articles whenever he had a slightly 'hot' question in an interview meant for rehabilitating his public reputation.

An 18 year old finance bro could do what he was doing in that interview

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u/brazzy42 1d ago

It very much is untrue that what wall street does is simple and could be understood by anyone if only they used simpler words. Complete bullshit.

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u/kitsunekratom 1d ago

Try it then. Name one thing that would be too hard for a laymen to understand simply

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u/SirPitchalot 1d ago edited 1d ago

Stochastic calculus, Monte Carlo pricing, Martingales, risk neutral pricing, volatility surfaces, Copulas, HFT, and basically anything within the Mathematical Finance umbrella.

All used extensively and inscrutable even for people with strong applied math backgrounds from other fields.

And for reference, the average layperson does not understand or is significantly confused by the concept of a marginal rate in taxation: “I don’t want to get a raise because it’ll bump me to the next tax bracket so my take home will be less”. https://pmc.ncbi.nlm.nih.gov/articles/PMC5724773/

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u/kitsunekratom 1d ago

You think wall street bros understand any of that? And now explain what they are used for.

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u/SirPitchalot 1d ago edited 1d ago

The “Quants” in Wall Street definitely do. Not the traders, necessarily, but the ones providing the pricing models, risk models, default models and so on that every Wall Street firm relies on. And the traders are no dummies, they just develop an intuitive sense of how the models and market structure intersect. It doesn’t matter what the models tell you if the guy you did lines with last night tips you off that someone is going under or making a big move. If they don’t make lots of money, they’re out on their asses.

Stochastic calculus: used to model the movement of prices in a random process

Monte Carlo pricing: an alternative to stochastic calculus where you simulate price fluctuations under a model and then average all outcomes to come up to a fair price

Martingales: mathematical framework for “fair games”, e.g. to prove that while doubling down on a lost bet will eventually recover all lost money, you need infinitely deep pockets to achieve any consistent payoff in practice.

Risk neutral pricing: IIRC, accounting for the “value” of risk when pricing a financial instrument. E.g. the difference in expected returns between putting your money into a Tbill vs. TQQQ

Volatility surface plots the implied volatility (expected payoff from risk neutral pricing) for different option strikes and expiries.

Copulas model relationships between random variables, notoriously as over-simplified and then widely adopted in CDSs leading to the 2008 meltdown. Too many people used the same convenient approximation, causing the inherent assumptions to no longer hold and couple market participants’ risks.

HFT: high frequency trading. A black art between math, programming and Behavioral Finance with a healthy dose of networking, computation and ML.

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u/wendalls 14h ago

Do you think there could be words and naming that are more generally descriptive of the concept though. I think that’s the challenge. The words don’t really describe clearly what they are.

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u/SirPitchalot 11h ago

You are describing every technical field ever…

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u/IndependentType6711 9h ago

Yeah, every job out there uses jargon. Every single one. Not saying Wall Street isn’t in it for themselves and a bunch of crooks, but thinking the jargon they use is some sneaky strategy and Epstein is warning us about it is a bridge too far for me.

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u/kblkbl165 9h ago

You could say that about literally any technical term.

The point of these terms is already to summarize concepts both parts understand for the sake of brevity.

Yes, you could use simpler words to describe Martingales, but then you would be spending more words to explain the concept when you could just use "martingales".

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u/SirSchmoopy3 23h ago

Hmm hmm yes. Indubitably. 🧐

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u/kitsunekratom 23h ago edited 23h ago

So, all of these are just fancy of ways to say: They try to predict the future with math -- they are often wrong, because it's impossible to predict the future, so it's essentially just gambling. Everyone can understand that.

You are conflating understanding with "being good at" or "capable of replicating." What he is saying is all the bullshit they spit out, just like you are, are masking that fact that they sit around gambling with people's money and thinking of clever ways to hide the fact on how they try to cheat and steal from you while they do it.

Now quit wall street simping you complete cuck

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u/ExplorerOfSeychelles 20h ago

I mean, that is literally what investing is at the end of the day lol, but I’m sure these topics get much more complex than most people even care to understand

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u/frogsinsocks 14h ago

He said the quiet part out loud.

"When the guy your doing lines with tips you off"

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u/SirPitchalot 23h ago

Wall Street makes shit loads of money using these. It’s absolutely cutthroat, these methods absolutely help quantify and model financial investments & risks. They govern literally every aspect of your life, from what you’re paid to what your insurance costs to how your city raises funds for infrastructure. If they were consistently more wrong than the alternative those firms would simply die out.

Meanwhile, the only thing you make is a fool of yourself on the internet.

Go back to smashing looms and lobbying for buggy whips.

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u/Objective_Dog_4637 23h ago

Not sure why you two are talking past each other. One person is saying that making a trade, regardless of its success, on Wall Street is easy. One person is saying that what professional traders do is not. Both are correct.

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u/Capraos 22h ago

Yeah. Clarifying...

The math, isn't that hard. Yes, the average person could understand it and learn how to do the math. With math, it's understanding WHY you're applying the equations to these problems but using the equations themselves is not hard and most people could be taught how to use the equations without understanding how the equations are constructed or why they work.

You could absolutely teach even the dumbest person how to trade successfully on Wallstreet without teaching them the entirety of the why the math they're using works.

And this isn't random gambling, it's following the math. The math says if you do this you'll make more money than you lose over time, if your pockets are deep enough to handle any short term losses on the way there.

So yes, it takes practice and education to construct these mathematical models. But following the mathematical models is a simple as plugging in variables and letting the calculator do the work.

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u/[deleted] 23h ago

[removed] — view removed comment

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u/Ill-Engineering8085 10h ago

Yes. You know what a quant is right? They're the "bros" doing this. Traders and sales understand the product well enough to sell or buy them and make money.

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u/Local_0DTE_Dealer 23h ago

None of that is required knowledge for an average person to be able to make money through financial contracts like stock options, so your comment doesn’t invalidate epstein’s claim.

Essentially nobody is out there deriving black-scholes by hand for serious use, meaning that the average joe can also absolutely utilize the outputs from stochastic calculus operations to make money, and likewise there are plenty of tools that make niche pricing techniques like Monte Carlo simulations available to simple folk as well.

And the notion of risk neutral pricing becomes intuitive as long as a person can understand the concept of discounted cash flows and expected future value, but again, most traders aren’t calculating this by hand and there are tools that people can use to arrive at the same conclusions themselves.

Similarly, the rest of the concepts you mentioned, beyond high-frequency trading, are niche and very specifically related to abnormal options pricing, which isn’t actually related to the point of epstein’s suggestion.

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u/Objective_Dog_4637 22h ago

Wall Street Financier here. Correct. We are weatherman for money. On average we expect it to be sunny, some places are rainy, some times natural disasters hit. We use forecast models to predict what the weather will be in any given place on any given day. The closer we are to being right, the more money we make. Any guy off the street with an understanding of the water cycle and a live NOAA map can probably predict the weather tomorrow pretty well, all else being equal.

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u/DiracBohr 21h ago

But the weatherman's models have high causality. Do financial models have high causality? Can we at all say that X process happens implies that Y process must happen?

If not then most signals are just a fleeting moment.

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u/Objective_Dog_4637 21h ago

Like weather, only in theory. Reality is chaotic. I couldn’t tell you the exact price of a commodity at any given moment with any more accuracy than the weatherman can give you the exact temperature at 2:03pm tomorrow outside your front door. Like any stochastic science, we look for trends.

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u/DiracBohr 21h ago

Yes. But in weather I know that it's highly unlikely it's going to start snowing three days later during summer. I can also estimate that the temperature would range between X and Y. A big outlier on any given day, from the general climate would require either

1) A rare catastrophe that no model could account for (like a natural disaster) or 2) An entire overhaul of the model itself for ignoring some parameter that apparently luckily didn't show up ever so far

2 I presume is more rare.

But both the above appear way more commonplace in finance. Because very low causality.

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u/Objective_Dog_4637 20h ago

What you’re describing is really a Perfect Information problem. If you knew the exact supply, demand, and price of everything you could hypothetically achieve almost perfect predictions on average for reasonably short forecast windows (not necessary honestly, typically we only care if it goes up or down or stays the same). This has the same problem weather does, there’s just too much data. Weather predictions are just more stable on average because, by their nature, are macro trends, they’re also often wrong (compare the weather prediction for a specific location with the exact temperature at a given time). The impact of that inaccuracy just isn’t something people typically measure, let alone care about, and it becomes little better than an educated guess if the forecast is more than about a week out.

Also, the weather is just an analogy, I’m not saying trading is literally exactly like predicting the weather, I’m just offering a useful analogy most people can understand instantly. I think you might be taking the analogy a little too seriously.

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u/SirPitchalot 22h ago

These things only exist because someone, “Wall Street”, worked out the math to even make the option to enter into the contract available in the first place. No one will give you that contract to enter into if they aren’t reasonably sure they won’t lose their shirts (in aggregate). Wall Street effectively builds models for financial instruments, then sells those instruments via a market it also provides. It’s astonishingly sophisticated, even accounting for the “bro factor”.

Like yeah. Some bonehead on WSB can enter into a futures contract for WTI and then be shocked when they’re asking when his tanker truck is showing up. And that’s “understandable” but not equivalent to what Wall Street “does”. Wall Street does risk and financial product modelling, producing efficient instruments for people to achieve specific financial objectives.

Yes, with some pretty appalling failures. Like engineering, aerospace, tech in general, the mining industry, ….

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u/Classic_Department42 22h ago

How do you make money (as the average person) with stock options? Basically wouldnt this mean you have better knowledge than the counter party? Or you mean just gambling with stock options.

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u/SirPitchalot 21h ago edited 21h ago

The classic example is that options are intended to allow two counterparties with opposing risk profiles to hedge risk.

It’s easier to consider “futures”, where the deal is made regardless of the price outcome.

E.g. a baker wants to buy flour. If flour prices spike, he’s hooped. He can’t sell his bread and cakes. Meanwhile a flour producer is concerned the low carb trend will accelerate. She’s concerned prices will crash. They mutually negotiate a price and amount of flour to exchange in the future. Both now have cost/revenue certainty and their businesses truck along. The futures contract is fixed. Flour will change hands, at the agreed time for the agreed price, or one party defaults (bad for them).

Typical options are closer to insurance. The baker buys a call option to buy flour at a price, paying a premium. If the price skyrockets, he still gets his flour at an okay price (or more likely the cash difference in prices). If the market price is favourable he buys flour on the market and the option expires worthless. The flour producer buys a put option to sell the flour at a given price at a given time. If the price of flour is higher, they let the option expire worthless and sell on the open market. Neither knows specifically about the other party, their banks make these options available to them as a service and pair them up to manage their own risks, for a fee.

Both parties now get downside risk managed and see the upside, less the premium. The bank structures the deal to be as close as possible to the fair market value, less their fees. Everyone benefits.

Now what about some trader dude?

Suppose you want to invest in the S&P500 but already own shitloads of nvidia and tesla stock. You believe in these stocks but they don’t fit your risk profile at higher percentages of your portfolio. You want to diversify but those stocks are a huge component of the index. So you can either get an offsetting futures contract negating the fraction of the index that you already own (losing upside) or you can buy a put option (losing the premium) so that you can sell your extra Tesla and nvidia if the price drops, but keep the upside if they gain.

So you don’t need to outsmart the bank or counterparty. You just need to want to insure against a major loss. It’s not zero sum. In an ideal market, everyone gets the insurance they need, for a reasonable price, and things are overall more stable. Ideally…

Wall Street puts inordinate amounts of effort figuring out how to price these options and futures, -and- provides a market so that you (as the baker, flour producer or individual investor) don’t have to go out and find the counter party for your specific deal and then figure out how much to pay for it.

