the morality of day-trading

Is anybody forced to play poker with you?

Is anybody forced to play the stock market?

The poker table is a zero sum game, the stock market demonstrably is not.

motley fool

investopedia

As to your water analogy, the person buying at the low price and selling at the high price is creating the efficient, at-equilibrium market you describe.

Thus they are providing a service for which they take risk or have made a significant investment in technology which again is at-risk for which it is morally acceptable to earn a return if they can.
 
My concern regarding speculative trading is that you are not really productive. You don't create anything that wasn't there before. Trading is nothing more than a game where the participants are trying to pick each others' pockets.
 
burdine, you make some good points.....then again, i am painfully aware of my desire to "justify" day trading as i am fascinated by it.

johnny, i believe it is based upon technical analysis and little else, but i am going to do some more exploration before i can answer that with any real precision. i do agree that it seems to be removed from the concept and purpose of the market, but burdine's follow up answer to your point sounds reasonable prima facie. what do you make of it?
 
continued great points and great counterpoints everyone...you are giving me much to mull over.

johnny, your response to Burdine's point was good as was his response to your response. not sure where that leaves me, but thanks to both of you.

sdhorn, i understand your points and agree with most of them (even though you left them somewhat implicit, i think you made excellent points). i am the kind of guy who gladly tells someone everything i know that is wrong with my car before i sell it to them. the difference, as i see it, is what burdine talks about, and that is that the person buying from me is as convinced as me that they are getting a good deal. i have no idea whether they are a long term investor or another day trader and i am not sure if it matters......they are wanting to buy or sell and they are happy to have a high volume stock or option which is highly liquid due to high volume. it also does indeed narrow the margins (also a borrowed point from burdine) forcing the markets to reflect the narrowest of margins between buyer and seller. that seems a legitimate action.

what still bothers me is that IF i were successful in some substantial way, does this imply that some other poor schmuck was a failure? or does it merely mean that some people bought in at a little higher rate and rode the stock to an even higher point and made money as well?

thoughts?

to answer your question about my friend, i am not even sure how much my buddy makes and i think some of his coworkers are making 7 figures. i know that they largely play with margin so i don't think they have large investments therefore their ROI's wold be exceedingly high if i understand the question correctly.

the christian moral code is not (in my opinion) relative in any substantial sense. although there is room for God giving some convictions or edicts that he does not give to others. for instance, when i have been in vegas, i have not really gambled (besides a dollar here and there) because i didn't feel good about my heart in that context. but i have good friends who are quite wealthy who enjoy gambling for an evening but don't get obsessed or out of hand and seem to walk in peace before God on the issue. i have no reason to doubt that impression of them.
 
franco, i agree with your concern but then Bevo Incognito has a good possible response. after all, if someone buys a stock for 2 years, they merely "lend" money to a company (or usually just another person who is selling that same stock) and therefore create nothing either. it seems that liquidity may be a legitimate end in and of itself. but i am not at all sure if that is the case.
 
The morality of making money covers a lot of grey areas.
The original question was not how to make money in day trading, or whether it was advisable to attempt to do so, but whether it was a moral pursuit.
I tend to agree with Franco, that swapping pieces of paper does not create anything useful, so it devalues money, which should represent a barter of services rendered. If a person works making widgets, or repairing widgets, or marketing widgets, they get paid with money-this should mean something in the marketplace. Someone else buys a stock short and sells it the same day, and gets money-what does that represent?
I see that selling stock raises capital for companies to expand, and the stockholder is a part owner in the company at that point, and entitled to share in the growth of that company, but that company makes widgets, or they should, not swaps pieces of paper around-like the subprime loan companies.
I don't know where to draw the line, but at some point, these transactions are not moral. Let's go to the extreme-the ponzi fund recently discovered-we would all agree that was immoral, hopefully. So other types of transactions are immoral, but I don't know really which ones-I suppose it is all in the details.
Then even if you consider the business immoral, should that preclude you from entering into it?
You might use the profits for what you consider a moral purpose-donating to charity, setting up a college scholarship, donating land to a nature trust.
If you make enough money, and donate to charitable causes, you are no longer immoral, you are a respected pillar of the community, no matter how you made your money.
The morality of making money is not always clear.
I suppose you should follow the code of ethics for whatever business you are in, maybe there is even one for day traders.
If the activity is really immoral enough, hopefully it will be discovered and regulated eventually.
 
The way I see it, the market is like a 40k ton cake being moved around from place to place. Crumbs are going to fall from that cake that are big enough for an individual. Day trading is simply betting where the crumbs fall, and being there to catch one.
 
