It seems like this question boils down to: Do daytraders add value by daytrading? But the big white elephant in the living room of which nobody wishes to speak is: Is daytrading a moral profession? So, let's talk about the elephant first. When one daytrades, one puts one's money up for grabs in a contest with others. Everybody knows (or should know - no forgiveness for the idiots here) the rules. Whoever is right wins money, to the extent they are right. It's hard to see where this might be immoral, and frankly, I do not think it is immoral. I take a certain amount of glee from the morons whom I encounter in daily life - I imagine them on the other side of all those trades that made me money. So, on to the next question, do we add value? I'm not sure. To be honest, I haven't really given the proper consideration to the "adding liquidity" concept, but the real fact is - we do not produce anything but abstract numbers. And we get cold hard cash for it. Now, I had a job as a programmer, and I produced abstract numbers in the way of computer code. And those numbers were of immense (allow me a slight ego boost ) value to those that paid me. But, are the prices we produce worth what we make? I dunno, but I doubt it. On the other hand, I remember a story of a person who had to sell some Singer stock during a pretty bad time. He said, "What am I bid, what am I bid - I have to sell this stock!" And there was no answer. Finally somebody said (half in jest) "I bid a dollar." And he got the stock. And the seller got a tiny bit of cash, but at least he got some money. So maybe there is some merit to the liquidity arguement. Now, if I were an excellent writer working for a big syndicate, I would tie this all up, and present a final opinion on whether daytrading adds value, but my profession is daytrading not writing. So, I leave any conclusions up to you, dear reader.
Good thread topic and good question Stockoptionist. This question concerning the value of trading was somewhat of an issue for me when I first considered trading. But I satisfied myself about it in this way. Basically it is that people need to compete. Competition is a part of our nature and always will be. The arena might be anything from sailing yachts, to football, to chess, or racing cars, building the fastest computer, or even being the first to reach the moon. It's a long list. A lot of these competitions have no intrinsic value to society - as a farmer raising wheat, or someone building houses would have. Most appear even silly. Consider the amount of time and energy grown men and women put into moving a ball up and down a field, or skating around and around on the ice at the Olympics, or seeing who can run 27 miles the fastest. One could name a hundred examples. And at the end of it all, only a few win and the rest are losers and what is accomplished? It is very much like trading when you think about it. Traders push price, quarterbacks push a football, bicyclists push bicycles, horse racers push their horses. What intrinsic value does any of it have? Very little, unless you realize that this is what people do. People like and need to compete with one another. So every fair competition has value in that people have value and their interests have value. As to casino gambling, slot machines, blackjack, lotteries etc., those things are not fair competion of course, but are in reality legalized thievery of naive or addicted people. Trading is not like that, and it is not accurate to compare it to those things. People lose at trading not because of others' unfair advantage, but because their own skill level is not high enough.
Professor Wade Brorsen of Oklahoma State University hypothesizes that traders earn a return and provide a service to market users by speeding up price changes. He says human beings, due to our psychological "anchoring" tendencies, tend to be slow to adjust to new market clearing prices. Traders speed up these adjustments and make markets more efficient and useful. You can listen to a webcast of Professor Brorsen presenting his paper at the 2002 Futures Industy Association Expo at www.futuresindustry.org. His talk is the very last one, called "Trading Systems Review".
That's probably too much, too strong. I don't think it's immoral. The question is whether it's fluffy, of no substantial importance to society, and whether there are better, more productive, and more constructive things to do than flipping stocks all day long? Guinness' World Records are full of people that fit into this category--like trying to set a world record in swallowing x number of gold fish, or counting the number of grass blades on a football field. A more mundane example would be Malibu surfers--perhaps.
Thanks Aaron for the lead. I'll see what his arguments are. I wonder if there is anyone from the academic community that assumes the opposite (or at least a skeptical) position. If you know of anyone, let me know. stock.
That is only partially true. Many losses (especially of small traders) are due to the advantages (informational, technological etc etc) others have, fair/legal or not. This is probably less of an issue in highly developed markets like in the US, but I wouldn't go as far as to say that the field is level and only the skill matters. Some very unskilled make lots of money b/c they have access to information the most skilled might not have until its either late or almost late.
Trader are more ken to market crocks than investors are. That's why crocks are afraid of too many day traders especially those small niddles that are difficult for them to catch. Hurt eyes of crocks'.
The difference is (may be?) that these things you mention create value. People are willing to pay to see these things accomplished, and practically everybody is happy with the results. Imagine a farmer with a pile of food, and a smith with a pile of . . . uhm. . . smithed stuff . Now, the farmer looks at his apple trees, and he really doesn't place a high value on another apple, what with the 1400 bushels he alread has - I mean, how many apples can a guy eat? And the Smith looks at all his horseshoes, and thinks "Geez, I don't think I really need another horseshoe." But, the farmer can trade his apples for a horseshoe, and both the smith and the farmer are better off. It's the same with sporting events, but a little less clear. The fans enjoy the entertainment, and the players enjoy getting paid. It's a lot less clear in trading though.
95% traders are supporting 5% traders in the style they are accustomed to â that is an accomplishment to be proud of â I think. Hey, hey, hey, wait a minuteâ¦