People often consider the stock market to be speculative, especially when people “day trade” instead of holding onto long-term investments. Today, algorithmic trading dominates the market where trading bots and institutions can benefit from the mistakes of retail investors. The age of AI is here, and everybody should be concerned.
Over the last few decades, I’ve experienced this transformation in digital marketing. First it was programmatic advertising and AI-powered bid management. Now generative AI is reshaping how content gets created, distributed, and optimized. Some of my peers see this as a threat. I see it as an opportunity to diversify.
Because here’s what I’ve come to believe: we’re shifting from a worker economy to an investor economy. As AI and automation replace jobs that once required human labor, financial literacy isn’t just a nice-to-have. It’s a survival skill. That’s why I shifted from being a hobbyist in crypto and the stock market, to learning trading as a skill. I applied my business analysis, pattern-recognition, coding, and even my marketing skills to the way I play the market. And almost immediately, I started hearing the same criticism I’ve heard about marketing for years.
- You don’t produce anything real.
- You’re just extracting value from other people.
- If everyone did what you do, nothing would actually get built.
So let me address this head-on: Do traders add value to the economy? The answer is yes, but not in the way most people expect. And the reasoning applies far beyond Wall Street.
Why Do People Hate Traders and Wall Street?
Before defending traders, let’s understand the argument. Criticism of “day trading” isn’t baseless; it’s just incomplete.
A strong version of the argument goes like this:
Traders don’t build anything tangible. They don’t manufacture goods, provide a service, or benefit society in any way. Their gains come from price movement alone, often over very short time horizons.
When markets are volatile, this feels even more suspect. Someone profits when others panic. Someone exits when others are forced to enter. To observers, it looks less like contribution and more like extraction.
The optics get worse during crises. When a hedge fund makes billions while ordinary people lose their retirement savings, it reinforces the belief that Wall Street operates on a different moral plane, where profit justifies everything.
Here are the specific complaints I hear most often:
“Traders don’t produce real goods or services.” Unlike manufacturers, engineers, or even long-term investors, traders don’t build factories, invent products, or hire workers. They profit from price movements rather than productive output.
“Short-term trading encourages speculation over investment.” Rapid buying and selling gets blamed for excess volatility, short-termism in corporate decision-making, and price movements detached from fundamentals.
“Fast traders exploit slower participants.” High-speed or highly skilled traders can front-run predictable flows and capture tiny edges repeatedly. To outsiders, this looks like rent-seeking, not value creation.
“Profits appear disconnected from social benefit.” When a trader makes money during a crash or profits from panic selling, it can feel morally suspect.
That intuition makes sense from the perspective that value strictly comes from production.
But markets are not factories. They are coordination systems.
What Are Markets For? Understanding Two-Sided Markets
Here’s a concept that changed how I think about both trading and marketing: the two-sided market.
A great definition comes from the Journal of Economic Perspectives. A two-sided market is one in which “two sets of agents interact through an intermediary or platform, and the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality.”
Think about credit cards. Visa connects merchants and cardholders. Neither side gets value unless the other participates. The platform’s job is to attract both sides and facilitate their interaction. Other examples include Google where advertisers depend on search-engine users; Uber where drivers are connected to passengers; and eBay where potential buyers are connected to people who want to sell their used goods.
Financial markets work the same way. A functioning market requires continuous alignment between buyers and sellers who:
- Have different time horizons
- Have different information
- Have different risk tolerances
Value emerges only when both sides can participate freely and continuously. Liquidity isn’t a byproduct of this process. It’s the actual product.
Traders provide that continuity. They’re ready to buy when others need to sell, and sell when others need to buy. That sounds trivial but consider the alternative. Without an active community of buyers and sellers, spreads widen, execution costs explode, and capital becomes stale.
The same logic applies in marketing. Manufacturing is just one part of the process. You also have distribution, awareness, and activation. Without them, even the best products fail to scale.
Do Traders Add Value to the Economy? The Liquidity Argument
Let’s consider the economic case directly by answering a fundamental question: How does liquidity create value?
Liquidity is often taken for granted, but it is created, not given. Think of it as the market’s conversion funnel. It’s the mechanism that transforms intent into action with minimal friction.
Imagine you need to sell your house in 48 hours. In a liquid market, you’d have buyers lined up offering prices close to fair value. In an illiquid market such as a small town where homes rarely sell, you might find one buyer who knows you’re desperate, offering 60 cents on the dollar.
That gap between “what something is worth” and “what you can get for it right now” is the liquidity gap. Traders close it. They show up when you need to sell and appear when you need to buy. This isn’t charity. It’s self-interest, but the effect is the same. You get a fair price because someone was there to take the other side.
Active traders compress bid-ask spreads. That’s the difference between what buyers offer and sellers accept. In fact, narrower spreads indicate more efficient markets where trades can be executed quickly without significant price impact.