Day trading and technical analysis are mutually exclusive.

Day trading - buying and selling on the same day to make small profits

Technical analysis - using past market data (charts, etc...not company financials) to predict future market moves

There's nothing wrong with buying and selling on the same day. I believe there is something wrong (or, more aptly, something stupid) about technical analysis.

Traders using technical analysis don't give two shits about the underlying company, they are looking for weird things in charts to try and make a buck. To me, that not only does not add value to the market, but moves the market in ways unconnected to the actual assets of the market (which I feel is unhealthy for the market and the economy).

Technical analysis relies heavily on the presence of other technical traders and on the psychology of traders rather than the companies being traded. That sounds a lot more like gambling/poker and a lot less like a necessarily liquid equity market.

So in reality, I'm not against day trading as much as I'm against technical trading.
 
accurate....that was a great reference to Superman 3.....and i am only slightly ashamed that i recognized it.
 
I hate to break this, but all not market purchases not associated with an IPO are, by definition, speculative and don't produce any real value. And, IPO's would not be brought to market if it weren't for the speculative value they would produce in the future.

The difference is simply your time frame. Wehather your are holding for one hour or 50 years, you are still expecting to make a profit at the end. But they would still both be speculative. Someone quoted earlier that free market assumes perfect knowledge. I don't disagree, but it is also perfectly natural for two people with the same knowledge come to entirely different conclussions.

Some are concerned that short term traders are trying to "time" the market which could lead too much volatility. In reality, everyone times the market weather they are aware of it or not. Anybody who retired wealthy with alot of their money in stocks 2 years ago is probably well aware that they were timing the market when they didn't realize it.

Mop -- I say go for it. Try it for six months. How much personal risk are you taking? Are you talking the posibility of loosing a house and all your savings. Or is just a matter of trying something, maybe not getting paid for a few months, and being able to go back to what you were doing?
 
Fievel, i was considering that. after all, just because you are buying a stock doesn't mean you are in any way investing in the company that the stock represents. in most cases you are just speculating by buying that stock from someone else who owned it.
 
if you are a talented person, try doing something that will benefit the common good. or, you can rob old ladies.

either way, day trading is for parasites and cynics(maybe i should day trade)
 
ok...one fallacy i keep hearing is based upon the "zero sum game" mentality of some people. in other words, why is it the case that for one person to make money, another has to lose money? what if i were to get in at the end of one person's long rise to that point and then get out right as another person gets in on a long rise?

now,i know that some will lose money on the stock market, but why is that on the person who is day trading and not on everyone equally?

serious questions...not trying to be argumentative
 
I think the only reason the zero-sum game mentality was brought out was because you were asking a question on the morality of day trading. Thus, the thought was that if you are trading and thinking that with each trade you were doing the "right" thing and the other guy was doing the "wrong" thing, then that could affect your decision on the morality of the practice.

I still think the decision to day trade should be based more on the underlying trading philosophy - which you've already said is technical analysis. How anyone could spend their time doing that is beyond me. You'll have just as much luck, and a lot more fun, if you just learn to count cards.
 
yeah johnny, i guess it is gambling in one sense, but if you work in carefully designed limits with a proven track record, it seems like it is no longer gambling. at what point does "gambling" become something else? if someone is right 55% of the time? 60% of the time? 70%? etc.....

i don't know, but it seems like anything someone invests in is not guaranteed to go up....even land (as much as i love it and believe in investing in it) doesn't always go up as we are seeing right now.

of course, you may have something else in mind so let me know what you think....
 
like i said, if you want to grind out a few bucks, count cards or learn how to play really good limit poker.

i'm not saying you cannot be successful doing technical analysis day trading...i said the practice is parasitic to the market. if you want to be a parasite, that's up to you, i just wish fewer people made that choice and thus i will urge you to not make it.
 
beau, i have been talking to a friend who has consistently made money for the last 4 years. he works in a group of about 15 at his company and their average time there has been 3 to 5 years of making money. he tells me that he has about 1 month per year where he goes backwards. he also estimates that about 50% fail, but that this number goes WAY down for those who are willing to be mentored and ask lots of questions. if anything, this guy has an understated personality....not an overstated one. he is very even keel and is not the type to put make up on a situation.

johnny,i am still trying to figure out what you mean about it being parasitical as well......
 
i'm not quite sure what perspective you are coming from, but why is morality entering into this?

first off, as someone else said, the market is essentially amoral, not moral or immoral. you are looking to buy or sell at a certain price and so are others. if someone wants to sell you stock X at $100 and you want to buy it at $100 and you make the trade, then the market has worked. that's all it is there for.

