dboeger1 wrote: ↑Wed May 18, 2022 8:13 pm
z3r0c00l wrote: ↑Wed May 18, 2022 7:52 pm
In a world where the proper methods for investing are known, day trading should be treated more clearly like gambling.
Hey, you take that back! Gambling is better than that! Casinos have lights and sounds and buffets to fatten us up for the slaughter! They're so much more fun!
If it were not for the lights, sounds, objectionable extras, and overall questionable atmosphere, I would gladly take the buffet and move on; who need to gamble to have "fun", right?
That aside, I think day trading is close to gambling. Given all the in-betweens that make money, it is very hard to really justify the activity as being better than gambling. Also, they are really not taking risks for the benefit of another investor/speculator; so it serves no real purpose in risk management. Gambling provides no benefits to either side and a financial risk is merely created. Fundamentally, it is a different prospect than insurance, which is not gambling.
Speculators of another kind (the insurer), despite how some here argue otherwise, are not gambling. These risk premium seekers obtain their money by taking another investor's risk; whether it will pay off, that is speculative. They may not even be interested in the underlying asset but interested in that premium; nevertheless, it does give compensation to the hedger that their risk has been removed for a price. That has meaning and purpose; and some do this as a source of profits, like insurance companies. Do we accuse them of gambling? No; since they are taking the other parties risk from them, this has a meaningful purpose in the realm of risk management and is not solely money grabbing. Why are option market insurers any different? Granted, maybe the option buyer and/or option writter is just increasing risk by buying/selling the contract just to make money on pricing movements rather than for the risk management aspect they provide; but like how day traders are not concerned about real economical benefits while the investors and some speculators are, we cannot dismiss it as gambling just because options get abused by some. Maybe the insurer will never have their contract be accepted by someone who actually needs the risk to be hedged and merely gets tossed around by traders in hopes of quick profits, but we cannot blame the insurer for this.
The hedger is on at least one side of the contract and merely is taking the risks they can afford and remove those risks they cannot afford; whether this ends up being a profitable result to do is speculative, but the hedger is more concerned about making money from the risks they are taking rather than those risks they are giving up which may have a possible premium. In some cases, like covered calls, both sides could be hedging risk at the same time (sharing risk rather than merely one side giving it away to the other).
Maybe this is long-winded, but the point here is that day trading is so close to gambling because there is no insurance provided nor any other really meaningful benefits to the other side of the trade.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.