REVIEWS
“Preda’s Noise is a most rare volume. In elegant writing, Preda is able to explain the complexity of electronic trading, revealing that what has often been described as random perturbations, enacted by ignorant traders, is, in fact, highly organized, intensely social, and fully cultural. What might be described as mere noise, seemingly unintelligible, is integral to how markets operate, and, in Preda’s telling, markets could not operate efficiently without such seeming inefficiency. This book is truly eye-opening in its willingness to overturn the assumptions of a rationalist market fundamentalism. It is a most important contribution to economic sociology and the understanding of finance.”
— Gary Alan Fine, author of Players and Pawns: How Chess Builds Community and Culture
“With keen insight and elegant style, Preda takes us into a memorable exploration of twenty-first century electronic finance. Challenging stereotypes of atomistic financial markets, Noise captures with fascinating ethnographic detail the connected social world of traders. A welcome contribution to the sociology of economic life, the book will also engage a general audience eager to understand how finance really works.”
— Viviana A. Zelizer, author of Economic Lives: How Culture Shapes the Economy
“What leads normal people to trade stocks with their own money, even though they are likely to lose? If they keep losing, why don’t they quit? And how do we connect with people for whom some of their most important actions consist of tapping at a keyboard and staring at a screen? Preda reveals the hidden abode of the ‘noise trader’ in a sympathetic first-person account of this durable and even essential part of our financial markets.”
— Jerry Davis, author of The Vanishing American Corporation
“In Noise, Alex Preda immerses himself in the world of retail traders, amateur investors who seem to be the ultimate lone wolves, seeking money from the comfort of their homes, but who are nevertheless intimately connected with each other and with the professional trading world. . .Preda shows that the worlds of professional and retail trading are not as distant from each other as others have made it out to be.”
— Public Books
“Sociologically, Preda draws attention to the communicative conditions of economic action and experience. . .It is this investigation of cross-linkages between technical and social processes which makes Preda’s analysis sociologically valuable.”
— Symbolic Interaction
“An intriguing ethnography of a critical but understudied segment of the financial market: day traders.”
— American Journal of Sociology
"In this brilliant study, Professor Alex Preda extends our understanding of the sociological significance of 'noise trading,' an important concept in financial economics advanced by Fischer Black in the 1980s...Preda’s research demonstrates how sociology can be fruitfully applied to discover hitherto unrecognized patterns of social dynamics that has relevance for better understanding the context of financial economics."
— Paul Miranti, Technology and Culture
TABLE OF CONTENTS
Introduction: The Ethnography of Noise in Electronic Finance - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0001
[noise traders;financial;concept;traders;electronic finance;electronic markets;ethnography;professional traders]
The Introduction presents the main puzzle of the book: why do ordinary people take up trading when statistical evidence shows that a vast majority of them do not make any money? Starting with an argument initially made in financial theory, namely that markets need “noise” in order to work, it asks, How does this “noise” look like in practice? It introduces the distinction between informed or professional traders, on the one hand, and noise or retail traders, on the other hand, and questions it from a sociological point of view. The Introduction shows how the meaning of the financial concept of “noise” has changed over decades, to designate a particular category of traders as distinct from professional ones. This raises the issue of how various categories of traders are constituted, how they relate to each other, and how such links can be investigated within electronic markets. The Introduction lays out the ethnographical approach to investigating categories and types of traders, in relationship to the institutions which support trading. It argues that the ethnography of electronic trading and of retail traders cannot be limited to online exchanges, but needs to take into account the manifold institutions and interactions which constitute markets. (pages 1 - 29)
This chapter is available at:
https://academic.oup.com/chica...
1. Noise in Financial Markets - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0002
[trading technologies;online trading;retail brokerages;innovation;traders;financial instruments]
Chapter 1 examines the development of retail trading from the 1960s until our days, paying special attention both to the technological developments that marked the transition to electronic trading in the mid to late 1990s and to the place of retail brokerages within the institutional structure of financial markets. The focus is on the United States and the United Kingdom. Three kinds of processes are investigated close up: the evolution and diversification of retail brokerages in relationship to trading technologies; regulatory regimes and changes in these regimes; the evolution of the client structure of retail brokerages in relationship to online trading. In the 1980s retail brokerages adopted technological innovations meant to increase the frequency with which their customer base was trading. This trend continued in the 1990s, when online platforms for retail traders emerged. The creation of financial products tailored to retail traders and to more frequent trading was accompanied by a regulatory regime that also encouraged trading frequently (e.g., via a favorable taxation regime and high leverage). Between 2000 and 2010, the demographic structure of retail trading populations began to shift toward younger age groups, while income spreads grew larger. (pages 30 - 63)
This chapter is available at:
https://academic.oup.com/chica...
