Short Term Trading: A Very Popular Ruin
We have recently seen on this blog the reasons why short-term speculation is a ruin for investors. However, in spite of this, thousands of small savers continue to fall into the trap of trading every year and lose that heritage that has so much to gain.
Why does this happen?
How is it possible that trading in the short term remains so popular being a practice extremely ruinous?
In this article I will explain the reasons why short-term speculation continues and will continue to be popular with small savers.
Who is promoting short-term trading and why?
To understand the reasons why the short-term trading is still so popular, it is necessary to know who is interested in promoting it and the reasons (often hidden) behind this practice.
The main sources of short-term trading promotion are as follows:
- Brokers and financial intermediaries
- The savers themselves
- Financial means
- The “professional” speculators
Next, we will analyze the reasons why each of them promotes trading and the interests that lead them to do so.
Brokers or financial intermediaries
A broker is a financial intermediary that allows us to perform operations in the markets.
Your business is based on charging commissions whenever we carry out an operation through its platform. Therefore, they are not at all interested in investing in the long term, but what they want is that we do as many operations as possible, as it is what makes them earn money.
That money, of course, comes out of our pockets. What for us is a cost that damages us, for them is their main source of income. Therefore, the brokers will try to promote this type of operation based on performing the maximum number of operations.
In fact, it is common practice for brokers to sponsor short-term trading courses or even to offer them themselves for free. This they do know that is not the best for the small saver, but it is the best thing to maximize the profitability of the company.
The savers themselves
On the other hand, the fault of the popularity of the trading in the short term also has, in part, the own savers.
This is because many do not want to grow their long-term equity wisely by harnessing the power of compound interest.
What are many small savers looking for?
What they are looking for is the magic method for getting rich in the short term.
They are looking for a quick method…
An easy method…
The secret that will make them immensely rich to live the life they always dreamed…
And of course, when someone offers them what they are looking for, even if it is a scam, many ends up falling into the trap.
This is something that also happens in other areas such as health and fitness. Many people are looking for an easy and quick method to have a perfect body without exercise or diet. However, if you want to have a healthy life and be in shape, you will need to exercise and eat well. Plus, you’re not going to get results overnight. Of course, you are going to have a great offer of scam products that will promise you a 10 body overnight. If you fall into any of these scams, chances are you end up losing your money and even your health.
The same is true of the world of stock market investing. If what you are looking for is a secret method to make a lot of money in a short time, chances are you will not be long in ending up losing your shirt.
Financial means
Financial means are also largely to blame for the popularity of short-term trading.
This is because the media live, on the one hand, advertising. This advertising, in many cases, comes from brokers, who cause the media to orient their editorial line to speculation in the short term.
But not only are the brokers, also the readers themselves those who demand short-term operational advice. As we have seen, many savers want to earn money as soon as possible. The media offer what the public demands, even if its usefulness is null or even negative for investors.
This is similar to what happens with the horoscope, a section present in most Spanish newspapers, which basically what is dedicated, is to predict your future or give you advice based on the day of the year you were born. This section, which for any minimally rational person is a sovereign stupidity, is still present in the many means despite its null utility.
Why do the media still offer the “horoscope service”?
Simply because people are still demanding it.
The same is true with trading and short-term speculation. The media will continue to offer it as the public continues to demand it and the industry continues to encourage it.
The “professional” speculators
When I refer to “professional” speculators I mean those who are supposed to live trading and speculation in the short term. It is possible that some name comes to mind at this time.
I’ll ask you a couple of questions.
How many investors have funds that hit the market?
How many are on the Forbes list?
The answer is many.
In fact, you already know a lot of them through this blog. Warren Buffett, Charlie Munger, Peter Lynch or Seth Klarman, among many others.
Instead…
How many short-term traders or speculators are on the Forbes list?
How many have become rich only thanks to their investments?
I do not know any …
There are many traders that come out in the media (print, radio, television, YouTube …) presuming to achieve great returns in a short time.
What is the reality?
That the vast majority of these traders who presumed to be lined in a short time do not earn money thanks to their investments.
How do they make money then?
They do it by selling courses and books at a price of gold, selling your magic method to cover you by trading in the short term (although in the end, it is nothing more than a scam).
They also do so thanks to the sponsorship of brokers, who pay them to convince people to do a large number of operations through their platform.
In the end, they make a lot of money in a short time, that’s right. But they do not do it through the financial markets, but they do it by cheating on small savers.
What tricks do these scammers use to make you believe they make so much money in a short time?
We will see this in an upcoming article.
In summary…
Learning to invest on the stock market requires time and effort. In addition, the results will not arrive overnight. Of course, I assure you it is worth it.
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