4. Is Trading Gambling?... Part 1

Is Trading Gambling?...A view from Michael J. Gutmann (Futures Magazine)

This topic is one of the most hotly debated issue in trading. However, before we start the discussion, I think it is important to start with a neutral mindset and not be prejudice over any perspective or opinion. Although we may still have a different conclusion or opinion at the end of this discussion, but it is important that we discuss this with an open mind and take effort to understand and hopefully agree with the facts. 

Trading and gambling has many similarities. Both require risk taking. Both is a zero-sum game. Meaning, there is a winner in every looser, it is purely a transfer of wealth from the looser to the winner with no additional wealth created. But is trading totally gambling? Most people who are not directly in the financial trading marketplace would think so.  I once came across an article in the Futures Magazine website posted as a blog by Michael J. Gutmann entitled "Are Trading and Gambling the same?". Gutmann had discussed the topic quite comprehensively, especially on the reason why society has a negative view on trading. 

Gutmann mentioned in his blog that one of the reason why people are skeptical about trading is because the outcome, like gambling is unpredictable. Society generally prefers the shoemaker-type endeavor because it creates something others find valuable. New wealth creation simply means capital gain out from an effort put into an activity that creates value to whoever is willing to pay for that effort. For example a shoe-maker. Trading and gambling are both fundamentally stochastic, that is unpredictable, and because of this they are often viewed negatively. We feel an “honest effort” has more predictability to it. However, most people will have a more positive view on an investor when compared to a trader even when both investor and trader involve in taking risk in the financial market. Gutmann said that this is so because investment enable new wealth creation because it involves delayed gratification – new wealth can be realized after a longer period time either due to appreciation of the stock value (note that depreciation of the value can also happen). There seems to be an inherent respect for a long-term investment that turns out well: The successful investor is considered patient and prescient. On the other hand, trading and gambling have a get-rich-quick aura to them and are often viewed with disdain because of it.

Gutmann went on to discuss the differences between trading and gambling in terms of how each of them executes their trades. From the article, traders may view themselves more technical, even scientific, than gamblers, relying on intricate formulas and algorithms for success. But there are professional gamblers who use probability and statistics to help them increase their chances to win. There are gamblers who have invested equally in their success relative to the sophisticated traders. One obvious different which I see is that traders pits their skills and knowledge against the vast market. Gambling generally pits individual against another individual. 

Although the blog did not end with a very clear conclusion for our question, Gutmann did however said that whether trading and gambling is the same or not, very much depends on the individual involved.  His statement probably sum up my thoughts. However, before we conclude my position on this question, I would like to discuss, in my next section, with a few more points not covered by Gutmann in the second part of this discussion on "Is trading Gambling?". Hopefully, we are able to draw a better conclusion. 

Proverbs 18:2... Fools find no pleasure in understanding but delight in airing their own opinions. 

3. Role of A Trader

Before we address the question if trading a sin, it is important to understand the role of a financial trader. How do they contribute their trades to the world economy? Or how do they affect common people in the streets or the society? Well, it turns out that traders plays a more important role in the financial marketplace then most people thought. But before we step into into the world of financial trading, I thought we should discuss how trading is done where most people would understand, say trading a common stock like chicken. 

Every morning, the chicken seller will buy chicken from the poultry dealer. Depending on the demand and supply of chicken, a willing buyer will purchase chicken from the dealer at an agreed price through a bidding process. The complication comes when the demand and supply of the chicken varies everyday and even during the day. For example, if there is news that there will be a major flood near the chicken farm which will affect the delivery of chickens to the market, this will cause a surge in demand for buyers for they may want to secure the deal even if it means to pay a higher price for the chicken. In cases like this where there is a sudden rise in demand or drop in supply for chicken and there is only one dealer, then the genuine buyer will not be able to get the chicken easily. Even if he can, he will probably not able to get it at a price that he wants as the sole dealer will have full control over how much he want to sell. So, in order to reduce this risk and also to have a fair market, it must increase its liquidity by increasing the number of sources the buyer can buy the chicken from. This will limit the tendency of over-charging by the sole dealer. 

The easiest way to increase liquidity is to allow buyers to also sell to other traders in the market. Some trader will buy the stock and then sell them on the same day at a higher price.  Some will store the chicken to be sold in the later date. Some will place order for future delivery at an agreed price using contracts. Those who sell it on the same day is like Day Traders in the financial trading market, those who keep the chicken and sell them at a later date are the Position Trader. Finally, those place an advance order are like Futures Traders. We will discuss a little more in detail about futures trading in a later section. Thus, in addition to dealers selling chickens, anyone else who wholes the stocks or future contracts are also allowed to trade their stocks or contracts in the marketplace. This will bring about a fairer price in the market and also prevents monopoly in the market, controlled by just a few powerful players in the market. This is also how the trading market came about. 

Of course, other then chickens, traders can trade other commodities like oil, wood, coal, coffee, sugar, and many other commodities. The same process can also be applied in the buying and selling of currencies, company's share for public listed companies, government and company bonds, index futures and any other legal securities that genuine investors wanted to buy for investment. Without traders, long term investors will not be able to buy the stocks at a fair price as the big fund managers or dealers will have a big control over how much he will sell the stocks to the public, likewise for currencies and bonds.  Again, you may also ask what value does financial trading add to the society where people don't invest.  It turns out that liquidity in the financial market affects almost everyone in the public in some way or another. For instance, in order for insurance companies to pay interest or bonus to policy holders, these companies must invest in the financial market. Or anyone in the street who wanted to change the dollar to another currency, he or she will be able to do it fairly in a fair market. 

