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I'll rephrase, profits are small in comparison to other parts of the industry. For example Hedge funds. Worth a read though as it talks about some pretty specific stuff with those in the HFT industry.
Anyway, this is a bit off topic.
Can you help answer these questions from other members on NexusFi?
As for liquidity: The role of the speculator is take on risk the producer wants to offset. The more transactions that are made, the fairer priced a market/instrument should be. This affect issuance of stocks, bonds etc.
The significance of pikers like us in the markets, however, is another debate entirely...
I used to tell the truth, but I got a lot of hate for it. "You one of them dirty speculators", "Ya know it's you and your kind who is responsible for this mess", "thanks for costing me my job" etc...
Now I just tell people I'm a doctor. Much better. "Oh so you're one of them lifesavers" "Wow you're so cute", "F*ck me now" etc...
They don't say much. Must be a side effect from the chloroform.
Anyways, one thing I have found quite fascinating is that the younger people almost exclusively react positively to me being a trader. In fact, I haven't met a single <25 year old who reacted negatively. It's always the older crowd who hate me for it. So those are usually the ones I lie to.
We should discuss some underlying basics in this thread.
1) There are many types of "speculators." In the most basic definition, anything based upon future events is "speculation." You're "speculating" that your company will be solid a year from now and you'll have a job. You'd be "speculating" if you were a real estate developer and investing in a new residential community (or any venture). Speculation is based upon supposition about future events that haven't unfolded.
2) Speculation, in the specific definition, with referring to business, tends to take that definition and narrow it down to anyone who seems to be taking extraordinary risks. Someone who invests in a stock for example, and plans to hold it for months or years, is considered an investor. However, someone who plans to own the stock only for a very short time, in order to profit off some short rise or fall, is considered a trader and possibly even a speculator.
There are basically 4 types of "traders."
1) The stakeholder. This is the investor who has a "stake" in the success of the company, above and beyond his share holdings. Companies have several stakeholders. The employees, the business partners, the customers, and some of the shareholders. A CEO who's worth is tied up in the company (and consequently it's success) is considered a stakeholder.
2) The Investor. The investor owns shares, and 99% (if not 100%) of the time, his positions are all long. He's banking on the economy, the market and the company to fair well, increase revenues, pass on capital gains and dividends. In the past, the investor might be a retail or an institution such as a bank or pension fund manager. Today, block traders and pension funds still take the role of the investor, but they also have ventured more into the world of the trader. The investor sees "shorting" as, risky (moreso than long), ethically unacceptible and otherwise not a part of his arsenal. Unlike the shareholder, the investor wants a company to do well, but he's not tied to a particular company, so he's certainly capable of pulling his money from a losing investment and placing it elsewhere.
3) The Trader. The Trader is not only not a stakeholder in any single vehicle or company, he's not a stakeholder in the local or world economy, and sees nothing ethically wrong with betting on losing companies. He takes long and short positions, has very little sentiment about the long term health of anything beyond his bottom line. Thus, he moves into and out of positions based solely off their profit or potential profit. He can use all sorts of techniques and tactis that are unavailable to the investor, such as shorting, hedging, day trading, price manipulation. His view is that there's risk involved, and as such, there's compensation to match these risks (making it ethical and acceptible).
All of these are "speculators" but it's only the trader that gets labeled as such. Traders are viewed as similar to mercenaries or someone who has a varied work history.....with low or no loyalty.
It's ironic to me that in the past (and to some extent even now) bankers are considered honorable and respectable, but day traders are not. To me, a banker is just above a crack dealer. Granted, no one forces someone to take a loan, but the bank certainly doesn't bend over backward to help people in distress, even though the bank made MOUNTAINS of money off the customer for doing virtually nothing (other than creating wealth out of thin air and loaning to other people based off promisary notes from other victims).
In the end, we're all speculators of some degree. Even entering into a paying day job is speculation....to what degree...well I guess that's the rub.
"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
I find that 'futures trader' gets a lot more favorable response than 'daytrader', or even 'trader'. Somehow the "futures" in 'futures trader' gives the title some form of respectable context. Don't say 'commodities trader' though, unless you enjoy hearing snide remarks regarding pork bellies and the like. Silly, I know. Anyway, I don't much care for the term 'daytrader', so I always describe myself as a 'futures trader', which incidentally, is the most accurate description. Considering Chicago is arguably the futures trading capital of the world, I don't bear the brunt of much negativity; presumably because the interested party knows someone, or knows of someone that works at a local firm. I don't travel a whole lot, so I can't comment on reactions abroad.
< 25 still full of hope and dreams and fire. When over 30 everyone notices their skin getting older , hair getting thinner and realize it's going to end eventually and money becomes that more desperate especially when dreams of easy money don't pan out. i.e. graduating from college. The fake affluence shown on tv shows and product placement commercials, spoiled celebrities etc.
Maybe the only time trading was somewhat respected was during the dot com boom. Remember everyone and their grandmother was trading as well as a monkey? Employees were getting paid in stock options, sometimes worth a fortune in a short time, before the bust. Couples were quitting their jobs and trading for a living.
I'm willing to bet most people are or were still trading behind closed closet doors on their own. Number of retail accounts and the trading "education" business is the highest it's ever been , exponentially. The vehemence comes from gen x/y and older having lost their savings and 401ks and their dot com monkey trading after the 3 busts of the past decade. i.e. 97% of the losing retail traders.
