Trading and Morality
Morality in latin moralis means proper behaviour.
It is dependant on culture and religion. Basically it is a form of ethical perspectives. Right or wrong. Good and bad. The law is such a code of conduct, that is considered to imply morality.
The grey zones
Every serious organization has a compliance department. But sometimes there are grey zones, where financial actors in the past have overstretched their ambitions to make juicy deals. A few examples:
- The deliberate selling of junk financial products, where the institution is selling “junk” to their clients. See Abacus Deal.
- Insider Trading. See Steve Cohen.
- Spoofing. See Deutsche Bank and HSBC.
As you can see big institutions and corporations can fall into regulatory grey areas, often unknowingly doing something that is prosecuted later on by the SEC or another Securities and Exchange Commission. Had they just followed Google’s “Don’t be evil”!
The golden rule
Morality is in our feelings of justice. It’s about treating others as one’s self would wish to be treated. A maxim of justice. In highly money-seeking professions the involved participants often do something that is not really in line with the golden rule. But for these actors, I’m sure they are feeling that they are doing something, that might be “evil”.
A retail traders perspective
As a retail trader you can’t really commit any of these shady practices in trading, so from a law perspective trading is legit and in line with morality.
Trading is a game of deception
Trading is in fact a game of deception. You basically only need two dumb people: one that sells you too cheap and one that buys from you too high. The act of taking a risk position in the market is about two counterparts who both think they make a good deal.
They both think they know it better than the other. Trading therefore is a constant struggle for being right about the future! Egos clash into eachother; gamblers, bankers, less sophisticated and more sophisticated investors, high networth and low networth individuals.
The “smart money”
It is often said that the “smart money” takes 90% of the money out of the markets, leaving 90% of people with losses and bad deals. Why is that?
Trading is not an easy endeavour to survive for a long time. Especially when using leverage. If you are already trading for a few years you will know that. As you progress as a trader you will learn, adapt and build your knowledge. But one thing you will also do: you will build an edge, that is basically your ability to deceive other people.
One has to ask him/herself: is the competitive act of deception morally reprehensible? Deception sounds negative at first but if you think about it, in sports it’s the same thing. As long as you comply with the rules in the game, there’s no such thing as immorality. The most skilled team or players win. It was and will always be like this. You can be the “smart money”.
However, the chances are, as a beginner you’re not. You couldn’t compete with the first Bundesliga in footbal as an amateur. The same goes for trading. Is it ethically right that the champions, the most skilled traders, take it all? I think this is just how the game is played, and has nothing to do with morality, when looking deeper.
My philosophical point of view
I’m a nihilist in this regard. My favourite philosopher is Nietzsche. “Master-Slave Morality” is one thing that stands out from Nietzsches historical research about societies. What is good for the masters is bad for the slaves. Moral is created by the strong-willed and inversely followed by the weak minded. This really made sense to me. Also different cultures and long ago fallen empires had different views on ethically correct behaviour – thus morality.
“There is no morality.”– Nietzsche
“God is dead.”– Nietzsche
Basically morality is created by people. Good, which is a form of “God”, is perspectival knowledge. Modern interpretism can have a substantial part of deceiving yourself from what’s good or not.
When someone wins, someone else loses
“Trading transfers money from the patient to the impatient people.”
I think this is actually a good thing. Patient people also tend to be more responsible with money, in my opinion.
It is what you do with the money
It’s not easy to make money off the markets, you have to put in serious efforts and the thing called “patience“. It’s morally okay if you make money following the golden rule and the law and the same goes for what you’re doing with the profits.
I hope this could make you think more deeply about the philosophical, religious and cultural aspect of morality and trading.