Trading vs. Investing: Christian Perspective
Many people assume that stock trading is difficult to understand and an easy way to lose money. The most common perception is that the practice is either too “risky” for monetary gain or a “lucky” way to make a substantial amount of money. Furthermore, people who are interested in trading are gambling and are interested in quick cash than ownership. The reputation of the stock market is known to be flooded with daily market manipulation, designed to capitalize on individual traders. Thus, “the majority of day traders quit relatively quickly (more than 75% of all-day traders quit within two years), and poor performers are more likely to quit,” according to “Do Day Traders Rationally Learn About Their Ability?”, written by one of the fifty most-cited financial economists in the world, Professor Brad Barber et al. (1). Although many do not remain profitable trading stocks, is trading stock biblical verses owning stocks in the financial markets?
Personally, making money from home and the opportunity to trade like those on wall street was convincing enough for me to start my trading journey. During my first experience trading, my small account grew exponentially, and it truly was a great feeling to me. Nothing went wrong for about three months. Until the lack of risk management, I began losing money quickly. After getting knocked down from a trading ecstasy to a sobering reality, I lost a large percentage of my capital. Eventually, I lost all my capital. My trading strategy only continued for a short period of time, without realizing I was riding the crest of a major support breakout due to news which many traders and investors knew about. What did they know that I didn’t? Experienced traders understand that most of these movements whether up, down, or during consolidation; stem from volatility, company or global news, and herds of buyers or sellers pushing the markets. If traders do not understand what is driving the markets, where to get in and out of trades or the participants behind the movement, it’s almost impossible to stay in the day trading industry for a long time.
First, traders must understand that the movement of the market is based on the number of shares currently being bought or sold. Also, that investing and trading in the stock market are two different mentalities that companies, financial institutions, investment groups, or individuals use to enter and exit the market. How long traders hold share determines if an individual is an investor or trader. Investing is when someone owns shares of a company known as shareholders, to profit years or even decades from the initial purchased price. In fact, holding shares for a long period of time is a common investing strategy called the buy and hold method. For example, the money people place for their retirement fund is investors using the buy and hold method to make profits increase. The objective for investors is to find stocks that gradually move up in price without any major pullbacks. If so, investors look to exit the investment in order to protect capital or they buy more shares because investors believe in the integrity of the company, productivity, management, and other investors buying shares at a reasonable price.
Trading, on the other hand, look for short-term opportunities to get in and out the markets. Unlike investors, traders do not mind the poor performance of a company nor its integrity. In fact, if traders catch wind of negative up-coming news that indicates investors to get out of a position, it’s an opportunity for traders to short the stock to then sell shares back to other investors or traders who are interested in buying at the current price. This is because the market participants are losing money and need a way out or others believe the market will correct and eventually move back up to a higher price for profit. Trading consists of different trading strategies to make profits. Traders are looking for entries to get in and out of a stock. Some may hold overnight while others may be looking for two or three cent moves that may last minutes to cover gains. So, with that in mind, traders are not buying and selling stock for the long hall. A fact that I filed to realize after everyone jump of the sinking boat. Traders are looking for other traders or investors to sell their shares to at a higher price or buy their shares at a lower price depending on the bias of the trader. Whether a short seller (providing shares for buyers at a lower or higher price) or a short buyer (buying shares from sellers to sell back to other buyer or sellers at a higher price) trading is a different kind of mindset. Moreover, trading in the stock market is more than buying or selling stock to other participants, it’s also about risk management.
Before, a trader or investors begins interacting with the stock market they must understand that risk management is a financial strategy to protect capital. Apart of remaining profitable long term, is buying or selling the proper number of shares; according to account size and using logical risk-reward ratios. Individuals, groups, or institutions who remain profitable long-term are those who are aware of the different variables within the stock market and react quickly to cut loses. In short, the reason why 3/4th of trader’s lose their capital is because traders tend to neglect proper risk management strategy. When individuals begin placing trades outside of logical risk-reward ratios it becomes gambling. Consequently, traders begin by increasing share size due to emotional excitement or frustration. These people are usually risk-seeking individuals who trade in the stock market and expect unrealistic returns. Along the same lines, several other articles written by economic professionals argue unprofitable traders become overconfident in their ability and lose more money than anticipated causing investors to trade than their own interest. Some are trading for entertainment or to impress others. “Lack of risk management and increasing share size is the number one reason why traders are inconsistently profitable over a long period of time,” Professor Brad Barber (18–19). So, is it biblical for Christians to trade in the stock market verses investing in stocks?
Trading is about individual, group, or institution; not the stock, economy, nor the other shareholders. Yes, traders spend hours at a time reading reports and doing research, however traders can care less of the future of the stocks on what is happening here and now. Though as a Christian we aren’t using anyone for financial gain, one could argue that trading verse investing has two different interest in mind. When investing shareholders are contributing to the best interest of the company, economy, and other shareholders. The bible tells us, “do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourselves, not looking to your own interests but each of you to the interests of the others” (Phil 2:3–4). If Christians who are traders are in and out of stock, do they truly have the best interest in mind for the business owners, shareholders, or the economy? Obviously, this is a question only the believer has to ask him or herself. Plainly stated, selfish gain is not the character of Christ, in any fashion, nor is get rich quick schemes acceptable. Christians are to trust God in their stewardship and make proper decisions that not only benefit us but those who we are doing business as well.
Most people who claim to “trade for a living” often boast in their profits, driving lavish cars, and how often they travel around the world. It isn’t common for a trader to advertise his lifestyle to promote an educational trading service. Trading overall, sounds more appealing than buying and holding stocks for months or years at a time. For some that can be like watching paint dry making 5% profit a year verses day trade and making 10–25% a week or even in a day. Institutions has advertised trading from the comfort of your home or even your phone at a cafe. I am not saying no one can make significant profits trading but the reality once someone makes 10–25% profit in a matter of days, hours, or minutes it becomes a recipe of disaster long term. However, some may say that this is rather extreme and not true for most traders.
The bible tells us, “wealth gained hastily will dwindle, but whoever gathers little by little will increase it” (Proverbs 13:11). The difference between an investor and a trader is one takes ownership of the stock with other individuals, groups, or institution long term. Investor are interested in the integrity of the company and how everyone can benefit including him or herself. On the other hand, traders are not concerned of the integrity of the stock but the day to day new releases, plays, or potential profits day to day. I do want to make my stands on trading clear, I’m not against trading, however as Christians we should always keep other in mind when doing business. Not just ourselves.