Here’s what tighter spreads actually mean:
- Lower transaction costs for everyone. When you buy or sell a stock, you pay the spread. A stock with a $0.01 spread costs less to trade than one with a $0.50 spread. In essence, bid-ask spreads are an accepted measure of liquidity costs in exchange-traded securities.
- Companies raise capital more cheaply. When markets are liquid, the cost of issuing stock or bonds drops. This isn’t abstract—it directly affects which projects get funded and how many people get hired.
- Pension funds and institutions can meet obligations. Large investors need to move billions without crashing prices. Liquid markets absorb these flows.
- Risk can be transferred efficiently. Farmers, manufacturers, airlines and other hedgers need counterparties to take the other side of their bets. Traders provide that service.
The bottom line is that active traders contribute significantly to price discovery while reducing pricing errors.
What Is Price Discovery and Why Does It Matter?
Another overlooked function: prices are signals.
They encode expectations, scarcity, risk, and time preference without centralized coordination. According to the Journal of Financial Markets, price discovery is how “new information received in the market is first reflected in the futures of the security or in the spot prices of the underlying security.”
Short-term traders process new information quickly and translate it into price movement. That movement guides decisions far beyond the trade itself:
- Where capital flows. Stock prices tell entrepreneurs and corporations which projects investors believe are worth funding.
- How risk gets priced. Insurance companies, lenders, and governments all rely on market signals to assess uncertainty.
- When projects get funded or defunded. A rising stock price makes it cheaper to raise capital; a falling one makes it harder.
Asset prices respond to macroeconomic news almost instantaneously, often within five minutes of release. This rapid incorporation of information is what makes markets useful as coordination mechanisms.
Dismissing this as “just speculation” is like dismissing analytics because dashboards don’t generate revenue on their own. Signals don’t need permission to be useful. They just need to be accurate.
Is the Stock Market a Zero-Sum Game?
This is one of the most common objections: “Trading is zero-sum: one person’s gain is another’s loss.”
On a single trade level, this is technically true. But it fundamentally misunderstands how markets work at the system level.
The St. Louis Federal Reserve explains the distinction clearly: in a zero-sum game, one party’s gain equals another’s loss. But any form of trade (including financial trade) is typically positive-sum because both sides choose to transact. Each party values what they receive more than what they give up.
Over time, equity markets tend to be positive-sum: as the economy expands, demand and production rise, firms scale their operations, and higher earnings translate into greater company valuations—creating new value and growing overall wealth rather than merely redistributing it.
System-wide, the benefits compound:
- Narrower bid-ask spreads
- Lower transaction costs
- Better risk transfer mechanisms
- More resilient markets during stress
This is not centralized design. It’s decentralized coordination where millions of small decisions aggregating into usable prices.
When people argue that traders “add no value,” they’re often really saying: I don’t like outcomes I didn’t personally choose.
Markets don’t optimize for comfort. They optimize for information flow.
Does Day Trading Add Value to Society?
Let me address a specific subset of trading that draws the most criticism: day trading.
Day traders buy and sell securities within the same trading day, sometimes holding positions for minutes or seconds. Critics argue this is pure speculation with no social benefit.
The honest answer is nuanced. Day trading has both zero-sum and positive-sum elements:
Where day trading creates value:
- Liquidity provision. By frequently buying and selling, day traders help narrow bid-ask spreads and increase market efficiency. This benefits all market participants, including long-term investors.
- Information incorporation. Day traders react quickly to news, helping prices reflect new information faster.
- Market resilience. Active participation during volatility can prevent extreme dislocations.
Where the criticism has merit:
- Transaction costs make it negative-sum for participants. After commissions, spreads, and taxes, the average day trader loses money. While some day traders do earn gross profits, most fail to cover transaction costs.
- It doesn’t directly fund companies. Day trading in secondary markets doesn’t put capital into company treasuries—that happens in primary offerings.
The key distinction: day trading can create systemic value (through liquidity and price discovery) even when most individual day traders lose money. These aren’t contradictory statements because they operate at different levels of analysis. And, those who do lose money do so of their own free will. The market carries with it risks, and participants must weigh those risks against any potential benefits.
Does Money Velocity Drive Economic Growth?
We often talk about the velocity of money as a macro concept, but its relevance is practical.
The Federal Reserve Bank of St. Louis defines velocity as “the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a given time period.”
Money that circulates:
- Reallocates risk more efficiently
- Responds to new information faster
- Finds higher-value uses more quickly
Active traders accelerate this circulation. They reduce friction between intent and execution.
This doesn’t undermine long-term investment. Instead, it enables it by lowering the cost of entering, exiting, hedging, and reallocating capital.
A market with no liquidity is like a brand with no distribution. The value might exist in theory, but it can’t move.
Can Trading Correct Cognitive Bias in Markets?
Here’s an angle most people miss: traders help correct systematic errors in valuation.
