Meaning in Trading

Is there any meaning in trading? Does it serve a purpose? Does it produce anything of value to anyone?

That’s a good question, and one that I have frequently thought about over the years.

When I first began trading, a fair number of futures contracts actually ended up in a delivery — certainly more than we see today. Today only 3% of contracts result in delivery.

The economic and social justification for the futures markets is to provide a venue in which producers and users can hedge against excessive fluctuations in price. Price stability within the economy is seen as a desirable thing, and so it is. In effect, the hedger is seeking price insurance, and the speculator provides the insurance policy. With hedging as its justification, speculation in futures serves as a way of providing liquidity, efficiency, and price discovery. The speculator serves as the person who is willing to take the risk the hedger wants to avoid. Without that justification, trading futures is nothing more than outright speculation.

However, it is difficult to see how trading a 1-, 3-, or 5-minute chart meets the criteria for providing liquidity and price discovery for the hedger. Does a producer or consumer need to hedge for only 1 minute? It is hard to argue on the basis of short-term intraday trading, that anyone is actually providing a social or economic benefit of any kind.

Whereas with longer-term trading it is easy to see the social and economic benefits provided by the speculator, it is virtually impossible to see that such benefits are derived from short-term trading. That renders day trading as nothing more than speculating. To that extent, the futures markets may have become giant gambling casinos.

That raises a question: What is the difference between the gambler and the speculator? True speculation in futures is based on taking advantage of the realities of the market. Gambling is an attempt at trying one’s luck.

Since trading is a business, the business-like speculator in futures is willing to accept the risk of price fluctuation in return for the greater leverage that comes with that risk in the hopes of earning substantial profits. The business-like speculator in futures makes his trading decisions based on knowledge gathered from information about the behavior of the underlying: seasonality, historical and current trends, chart analysis, fundamentals, the market dynamics, and knowledge of those who trade it. But what about the
gambler? How does he make his decisions?

The gambler makes his trading decisions on gut feelings, hopes, dreams of getting rich quick, tips from the broker, “inside information” from friends, opinions uttered in the financial news media, and from the improper understanding and use of indicators, oscillators, moving averages, and mechanical trading systems. In general, he is looking for a way to shortcut having to truly learn what is going on. He or she is in a hurry to make money. Unfortunately, most people who attempt to trade fall into this category. Many wannabe traders are gambling, and they don’t even realize it. Anyone who attempts to trade without essential knowledge of what the markets are all about and how they truly function, is gambling.

There is one more aspect to this subject. It has to do with morality. I am often asked if trading goes against the teachings of the Bible. Is it a sin to trade? Is it a sin to speculate in the markets? I have been asked this question numerous times even by church pastors. My friend Kent Calhoun said it this way: “You did not pay to be born. Life is a gift that was freely given to you. The ways in which you repay God for your life is by using your natural talents to the best of your ability and constantly creating positive change in your life and the lives of others. This quest fulfills the meaning of life, to make the world a better place because you were here. What are your talents and abilities? What is the most important goal in your life? How do you exercise your talent on a regular basis to achieve that goal? How are you creating positive changes in your life and the lives of others?

In my own life, I use my trading to support my prison ministry, mission work, and my local church. I believe that produces both economic and social benefits to the world in which I live.