Does Forex Trading Destroy the Economy and Increases Inflation

Does forex trading destroy the economy and increases inflation?…  Is it immoral to earn a living like that? Money must be ONLY MEANS of exchange things for other things – but a trader just pumps money and can buy everything without producing anything physical – he does not build a house, produce goods, deliver services etc.

They give you money that are not backed by anything – no gold behind it, it is just paper!…


Why Financial Markets Exist

It may help you to understand the role of the speculator vs the hedger here, to give you the theoretical underpinnings of why financial markets exist. This makes the most intuitive sense in commodity futures, but also applies in forex.

Hedgers are physical users of whatever product is being traded: corn, stocks, euros, etc. They use the product in their regular business, and may need to make trades in the financial market for business reasons, e.g. to hedge against unwanted exposure to currency market risk, price fluctuations, simplify transactions, etc.

The most common reason, though, is to avoid exposing your business to unwanted price fluctuations.

Let’s say you are an American buyer of German cars,….

and you are going to buy a shipment in 3 mos: you need to buy Euro contracts to ‘hedge’ against the risk of a rising Euro eating into your profit margins.


Speculators vs Hegders

Speculators are for-profit traders who accept the risk of trading in financial markets, in an attempt to make a profit.

Without any speculators, hedgers would need to only trade with themselves in order to conduct business – but then, the market would be so light/thin that it would be difficult to get their orders filled!

There just aren’t enough hedgers out there to make the market liquid on their own.

This is the purpose of the speculator: to accept high risk in an attempt to make a profit. The purpose of the hedger is to reduce risk but to potentially give up some profit.

The exact opposite, essentially.


In reality, there are far more speculators than hedgers!

So this ‘original dynamic‘ is no longer in play; but it would be both impractical, and authoritarian to prevent people from making the trades that they want to, when they want to, unless they are abusing the system in some serious way.

Russia, Brazil, and many countries in the BRIC area and smaller have capital controls of some sort… in other words, the central bank imposes limitations on how much and when its currency can be traded.

It isn’t a moral issue, it’s just one of their monetary policy techniques.

Hope this helps….

There’s nothing immoral about regular forex trading, the only immoral thing would be to somehow cheat the system in an unfair way, to your benefit at the expense of other legitimate participants.

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