I hope you are now able to see the role of a financial trader. It is important to understand the role of a trader and how they affect our life both directly like buying a chicken with fair price and indirectly like how your insurance company can pay you your yearly bonus. This is the most fundamental understanding that we need to know and accept before we can address if the question if financial trader has a role in building His kingdom on earth. However, there is still one important doubt that we need to address and that is "If trading is a zero-sum game where one is a winner, there is also a looser, isn't this very similar to gambling?" Yes, the question is valid and so let us discuss about it in the next section of the blog. 

Romans 12:4-8...For just as each of us has one body with many members, and these members do not all have the same function, so in Christ we, though many, form one body, and each member belongs to all the others. We have different gifts, according to the grace given to each of us. If your gift is prophesying, then prophesy in accordance with your faith; if it is serving; then serve; if it is teaching, then teach; if it is to encourage, then give encouragement; if it is giving, then give generously; if it is to lead, do it diligently; if it is to show mercy, do it cheerfully. 

2. Is Trading A Sin?

For a start, let us define the term financial trading. Financial trading is the act of buying and selling securities (stocks, futures, commodities, options, bonds, etc.) with the intent to capture short-term price movements. Unlike investors, traders place emphasis on a short term (a few minutes to a few weeks) dynamics in the marketplace, whilst investors look into a longer term perspective (a few months to a few years). There are two kinds of traders. Day Traders, who enter and exit a position within a day. Day traders do not hold position overnight. There are also Swing Traders (or position trader), who hold a position for one to several days in an effort to profit from the price short term trends. Of course, there are traders that combines day trading and swing trading in their trading strategies. 

Before we attempt to answer the question if God is at work in the financial trading marketplace, we must first address the issue if it is sinful to trade. We must also remember that the discussion at this point is merely about the act of trading and it should not be mixed up with the reason for trading that can lead to sin. We will look into this in the later part of this post. 

So, is financial trading a sin? If we put financial trader in a list all the professions you know and rate them base on the morality value, you would probably find financial traders in the last 25% of the list, with Pastors, doctors or teachers on top of the list.  You may even find it even lower in the list during the 2008 financial crises. So, is it sinful to trade? The perception of trading has always been negative because of the nature of how money is earned. Technically speaking, trading sometimes can be considered as gambling for it is attempting to create capital gain but without creating new wealth. In another words, it is just wealth transfer from a looser to a winner. Like gambling (which we will discuss in the later post), the total new wealth generated between the transaction of the buyer and the seller in the trading market is zero or even negative if we consider brokerage as a cost for the trade. Unlike, say a baker who earns an income through selling the bread that he made, but in the process creates value for the buyer. Thus, new wealth is created. At this point, it looks like a pretty straight forward answer to our question. However, there is much more then just buying & selling of stocks or any financial instruments. 

Therefore, it is important to understand if there is a positive role that a financial trader plays in our economy before we decide if it is a good thing or a bad thing to do. We will look into this with some examples in the next section. 

Romans 14:1-4...Accept the one whose faith is weak, without quarreling over disputable matters. One person's faith allows them to eat anything, but another, whose faith is weak, eats only vegetables. The one who eats everything must not treat with contempt the one who does not, and the one who does not eat everything must not judge the one who does, for God has accepted them. Who are you to judge someone else's servant? To their own master, servants stand or fall. And they will stand, for the Lord is able to make them stand. 

1. Motivation of GiFT (God in Financial Trading) Blog

What value does a financial trader (equities, FOREX, futures, options, commodity, etc..) brings directly in the life of the common people?. This was a mind boggling question I always asked myself before I stepped into the vocation of financial trading. Doctors save life, policemen protect and enforce law and order, teachers educate the learners, engineers design and produce products and infrastructure, etc. The list goes on and on. These are vocations where people are able to see a tangible value and contribution. How about a financial trader? From my experience and conversations with people, I gather that there are always three main negative perceptions by the public that describes financial traders.

1. Greed (it is all about money only)

2. Non-Productive (they do not produce any thing or provide any services that directly add values to people's life)

3. Laziness (people who does not work hard to earn money)

Although most of us in this trade do not agree with these perceptions, but they are real perceptions in the eye of the majority including Christians too. However, being a child of God, I am not too concerned about how the world thinks, but how God thinks. Then I ponder on the following questions...

1. Is there God in financial trading?

2. Does God have a purpose for Christian financial traders?

3. If yes, what are they and how does God want us to join Him in His work in the financial trading marketplace? 

For those who do not believe in God, do you think if there is any good in financial trading other then making a quick buck by taking advantage of price fluctuation? Is wealth the only objective in financial trading? For believer of Christ who trades for their living, have you thought of why God have placed you in the trading marketplace? How can you be "Salt & Light" and be part of the work for the great commission? 

I do not consider myself a successful trader, or someone with vast experience in the Wall Street, nor am I a theologian. But I hope to use this platform for sharing and most importantly able network Christians in the financial trading community to fulfill their divine purpose as a financial trader to glorify God and to extend His Kingdom in the trading marketplace. Hopefully, this platform is also able to reach out to pre-believers who have yet to experience the real love of our creator. 

There is also no intention to make this blog a venue for debate between my belief in Christ and the belief of a non-believers. So, one the key guiding principle of GiFT blog is to have full respect for each other's differences in believe and experiences. Likewise, though my walk with God may be different from other brothers and sisters of Christ, the ultimate and only motive must be to glorify our heavenly Father. 

So let's us journey together to understand and discuss the work of God in the financial trading marketplace.

Matthew 13:31-32...Jesus told them another parable:"The kingdom of heaven is like a mustard seed, which a man took and planted in his field. Though it is the smallest of all seeds, yet when it grows, it is the largest of garden plants and becomes a tree, so that the birds come and perch in its branches: