Connection between gambling and trading on stock/options/Forex markets
Connection between gambling and trading on stock/options/Forex markets
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user24155 · External communityPost link
External question — Personal Finance Stack Exchange
Author: user24155
Original post: https://money.stackexchange.com/questions/67367
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
Although this question may look like it belongs in the realm of religion, it is actually asking about the mechanics of trading on the stock / options / Forex markets.
Some background information:
Questions and answers about gambling on the Christianity.SE
show that members of some denominations do not gamble because of reasons such as that it encourages receiving something for nothing and taking someone's money in exchange for nothing (which seems to refer to the other players who do not win).
Of course it could be argued that the price of a lottery ticket is not exactly "nothing" (it is still something) but I am more interested in the concept of receiving another persons money in exchange for nothing.
To frame this into the stock / options markets or Forex markets, it would be akin an investor gaining at the direct expense of other investors (who may have invested differently).
[Update]
There is for example this quote in the book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". The author John F Carter writes (ch. 1, par. 1):
Funds need days, and sometimes weeks or months, to move into and out
of sizable positions without showing their hand. If they do show their
hand, then other funds will front-run them (jump in front of their
orders) and bury them if possible. That is how money is made in the
markets - by taking it from other traders. If you think this sounds
ruthless, you are right. It is.
Also when it comes to trading on the Forex it looks like the trading does not really contribute to anything. It could contribute in the sense that a sufficiently sizable investment might e.g. increase the value of a national currency, but this could also be detrimental for the nations exporting companies (unless they have hedged positions). On another hand it looks like
betting against a currency
(to make it lose value) can be a source of profit(?)
[End of update]
The question I wanted to ask is:
Can the mechanics on the stock / options / Forex markets in some situations be such that an investor profits at the direct expense of other investors?
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Grade 'Eh' Bacon · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Grade 'Eh' Bacon
Original post: https://money.stackexchange.com/a/67608
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
There is economic value added to the marketplace, by having many investors trading stocks. The stock market itself can be thought of as a tool which provides additional 'liquidity' to the marketplace. Liquidity is the ease with which you can convert your assets into cash (for example, how quickly could you sell your car if you needed money to pay a medical bill?).
Without a stock market, funds would be very illiquid - an investor would likely need to post advertisements to have other people consider buying his/her shares. Until the match between a buyer and seller is found, the person with the shares can't use the cash they need.
On the other side of the transaction, are people who have an appetite for risk. This means that, for various reasons, they are willing to take on more risk than you, if it pays off on average (they are young [and have many years of salary earnings in front of them], or they are rich [can afford to lose money sometimes if it pays off on average]). Consider this like a transaction between your insurance broker - you don't want to pay for a new car if you get in an accident, and you're willing to pay total annual premiums that, on average, will cost more than that same car over time. You don't want the risk, but the insurance company does - that's how they make money.
So by participating in any marketplace, you are providing value, in the form of liquidity, and by allowing the market to allocate risk to those willing to take it on.
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Quoted from Forex.com.bd-Editorial External question — Personal Finance Stack Exchange Author: user24155 Source score (net votes, not local likes): 5 Original post: https://money.stackexchange.com/questions/67367 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Although this question may look like it belongs in the realm of religion, it is actually asking about the mechanics of trading on the stock / options / Forex markets. Some background information: Questions and answers about gambling on the Christianity.SE show that members of some denominations do not gamble because of reasons such as that it encourages receiving something for nothing and taking someone's money in exchange for nothing (which seems to refer to the other players who do not win). Of course it could be argued that the price of a lottery ticket is not exactly "nothing" (it is still something) but I am more interested in the concept of receiving another persons money in exchange for nothing. To frame this into the stock / options markets or Forex markets, it would be akin an investor gaining at the direct expense of other investors (who may have invested differently). [Update] There is for example this quote in the book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". The author John F Carter writes (ch. 1, par. 1): Funds need days, and sometimes weeks or months, to move into and out of sizable positions without showing their hand. If they do show their hand, then other funds will front-run them (jump in front of their orders) and bury them if possible. That is how money is made in the markets - by taking it from other traders. If you think this sounds ruthless, you are right. It is. Also when it comes to trading on the Forex it looks like the trading does not really contribute to anything. It could contribute in the sense that a sufficiently sizable investment might e.g. increase the value of a national currency, but this could also be detrimental for the nations exporting companies (unless they have hedged positions). On another hand it looks like betting against a currency (to make it lose value) can be a source of profit(?) [End of update] The question I wanted to ask is: Can the mechanics on the stock / options / Forex markets in some situations be such that an investor profits at the direct expense of other investors?
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