For John Doe average dude on the street plugging away at his job/career decade after decade.....every person in my family is an example here.... My aunt and uncle who raised me, he worked as a grocery store manager for 40+ years, longer if you count the part time work while he was in high school ....all at the same company. Point is he had a 401k retirement account. If there was not a literal ocean of traders out in the world doing as they do.... the prices that are reported each and everyday by the media would fail to move so well as they do. And when I say well I'm referring to the steady stream of price action and volume not a direction.
I have pondered liquidity, the providing liquidity idea. As individual traders, one dropping off here or there from this profession means nothing. Like stepping on an ant on the sidewalk. The ant colony will be just fine.
If you need to feel from your chosen career a very direct sense of value or purpose to humanity trading might be a bad fit. I believe trading has value to society, mankind the world but it's not as direct as other career paths IMHO. Much more like the ant.
As a group (large group) traders keep the markets healthy for Joe Everyman and his retirement account. The speculator takes the other side of the hedgers trade. Hedgers trade to reduce risk. Hedgers trade huge speculator small (by way of comparison) so the system needs many times more speculators than hedgers. It's helpful IMHO to think about the relationship between hedgers and speculators. The insurance industry hedges (index futures/options, interest rate futures/options), the financial industry hedges (Forex pairs, and also same as insurance listed before IMHO), the food industry hedges (corn and wheat futures etc) the manufacturing industry hedges (copper and gold futures etc) the transportation industry hedges (crude and gasoline futures etc) etc etc. The system won't work for hedgers without the speculators.
Are you ok being this small cog in the wheel, this ant? Does the individual ant have any value to the colony? Most traders fail IMHO because they don't have a solid education regarding their field and by the time they acquire it (if ever) there is no money left to trade, it's now in someone else's account who does have the needed education.
We must be like the fountain or spring that is continually emptying itself of all that it has and is continually being refilled from an invisible source
Buy Low And Sell High (read left to right or right to left....lol)
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Nope, left as an exercise for students since they always get poor marks on that one.
Alright then, when the smoke and mirrors do unravel the real distinction will be clear. A universe in which financialized assets trade at today's velocity and are somehow judged as being worth hundreds of times more than any real economic wealth tells you all you need to know.
In short, liquidity disappears when it is most needed. Solvency is there when all else have gone by the wayside. Ask JPM.
Seriously - does $6 of debt to create $1 of GDP make any sense to anybody?
Seriously - do stocks trading entire company valuations in minutes make any sense to anybody?
Seriously - do quadrillions of derivative products make any sense to anybody?
Seriously - who owns your house, you or the bank? A good income keeps you liquid. Solvency might be a different matter.
The list of liquidity issues is endless. Real solvency lives in a lot fewer places. And we didn't even start on sovereign issues.
We in here exist as traders. Let's not kid ourselves that we are anything to do with capital formation, that was an old time market's job.
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