2. How Does One Become a Trader? - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0003
[student trading clubs;elite professions;recruitment processes;financial institutions;organization]
Chapter 2 examines the links between noise and institutional trading from the viewpoint of each one’s capacity to morph into the other. While noise and institutional trading are usually regarded as conceptually separate, this chapter shows that there are practical circumstances in which they mutually support and reproduce each other. Based on participant observations and interviews, this chapter shows how financial institutions encourage noise trading as a recruiting ground and how former institutional traders and finance professionals craft second careers for themselves in retail brokerages and advisory firms. The setting is provided mainly by the activities of student trading clubs, which work as recruitment grounds for banks and other financial institutions. The chapter examines the ways in which trading clubs replicate formal structures from financial institutions, and initiate activities meant to pre-figure and facilitate recruitment of their members by these institutions. As such, activities as retail traders are not incidental, but organized. They precede careers as professional traders within banks and financial firms. Overall, the chapter’s argument is that from an institutional point of view, noise and institutional trading are not completely separate and that transitions from one domain into the other regularly take place. (pages 63 - 90)
This chapter is available at:
https://academic.oup.com/chica...
3. Taking On the Market: Competitions and Spectacle in Trading - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0004
[competitions;trading shows;morality;spectacle;public;competitors]
Chapter 3 looks at an aspect deemed to be crucial with respect to market transactions: trading competitions. While the textbook definition of competitions is often predicated upon market activities, in practice competition is exercised mostly in a carefully managed, staged way. The chapter looks at trading competitions as a regular feature of shows and conventions and asks, Why are they so significant as dramatic displays, when in the practice of trading, we rarely (if ever) encounter purely competitive moments, simply because the institutional setup does not allow competition? This chapter examines close up the organization and inner workings of trading competitions, the position and role of the public and the dynamic of competitors. Competitions, argues the chapter, have to solve a series of moral issues pertaining to what it means to be a trader. Attributes such as discipline, resilience, or cunning have to be put on display for the benefit of the trading public. Collective displays become more difficult in an online trading environment, where participants are not all on the same trading floor. Therefore, trading competitions are staged as a spectacle where trading-relevant attributes are showcased for the benefit of audiences. (pages 91 - 117)
This chapter is available at:
https://academic.oup.com/chica...
4. Rituals and Illusions of the Trading Screen - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0005
[trading screen;observation;trading technology;currency markets;relationality;hierarchies]
This chapter examines the act of online trading itself—what it means, from the viewpoint of the trader, to use an online technology to conduct financial transactions. It analyzes what happens when traders place orders on their screens, how orders are handled within the infrastructure of electronic brokerages, and how traders perceive and make sense of their activities. While the orders placed by traders are not always matched against each other, the trading screen is geared toward producing a necessary illusion of relationality—that is, of traders relating to other traders. The chapter examines the types of actions that constitute trading and the ways in which they are shaped by the inherent relationality of the trading screen. Anchored in ethnographic observations, it investigates how various experiences of using the trading screen are articulated and how social hierarchies are produced in this process. Many ethnographies of financial trading have seen it as an egalitarian environment, where traders differ from each other based only on their skills. This chapter investigates how particular forms of trading are not egalitarian at all, but express in their setup hierarchical differences between retail traders, on the one hand, and traders claiming superior status, on the other. (pages 118 - 144)
This chapter is available at:
https://academic.oup.com/chica...
