David Ricardo (1772-1823)

This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) presents the portrait of David Ricardo, who is a well-known economist.

Introduction

David Ricardo, born in England in 1772, is one of the most well renowned economists of all times. He is famous for his contribution in the field of public finance and is known for his theories of labor value, comparative advantages and rents. He has also written many research papers and books on the policies of the British Central Bank and has made important contributions to the development of monetary policies in Great Britain.

David Ricardo started his career in the stock markets at the age of 14 when he joined his father who used to work at the London Stock Exchange as a stockbroker. His talents and understanding about the financial markets helped him gain a good reputation in the market. He developed interest in economics in 1799 when he started following the work of Adam Smith, a renowned Scottish economist and philosopher.

Career in the stock market

What is lesser known about David Ricardo is the fact that alongside of being a famous economist, he was also very famous as a quantitative trader. He used to trade in the stock markets using his strong mathematical skills to buy under-priced stocks and short sell the overpriced stocks. He is believed to have made short-term investments in the stock market, investing large amounts of capital with a low-risk appetite, that helped him accumulate a huge wealth.

Two of the Ricardo’s primary rules for trading in the stock market included: a trader should “cut short his losses” and a trader should “let his profits run on”.
In the end, it’s not about making the correct choice always, but correcting the wrong choices at the right time.

Link with the SimTrade Certificate

The two rules by Ricardo by correlate to the learning we derive from the SimTrade Certificate.

The stop loss orders that are taught as part of the different exchange orders are an efficient way that every trader should use to protect their capital and cut short on their losses.

This type of order helps a trader to exit his/her position automatically if the prices of an asset declines by a predefined amount. Such orders are frequently used by traders as an effective risk management strategy to avoid huge losses which may arise if the markets move in the unfavorable direction.

The concepts about different trading strategies and their practical implementation can be learnt in the SimTrade Certificate:

• About theory: by taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency.
• About practice: by launching the market simulations, you will understand how financial markets really work and how to act in the market by sending orders. By executing the stop loss order, a trader will learn the risk management strategy of cutting short their losses.

Article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022).