The role of stock traders in society is often debated on discussion forums. With the constant speculations on the circulation of capitalist systems, there is a lack of clarity about the impact a stock trader has on society.
Stock traders contribute to society, albeit indirectly. They focus on high profitability, which helps in better allocating resources in the market. More importantly, their facilitation of buying and selling maintains liquidity in the economy.
This article explores the role of stock traders in society. It defines the significance of the stock exchange and explains the need for liquidity in an economy. The influence of the stock exchange on consumer behavior is also mentioned.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
How Stock Traders Help Society?
Theoretically, companies need resources to grow. Companies compete with each other by efficiently delegating resources in equity markets. The companies that provide the highest economic value to society are prioritized. The concern here is to maintain the highest cash flow with minimal risks.
Stock traders facilitate efficiency in equity markets by fixing the errors of resource allocation in the market. This contribution does not add direct value to society. It is the indirect support that requires the infrastructure of a stock exchange to yield results. Essentially, stock exchanges are associations of traders who work together to reallocate resources in a way that is most profitable to them.
Let’s illustrate the contribution of stock traders with an example. Imagine you are building a skyscraper. Steel is the primary resource you require to build such structures. In hindsight, you could acquire the steel because steel mills have established substantial corporations to raise more capital.
This is where the stock exchange and its infinite possibilities come in the scenario. In a nutshell, a popular steel mill’s rising stocks enabled the company to have a large enough production unit to fulfill your requirement.
The contribution of a stock trader in society is not much on the forefront. Still, it is the dynamic of their position in the equity markets that gives them significance in the complete picture. Traders create liquidity and maintain competition in the market. It is the ability to buy and sell in the society that keeps the general population satiated.
There is no doubt that happier people make better decisions with their consumption, savings, and finances at large.
The stock trader here is investing in companies that have the potential to rise. The investment in high potential companies leads to the circulation of finances in the right direction. The stock trader enables people to convert their goods to cash that can be reinvested into a different need/want later. This way, the stock trader continues to contribute to society through indirect means.
Why Do Stock Exchanges and Stock Traders Matter?
The stock market is defined as an equity market where businesses are bought and sold in shares. The price of stocks and the value of indexes act as a valuable tool for gauging the economy’s health. Mostly, the economic performance and stock markets work in tandem with one another.
A stock exchange’s positive performance indicates growth, which can be measured by the gross domestic product. The GDP promotes individual businesses to grow and expand.
Stock traders increase economic efficiency by making it easier for economically sound companies to raise finances than those in a weaker position.
This way, when a trader invests in a company expected to rise on the stock exchange, they enable the said company to increase their operations, acquire a new company, or build a better portfolio for attracting more investors.
At the crux of this structure lies capitalism, a system that hands money to those skilled at deployment for quick returns. The role of capitalism in the economic cycles is often debated, which redirects the attention from the stock exchange’s function to other social causes.
Supporting a stable entity’s share prices allows the company to attract more investment and better talent for expansion. The higher their stocks, the better morale they have, which eventually leads to better performances overall. The cycle continues, and economic growth continues alongside.
The Worth of Liquidity in a Thriving Economy
The economy is divided into stages where the secondary markets act as grease for the primary markets. In essence, a trader takes inventory of a product by buying stocks, and then they resell it at an optimal price. The grocery store also operates on the same principle.
The inventory models about maintaining stocks on the shelves, their pricing, and their prediction for new products are all similar concerns shared by stock traders and grocers alongside. There are similarities in selling inventories on commercial platforms like eBay and Craigslist as well.
Stock traders introduce liquidity in the market. Running a public corporation needs capital for expansion that requires traders. The stock market requires traders to maintain liquidity. It must be noted that arbitrage facilities help in the creation of price efficiency.
Arbitrageurs ensure the maintenance of the market through pricing derivatives and assets correctly. Speculators provide liquidity to incentivize the risk-reward structures for better price-efficiency.
Debating about the individual contributions of a trader in society is unnecessary because traders adopt risk for rewards despite knowing the potential of loss. That is indeed the top and bottom of the case.
The Impact of Trading on Consumer Behavior
Stock traders actively seek profit through their trade. They play a critical role in determining value and efficiency for price mechanisms. When instruments deviate further from the perceived values, then traders take advantage of the gap.
The desire to amass more money than the money they started with is the norm in the stock market. It is evident that consumer expenditure increases in bull markets. It is the stage where an economy is experiencing growth, and the consumers experience rising wealth for their portfolio. The bear markets, on the other hand, experience a recession in consumer spending.
Any fall in stock values frightens the consumer as it indicates reduced wealth and purchasing power. A rising stock market leads to growing economies that build confidence in investors. Investor confidence in the stock market leads to quicker consumption that pushes the prices higher. The rising stocks provide wealth to those invested in equity markets.
When consumers continue to purchase, the businesses selling those goods and services continue to produce more and sell more through better revenues and returns on investment. As stock markets crash, wealth undergoes erosion in personal and retirement portfolios.
The consumer who assesses that their portfolio is about to drop its value, the prudent investor decides to spend less. The reduced spending leads to a negative impact on businesses for luxury and non-necessary items. The stock trader here is responsible for pushing the right stocks to the top of the board to continue efficiency in the market and consumption patterns.
How to Be a Socially-Conscious Trader?
While trading, in general, will positively impact the economy, you can go a step further and become a trader with a cause. The following tips will help you be socially conscious in your endeavors:
- Avoid supporting corporations with a track record of putting profit over the well-being of their workers and customers.
- Donate a percentage of your earnings to a charity or cause of your choice.
- Be a mentor to underprivileged youth and help them take control of their financial destiny.
Author’s Recommendations: Top Trading and Investment Resources To Consider
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Conclusion
Stock traders improve liquidity in the market by ensuring a fair price for buyers and sellers. This leads to fairer markets where the company shares rise according to the principles of demand and supply.
Liquidity in the market invests investment that adds value to the economic growth in society. The stock traders play an indirect role in the circulation of wealth in the social hierarchies essential for efficiency.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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