Short Term Trading To Be Outlawed

[lowrentyieldmakessense(honest!)]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

[cgnao]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

Be careful what you wish for. The financial sector is a major pillar of the UK economy. Actually there is not much left...

[lowrentyieldmakessense(honest!)]

Be careful what you wish for. The financial sector is a major pillar of the UK economy. Actually there is not much left...

yep thats the problem.

[gone west]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

Short-term traders inject liquidity into the market. Few make any decent money out of it but they do pay brokerage fees, etc. Does it benefit the economy? If you break a window and then repair it, GDP increases, so compared to that stupidity, I would say yes it does.

[Golden Shower]

Without the volatitlity no one would invest. Financial institutions need volatility, they would probably just end up chasing other assets or just find a way around it.

[Guest Riser]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

The focus on short term planning and performance is, in my opinion, the biggest single reason this country is going down the pan. Companies are stuffed full of managers whose only concern is meeting their own short term targets before moving on, this extends to the markets and banks providing finance. There is no sense of social responsibility or willingness to sacrifice short term performance in the pursuit of long term goals. It probably started with Thatcher when society started to celebrate greed and selfishness, respect for knowledge and experience went out of the window and we started to celebrate celebrity.

[Sledgehead]

I think you first of all need to define "short term"

Next you need to consider what happens without such short term trading.

Here's what you should consider:

Society needs a vibrant economy. Vibrant ecoonomies need businesses that can compete on the world stage. These business ventures needs money to grow. That money has to come from somewhere. The choices are limited:

1 ) Private Sector

2 ) Public sector

When deciding who should have money to lend here's the things to consider:

a ) funds are always limited.

b ) less money is allocated more carefully than more money

c ) expertise is always limited

d ) people have agendas that may not match those of the venture

When considering these factors it is important to be objective. Ask what you would want if you were starting up a business. refering to the above points:

a ) as a businessman, would you prefer the funding of your business to be decided on its potential success, or because it suited government policy?

b ) bearing in mind how you have spent money when you have had access to more or less of it (borrowed or otherwise) would you prefer, as a taxpayer, that business be funded from the bottomless pit of public money, or from private investors.

c ) would you prefer, as a businessman, to take your advice from government experts or industry experts? Are government experts any more right than industry experts?

d ) would you be happy as a businessman if your company loan was granted only on the basi sthat you promote/assist some government scheme, or would you prefer the business to go in th edirection of greatest potentail profit?

If you come to the conclusion that private enterprise, funded by private funds is a good thing, then you have to start thinking about how market trading restrictions may inhibit private investment.

Start up businesses are generally funded by business angels and venture capitalists. They lay their money on the line when nobody else is interested. Their motivation for getting involved is simple: profit. tak ethat away and thefunding for new business from the private sector will evapourate. In order to achieve the high returns tha go with the high risks entailed, most angel sand VCs require an "exit strategy" that will enabl ethem to sell on all or part of th enurtured business after a short timeframe. If they see no exit strategy, they will put up no money. The exit strategy fvaoured is a float on the markets or "Initial Public Offering". the markets allow late stage investors to buy a more mature (and hopefully now profitable) business from the VCs. The VC gets a tidy profit, the late stage investors get a share in a (hopefully) still expanding business.

So much for VCs. What about those late stage investors: why should they invest? Once again they are hoping to make a capital gain as the business matures, so they are looking for an exit too. Why should they invest without one? The business amy have alimited track record of profitability. Without business growth and capital gain your money would be better off in FTSE100 Utility shares or perhaps even the bank.

Their exit strategy is straightforward: sell into the marketon which the shares are listed. the ease or difficulty of this is determined by the liquidity of the shares, ie how many buyers and sellers are trading on any one day. The more short term traders trading a share, the higher this liquidity. Having said that, during crashes liquidity dries up as players sit on their (paralysed) hands, so the more liquidity, th eless likely it is you will ever find yourself locked into a desceending share price. More liquidity means less risk.

More liquidity also means better price discovery. The more times a day a share is traded, the more accurately you know it sprice. If a share is traded once a year, god knows what the price is at the 6 mont point. Investors have no way of knowing whether they are making money or losing money (a bit like housing at the moment). nce again, that will deter other investors from buying or selling (if you live in a town with one shop selling TVs are these good or bad prices? Who knows.)

So you an see that liquidity through short term trading is linked directly to a healthy private business environment.

Maybe however you think governments are good at deciding which businesses are good for a country. In my experience they are good @ taxing companies that are good for a country.

Companies are stuffed full of managers whose only concern is meeting their own short term targets before moving on,

usually they want to create an empire so that their salary looks "reasonable" by comparison with turnover.

incentivise them take more pay in shares.

Edited October 25, 2005 by Sledgehead

[lowrentyieldmakessense(honest!)]

I think you first of all need to define "short term"

valid points but the problem is the concentration on short term profits (hours, days, weeks, months rather than years. will probably mean that in the long term we will be less well off. I haven't got a problem with business angels, VC etc investing in businesses and exiting within a few years and this should be encouraged.

I don't believe that governments are good at deciding which businesses are good for a country but I think they should be.

the most successfull start up businesses i know have been started by the owners putting up their own funds, spending less than what they earn and reinvesting their profits.

[Smurf1976]

Without short term trading there would be far less liquidity in the stock markets. Stock in smaller companies, the start ups which are the future of the economy, would be virtually impossible to sell over any realistic timeframe (less than a few YEARS trying to sell it). Indeed it's already rather difficult to get out of some stocks even with the day traders etc. who are a real help in this regard.

The end result is that very few would be willing to invest in anything but the largest companies due to the virtual impossibility of ever withdrawing the investment. End result is that start up companies would fail to raise funds and simply not get far. The economy would thus stagnate without the innovative new companies. If it had been a bit over 100 years ago then the high risk tech stocks of the time, the car manufacturers, would likely never have got sufficient funding to make their products (cars) which "might not catch on".

And of course the speculative money would just go elsewhere. Quite possibly into real estate thus making present house prices seem unbelievably LOW in comparisson to the bubble that would be fuelled.

Markets are best left to sort themselves out. It is intervention and meddling which has given us the house price situation at the moment and plenty of other problems over the years. More restrictions just means more problems. Let the day traders lose money if they want to. Most do.

[sp1]

The greatest fundamental social - economic change would be to make inflation fugures reflect money supply and not the current price of goods crap, and then regulate the m9oney supply. Oh but that will kill much of the bankers income. and on the other side of the swing destrory the need for investments to pretect capital from inflation, taking away the carrot that transfers wealth from genaration after genaration to the porffesionals, and the bankers.

[Te Mata]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

A couple of points.

1/ Short term traders/daytraders etc. are by far and away the smallest sector of market participants. In the vast majority of the time, short term traders to not create the price action, long term investors do. Fundamentals drive the price. Short term traders only ride the waves, particularly daytraders. I am a short term trader and I do it for a living, and believe me, we have little impact.

2/ None of us, whether short term traders, or long term investors, have any impact on the fortunes of the company concerned....NONE! The only time the company benefits is when it actually issues shares, such as at the IPO or subsequent capital raisings.

Its easy the demonise short term traders for share price woes, but you need to look elsewhere really.

But do we help economies to grow? Well, the money I make I go and spend in the community.

Cheers

[jonpo]

just a thought but does short term trading actually help economies grow - i don't think so - i don't know if there is a way that it could be stopped other than a few companies like refco going bust but i think that as a country we would be better off if investors invested for the long term, so that companies could also invest for the long term (plant and machinery, research and development etc) rather than trying to flip shares/ properties etc to make money.

well I work for an major European exchange so maybe im not the most balanced point of view here but when you say short term trading I'm not sure I really know what you mean. there are only 3 types of market participants

1. Hedgers

2. Speculators

3. Arbitragers

what most people don't understand is that a "broker" is often actually another name for an Arbitrager. a broker puts out prices in his own retail market which once filled can be hedged against prices in the market from other institutions which themselves might be orders the market makers are trying to hedge off into the market. speculation of course is an activity which favors those with deep pockets. and if you think you can take on those with millions ( maybe billions) of pounds in their pockets then think again.

The thing is that the capitalist world allows the "means of production" to be in private hands. the market provides liquidity to that capital. there is also anectodal evidence that short term trading is bad for your financial health look at for instance the wikiquote page from Warren Buffet. as a retail investor my advise would be:

1. try not to deal through an arbitrage house unless you are the arbitrager.

2. investing for the long term cuts down on fees

3. be aware that in many markets there is intense competition to remove you from your money.

4. on a very short term basis most financial markets are zero sum games.

5. if your playing poker and you don't know who the mark is, its probably YOU, stop playing!

if you look to make money very very quickly "i.e the short term" be aware that there is no such thing as free money.

the short answer is that it doesn't matter if investors invest for 5 minutes or 5 decades. the money is going somewhere. if they are stupid it will go to banks hedge funds and other market participants. if they are clever they will keep some of it. what is important (in equity markets) is that the market is fair and allows efficient allocation of capital from on company to another depending on success. simple Darwinian evolution survival of the fittest among both the receivers of capital and the allocators of capital (investors).

[foxytrader]

The focus on short term planning and performance is, in my opinion, the biggest single reason this country is going down the pan. Companies are stuffed full of managers whose only concern is meeting their own short term targets before moving on, this extends to the markets and banks providing finance. There is no sense of social responsibility or willingness to sacrifice short term performance in the pursuit of long term goals. It probably started with Thatcher when society started to celebrate greed and selfishness, respect for knowledge and experience went out of the window and we started to celebrate celebrity.

Absolute rubbish I am sorry to say.

Are you seriously telling me that the situation was better prior to 1979 with exchange controls/ union blackmail/ Luddite fear of technological advance etc etc .

Britain pre-1979 was the financial equivalent of Taliban Afghanistan.