5. Talk in Trading, Talk for Trading, Talk of Trading: Group Communication in Electronic Markets - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0006
[communication;trading groups;experience;trading robots;collaboration;decision making]
This chapter investigates forms of collaborative activities in online trading. While a common image of trading in electronic markets is that of relentless, individualized, and atomistic competition, retail traders actually constantly collaborate with each other in trading. They communicate while trading, and they build groups in order to solve specific, trading-related issues. Based on participant observation over more than a year in trading groups, and on interviews with group members, this chapter examines how traders communicate with each other in trading. It investigates the activities deployed by groups of traders, arguing that both the institutional setup and the format of electronic trading make such collaborations necessary. Online collaborations enable observation and the formation of shared pools of experience as the basis of decision making. Online collaborations also make possible performing more difficult tasks, such as building and testing trading robots, which would be very difficult, if not impossible to conduct in isolation. Overall, the chapter argues that trading should be seen as a group activity rather than an individualized one, and that the standard assumptions about trading as an individual decision making process do not fit observations on the ground. (pages 145 - 174)
This chapter is available at:
https://academic.oup.com/chica...
6. Trading Strategies - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0007
[strategy;communication;trading;rituals;hierarchies;collaboration]
This chapter asks, What does it mean for traders to have a trading strategy? The trading strategy is predicated as a major component of decision making, and every trader is supposed to have or develop one. Strategy is taught in business schools as a core component. It is taught to traders by so-called master traders. But do traders use strategies, and if yes, how? Moreover, strategies are supposed to be kept secret. The evidence though shows that they are not. While traders talk a lot about strategies, in practice these are seen more as transient prescriptions than stable principles of action. The chapter investigates the degree to which traders really stick with or follow particular strategies, how they understand strategies, and why strategies are not kept secret but are revealed to others. Continuing a line of argument initiated in chapter 4, this chapter looks at the ritualization of strategies and the ways in which they are used to consolidate hierarchies among traders. While chapter 5 deals with collaborative communication among traders, this chapter shows how strategies are used as tools and tropes of individualization, to produce (the illusion of) autonomous, individualized decision makers in trading. (pages 175 - 197)
This chapter is available at:
https://academic.oup.com/chica...
7. The Lives of Traders - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0008
[personal relationships;social life;decision making;life projects;hostile worlds]
This chapter leaves the realm of trading strictly speaking and returns to the broader context in which it takes place, namely the social lives of those who participate in trading. How is trading integrated with the traders’ family life and friendships? What do traders aim to achieve by trading, socially speaking? Has trading changed them in any way as persons? What motivates them to trade? In the ways traders talk about what they are doing, surprisingly little pertains to utilitarian motives, and there is a constant preoccupation to relate this activity—admittedly not a very usual one—to their broader social lives. What does this relationship look like? The chapter shows that, contrary to many assumptions about trading as something esoteric, which does not have much to do with ordinary lives, traders make sense of their trading decisions and of their activities in front of the screen in relationship to issues of family life, friendships, and personal relationships. This chapter reworks the “hostile worlds” argument from economic sociology in order to show that trading decisions are not only adapted to personal life, but are also actively and purposefully used in shaping personal relationships with family and friends. (pages 198 - 221)
This chapter is available at:
https://academic.oup.com/chica...
Conclusion: Bourgeois Freedoms - Alex Preda
DOI: 10.7208/chicago/9780226427515.003.0009
[noise trading;financial institutions;problem of freedom;moral issues;social life;embeddedness]
The conclusion comes back to the question of noise trading as a key ingredient of markets. Why do financial markets need noise? Is it all about creating pools of liquidity? The liquidity produced by noise trading (understood as retail traders) is not necessarily indispensable to markets. Noise trading is far from random; it is socially organized, institutionally maintained, and reproduced in ways that do not fit the carefully promoted view of a competitive and meritocratic spirit. Its puzzle is cultural rather than simply a matter of attracting capital, especially since noise traders make sense of what they do in non-utilitarian terms. The conclusion examines again the double puzzle of why markets need noise trading and why people willingly and continuously engage in this not-very-usual activity. Noise trading provides financial institutions with pools of traders, in which potential professionality can be searched for and identified. At the same time, noise trading provides former professional traders with avenues for remaining involved in market activities after their professional career has ended. Engagement with trading is undertaken by ordinary people as a search for solutions to the moral issues they are confronted with in their social lives. (pages 222 - 236)
This chapter is available at:
https://academic.oup.com/chica...