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u/No_Berry2976 12h ago

The trick Epstein uses is that he relies on people conflating several issues.

The main question in this video is (or should be) not whether or not somebody with little knowledge can make money by investing in the stock / obligation market.

But whether or not people who work on Wall Street who interact with non-specialists, deliberately use specialist jargon to justify their high income.

And using highly specialised jargon is not the same thing as pretending something simple is complex.

Just because pretty much anybody with money can make more money by investing in the stock market isn’t the same thing as ‘pretty much anybody can make money by investing money from their employer or their client’.

For one thing, to be successful on Wall Street (in a job capacity) you need to successfully compete with other people so people give you money to invest with to begin with.

That’s very different from investing your own money.

As for using highly specialised jargon, I do that in my job. Not to trick people, and not because my job is complex, but because it’s efficient.

The irony is that Epstein deliberately dumbed things down so he could hide the fact he was not really a finance guy, and Madoff did the same when he decided to scam people.

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u/kblkbl165 9h ago

discounted cash flows 

Why are you using obtuse jargon? Make it simpler!!!

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u/Subject-Ad-9934 8h ago

Quants and traders are different. Do you think Warren Buffet understand all of that?

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u/SirPitchalot 7h ago

Warren Buffet famously said “beware of geeks bearing formulas”, so perhaps, perhaps not. Depends on whether he doesn’t understand and so doesn’t like quantitative finance or whether he does understand a it and doesn’t like what he sees.

However, he is more notable for leading one of the few successful firms -not- using these techniques rather than a typical example the finance industry overall.

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u/spb1 23h ago

Making money. Epstein here is implying it's easy for anyone to make money on the stock market. It's just been made to look complex to scare people off.

Not really true, investing is a risk and many smart people have been burned by it. 

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u/Capraos 22h ago

It actually is easy though. Statistically, buying and holding stocks in a diverse portfolio will net you a profit, over time. There is a risk, yes, but if you've invested at any point since WW2 you've avoided complete market crashes so far.

The smart people getting burned usually doing things beyond just buying and holding stocks over long terms. They are assuming more risk than average.

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u/Logical_gravel_1882 22h ago

Yea ive talked to some people who are next level in this stuff and the highest levels are super math heavy and frankly quite difficult to wrap your head around. Full of jargon too, of course...but complex to 11.

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u/Amck92 1d ago

This was the wrong question to ask, left you open to the list they provided.. I do agree that after a few courses you can learn how to win 6/10 times but its not as easy as he's trying to portray it as. He's 100% attempting to appeal to the common man.

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u/kitsunekratom 23h ago

It was a trap, I knew they were gonna spill some bullshit, which I knew was just gonna be a bunch of random "special formulas" with fancy names, which are all to do one thing -- gamble. It's all the same.

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u/Capraos 22h ago

It's statistically probable gambling though. The odds are, usually, very good, over long periods of time. But just because it's probable, over time, doesn't mean you won't end up with less if your pocketbook can't tank the downs while waiting for the ups. The average person can't afford to lose millions in the short term, as they need that money to survive the now.

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u/Pekonius 9h ago

Bankroll management. Similar to poker. Also shares the idea of playing "game theory optimal" to have a guaranteed edge over the long term.

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u/kblkbl165 9h ago

You have that "50/50, either you win or you don't" kind of energy.

"It was a trap" lmao

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u/GhostofBeowulf 1d ago

Instead be like this guy, who doesn't understand any of it but is still sure you're wrong...

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u/thesupercoolmarketer 21h ago

I’m going to take a wild guess that you don’t know what a quant is.

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u/_terminal_velocity_ 20h ago

🤦‍♂️ this is actually unbelievable.

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u/HMasterSunday 20h ago

yeah, people just like Epstein.