Economy

Economics

A few ideas from economics do real work for a trader: supply and demand as it shows up in one stock, inflation as it eats returns, the business cycle and why its labels arrive late, and the efficient market debate that any claimed edge has to answer. Each page keeps to the arithmetic and the logic.

Where arithmetic helps, it is worked on the page with hypothetical numbers you can replace with your own. The trading terms define the account mechanics these pages refer to.

The inflation page is the most practical of the four: it shows, with numbers you can swap for your own, how much of a nominal gain survives inflation and tax. The efficient markets page is the one to reread before you trust a new strategy.

To check what you know afterward, try the economy quiz. The margin interest calculator and the merger spread calculator run two of the sums from this section with your own numbers.

Efficient Markets: What the Theory Claims and What Traders Do With It
The efficient market hypothesis in its weak, semi-strong and strong forms, what it predicts for traders, and how to test your own edge after costs in your records.
How Inflation Eats Trading Returns, With the Arithmetic
Nominal versus real trading returns worked through for a hypothetical account, how tax on nominal gains raises the real tax rate, and what idle cash loses.
Supply and Demand, Applied to a Single Stock
How supply and demand set a stock's price through the order book, and which events add sellers or buyers: offerings, lockups, buybacks and index changes.
The Business Cycle and What It Can and Cannot Tell a Trader
The four phases of the business cycle, why US recession dates arrive months late from the NBER, and why cycle-based sector rotation is easy to fit in hindsight.

Articles

Efficient Markets: What the Theory Claims and What Traders Do With It

How Inflation Eats Trading Returns, With the Arithmetic

Supply and Demand, Applied to a Single Stock

The Business Cycle and What It Can and Cannot Tell a Trader