There are two basic groups in the market from whom you could take money. Other traders, no need to feel bad about that, they try exactly the same...
And participants that hedge physical positions or other exposure to price fluctuation. They do it with the primary goal to reduce this exposure. A lot of price movement is due to these positions and the ones of large funds IMHO. This hedging pretty much works like an insurance, and every insurance I have I do in fact have to pay for...
Hic Rhodos, hic salta.
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If I want someone's opinion I ask, and I very seldom ask. Folks of the sort you mention, who believe I care what they think, or that I should care, or that I'm somehow compelled to listen to their unexamined ideas are in for a nasty shock.
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You are only ever taking money from people who have agreed to part with it, be it other traders out for profit or someone hedging.
IMO every trade that occurs is a good deal. Both parties willingly choose to enter the market and transact at a price, both think they will either make money or avoid the risk of losing more money, so they are happy with their transaction.
There is no moral quandary in trading. If you want parasites, go find a union*.
* I am referring to unions as a collective bargaining organization, I have no qualm with union members.
"If I agreed with you, we'd both be wrong."
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Christian - I think this is a good question. The world we live in is a product of all of our actions, like it or not, and so knowing (for those who care) that we're engaged in an inherently "good" or "bad" industry is important (again, for those who care about such things).
The function of a market is to determine the value of something based on the combined opinions on that value of all participants in the marketplace. It is a platform on which all can express their opinions about value through buying or selling something - and these actions (individual choices to buy and sell) determine the value of that thing (be it physical or abstract).
Participants use markets to achieve ends - some use markets solely to make money from speculation (that's us), others use markets to acquire goods to use for their own ends or sell goods they've produced, still others use markets to offset the risk of production or utilization. Many non-participants use markets to get information about value.
The only way that speculators as a whole can make money is by buying the market when the price is too low or selling the market when the price is too high. The net effect of profitable speculation is to bring the market price into alignment with the underlying value of the thing being traded. This process of bringing price into alignment with value can be thought of as a service that markets provide to those who utilize markets. The participant who wants to offset risk hands that risk over to the speculator in exchange for the speculator making money from his/her speculation - the speculator takes the risk from the participant who will pay to offset risk. The participant who needs to acquire goods or sell goods through the market needs two things - liquidity and a fair price. The more liquid a market is and the more fair the price in that market is, the better service that market provides to the non-speculative participants. Speculators help provide both these things and so provide a valuable service through their participation and are compensated accordingly.
So it sounds like speculators are just below fire fighters in the social service scale, right? Not exactly - healthy markets encourage speculation enough to achieve the ends outlined above. A market becomes unhealthy when the relative contribution to price movement from speculation outweighs the contribution from the other participants. Thus markets need a balance of regulation to provide a healthy amount of speculation without allowing speculation to outweigh other participants contribution to price movement.
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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First--I go with the earlier answers, and recommend just not having this argument. You are dealing with people who, despite being friends or family, likely have no idea what a trader/speculator is, and their entire thought process on the subject comes from what they hear on Blame The Rich TV. Traders are all rich, aren't they? They don't really work, do they? They make too much, and hooray when they lose money... this kind of thinking. So, you are likely not going to have an intelligent conversation with a thinking human being if his/her exposure is what he or she has heard on TV.
But how about this--assume the null hypothesis, and ask them for concrete examples of how trading is unethical. A couple of common arguments might be:
- "It manipulates the market and a lot of people have their retirement invested in the market."
Answer: So, Robert, who has invested money into his retirement, should be guaranteed a positive return? Any return from investment assumes a certain amount of risk. Someone who is invested in a stock market or other risky assets should instead invest in bonds or some other much less risky asset if they want a positive guaranteed return. By having their company put money in their 401(k), they are choosing their level of risk. More risk equals greater potential for return. If they want no risk, then don't put money in a 401(k), put money in an FDIC insured savings account.
- "Short selling a stock ruins a company's stock performance and hurts the company."
Answer: Then don't go public, Company. A company goes public to raise money. When they do so, in order for that guaranteed return at the IPO, they assume... you guessed it, risk. Risk that others will think their company sucks, and who will short the hell out of the stock, bringing the price down. If they don't want this to happen, then they shouldn't have gone public. And guess what--shorting is quite easy to counter; just bid for the stock, and buy it up, if you think it's such a darn great stock. In short (pun not intended), when a company goes public, they are placing the shares of their stock into the world of supply and demand. If there is strong enough demand, it will overcome any amount of supply (short selling), and the stock price will not plunge. If there is not enough demand, supply will overtake the stock and it will go down. This is basic economics and the company made the choice to publicly trade its stock in this fashion.
- "Evil speculators drive up the price of oil and it costs me more to fill up my car with gas."
First of all, crude oil costs only account for ~71% of gasoline's prices. While evil speculators can drive up the price of crude, they can also drive it down, yet no one seems to complain about this type of speculation. Again, crude is a commodity, and forces of supply and demand, whether it is via speculation or natural demand, will drive the price of oil. Simply by driving, people are creating demand for it. That is how a market works. If the price is so high, then don't drive. If someone MUST drive, then shame on them for placing their entire livelihood into the hands of crude oil. We all have a choice, and sometimes that choice must be "don't drive." This is a hard one to swallow, but no one forces someone to live where they do, drive a car, etc.
These are honestly the only three halfway-intelligent arguments that come to mind, but I'm sure there are more. What reasons have people given for trading being unethical, out of curiosity?
For examples in everyday speculating that people do:
- Is it ethical for you to buy things on sale at a store? This rips the store off, doesn't it? Of course not. You buy it on sale because... the price might go up. You are speculating that the price will rise, so you buy it at a discount.
- Let's say you buy tickets to a baseball game but later decide not to go. Because the team coming into town to play is quite popular and doing well at the time of the game, there is a large demand for the ticket prices and you sell them to someone for a higher price than you bought them for. Is this ethical?
- Do you own a house with a mortgage or have a car loan? Do you have a variable interest rate on the loan? Why not? Obviously, because rates could rise, and you would not want to pay a higher rate later. But isn't this unethical? Not at all--it's speculation. You are speculating that interest rates may rise in the future, thus you are trading the possibility that they will go down for the guarantee that they will stay the same. Of course, if you want to pay more, by all means, do so...
To sum up, trading and speculating comes down to three principles that ensure its morality, in my belief system:
1) All trading is done by willing participants, and no one forces anyone to engage in speculation
2) Transfer of risk--all investors assume risk, and thus there is no guarantee of a return. If one does not want to risk, he will get no possibility of a return. If you play the game, you must be willing to lose the game.
3) A commodity or asset will not fluctuate in price without the forces of supply and demand. When demand runs out, prices will begin to fall, and vice versal. In other words, manipulation can only go so far.
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