secondly, you seem to be saying that if you have the skill/luck to be good and make money, that it is somehow immoral for you to do so because less skilled/lucky people may be losing money. that's essentially saying if you are good at a game and could possibly win, you shouldn't play. that doesn't really make any sense. it also assumes you are definitely better, which you can't know until the market lets you know.

thrid, the market is a voluntary enterprise and everyone knows all the rules. you aren't forcing anyone to play nor somehow stacking the rules against them. if anybody does not wish to lose a game, they shouldn't play that game. the goal is to use all the information at your disposal to make wise investment decisions based on what you feel with happen in the future. both you and anybody you trade with are trying to do the same. they believe it will go one way, you believe it will go the other. if they have all the information and simply interpret it differently, then are both simply facillitating the ability of the other to act on their vew of the market. if they don't have as much information or ability as you and do not wish to "lose," then they shouldn't be in the market. morality is not a factor. unless you can predict the future, you are taking no less risk than they are nor somehow taking advantage of them such as in your thirsty person who just needs a drink analogy.

fourth, why should you care if they made a profit on their trade? whether they bought at 60 or 100, if they want to sell at 80 now and you want to buy at 80, you are simply a secondary party helping them do what they want. how you or your trading partner arrived at your current investment decision - whether from taking profits or minimizing losses - should be irrelevant. the goal is to do the best for yourself going forward.

so i'm just really not seeing how it has anything to do with morality. you and another person are consenting adults arriving at a mutually agreed upon price and that's basically the end of the story. worrying that you might be more skilled at a game when the entire point of the game (or any game really) is to be as skilled as possible doesn't make much sense.


as for people telling mop not to do it because he could lose a lot of money, he isn't doing this with his own money. he would be doing it at a firm with the firm's money (EDIT: maybe i'm reading you wrong mop, now i see you only mentioned the firm, not specifically that you would go that route. if you are doing this on your own, then yes you stand to lose a lot of money if you aren't good so basically this paragraph only relates to trading at a firm). if he sucks, he'll lose their money and then they will kick him to the curb. if he is good, they will give him more and more to invest with and he could potentially make a lot of money. if it's like the firm my roommate's friends work at, there's a good chance you won't make anything for 6 months to a year. that's a risk, but you don't risk losing any current money you have in the venture. it is also a fact that only a small percentage make it. about 1 in 4 at this other firm. of course, as mop mentioned, the people who actually work hard, ask questions, and have good mentors increase those odds significantly. and if you make it, it can be extremely lucrative. 7 figures lucrative.

and i don't see how it is parasitic. there is no specific way the market "should" work. you can go short, you can go long, you can buy and hold, you can day-trade, use technical analysis, read tarot cards, roll dice, throw darts, whatever you want. the market is just to match buyers and sellers, however they arrive at their decisions.

and even advocating holding stocks for a while because you "believe in the company" doesn't make much sense. investing is never about the company itself, but about the perception of the company. you invest solely in perception because there is no real value. if i think a company is good, but think everyone else is valuing it like it's great, then i shoud short it. if i think a company is being priced like it would do OK but i see it really taking off, i should buy it. and i should sell as soon as i think that is no longer the case, no matter how good the company is. everyone invests to make money, not to "believe" in a company. no method for optimizing your earnings should be considered parasitic. i see no reason the length of time you hold a stock should somehow legitiimize your purchase.

which brings me to my final thought (which was actually my first though but i just got to it). mop, you don't seem to have a problem with investing overall, simply day-trading. why should frequency of your investment activity somehow affect the "morality" of said activity? what would be the appropriate time you should hold something for it to be acceptable? why should you hold something if you want to sell it, even if you just bought it a minute ago? why should the method by which you arrive at a price and the time-frame it took you to make that decision somehow make it immoral?
 
I will further discuss the morality issues later if I get time, but I am also interested in the job itself.

Why is your friend working for a company? Is he investing other people’s money or his own or both? How is he compensated? Do all 15 of his colleagues have similar rates of return on their investments? If not, are they using the same method for making decisions on what stocks to buy and sell? Why would they not all simply follow the advice of the person with the most success?

Have you asked him to invest your money? What rate of return does he believe that you should expect if you use his strategy?

Does it matter whether the market is increasing or decreasing?

Madoff built a billion dollar business by providing a 10% rate of return. If your friend is making a 10% annual rate of return today and can show why he should be able to make a similar return in the future, then it is time for him to start a mutual fund based upon his strategy. Most mutual funds over the last 6 months are double digits in the negative, if he has achieved a positive rate of return over the last 6 months, he should not limit his goal to a 6, 7 or even 8 figure income.
 
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