Behavioral finance has documented dozens of cognitive biases that affect investor decisions including overconfidence, anchoring, loss aversion, herd behavior. These biases create mis-pricings.
I’ve written about this phenomenon in my work on the Bias-Debt Framework. In essence, unchecked cognitive bias accumulates like technical debt, creating hidden liabilities in decision-making systems.
When assets become mispriced due to cognitive errors, traders who recognize the gap can profit by correcting it:
- Overvalued stocks get sold short, pushing prices toward fundamentals.
- Undervalued stocks get bought, providing capital to companies the market has overlooked.
- Panic selling gets absorbed by traders willing to buy at depressed prices.
This doesn’t always work perfectly. Traders can amplify bubbles as well as correct them. But the mechanism for correction exists precisely because profit-motivated participants have incentive to identify and exploit mispricings.
What Caused the 2008 Financial Crisis?
Since I’m arguing that traders create value through liquidity, I need to address what happens when that argument goes wrong. What caused the 2008 financial crisis?
The crisis is widely understood to have originated in an earlier surge of mortgage lending, especially to higher-risk borrowers. This was driven by sharply increasing home prices in a positive feedback loop that created a snowball effect.
The FDIC’s Crisis Report identifies several key factors:
- Subprime mortgage expansion. Lenders extended credit to borrowers with poor credit histories, low down payments, and inadequate documentation.
- Securitization complexity. Mortgages were bundled into securities, then sliced into tranches, then re-bundled into new securities. Each layer obscured the underlying risk.
- Rating agency failures. Complex securities received AAA ratings despite underlying mortgage quality problems.
- Excessive leverage. Financial institutions borrowed heavily to amplify returns, making them vulnerable to small declines in asset values.
- Interconnection. When problems emerged, the complexity of relationships between institutions made it impossible to contain the damage.
The IMF’s analysis noted that “securitization led to complex and hard-to-value assets on the balance sheets of financial institutions” and that the crisis revealed “the high degree of leverage of the financial system as a whole.”
What Happened When Liquidity Evaporated?
Here’s the critical point for understanding trader value: when traders disappeared, everything broke.
In August 2007, BNP Paribas announced a “complete evaporation of liquidity” in certain mortgage-backed securities. They couldn’t price assets because no one would trade them.
According to Princeton economist Markus Brunnermeier’s research on the crisis, the liquidity spiral worked like this:
- Initial losses forced institutions to sell assets
- Forced selling pushed prices down further
- Lower prices triggered more margin calls
- More selling created more losses
- Eventually, markets froze entirely
The Federal Reserve’s response, delivered by then-Chairman Ben Bernanke, acknowledged that “traditional funding sources for financial institutions and markets have dried up” and that “banks and other lenders have found their ability to securitize mortgages, auto loans, credit card receivables, student loans, and other forms of credit greatly curtailed.”
The lesson isn’t that trading caused the crisis. It’s that when trading stops, the entire financial system seizes up. Functions traders provide include liquidity, price discovery, and risk transfer. Often, they become visible only when they disappear.
When Does Trading Hurt Markets?
I’ve been defending traders, but I’m not naive. Not all trading improves markets.
Here’s a more honest critique:
Excessive leverage amplifies crashes. When traders borrow heavily to amplify returns, they become forced sellers during downturns. This converts normal corrections into cascading failures.
Market manipulation is real. Wash trading, spoofing, and pump-and-dump schemes extract value without creating it. These are crimes, not trading strategies.
Speed-only strategies can add noise. Some high-frequency strategies provide genuine liquidity. Others may exploit market structure for microsecond advantages.
Opacity enables fraud. Complex instruments that obscure risk allow informed parties to exploit uninformed ones. This is what happened with some pre-crisis mortgage securities.
But these are design and regulation problems, not proof that trading itself is useless. The question isn’t whether some traders behave badly. Like every industry, of course some do. The question is whether the trading function serves an economic purpose.
The answer is yes.
Why Financial Literacy Matters in the Age of AI
Let me circle back to where I started.
I’m in my 50s. I’ve watched AI transform my industry multiple times. First, we adapted to programmatic advertising. Now, generative AI dominates content creation. The skills that made me successful twenty years ago are being automated.
This isn’t unique to marketing. Every knowledge worker is facing some version of this disruption. And, standard career advice like “learn to code,” “develop soft skills,” “become a prompt engineer” assumes the labor market will continue absorbing human workers at current rates.
I don’t believe this to be true. The robots are here and I expect most people will survive on some sort of Universal Basic Income (UBI). One opportunity to thrive is by participating in the market.
Understanding markets is becoming as fundamental as literacy itself. Not because everyone needs to become a day trader. But because:
- Retirement security increasingly depends on investment decisions
- Economic volatility affects everyone, but informed people navigate it better
- The gap between those who understand capital markets and those who don’t is widening
The criticism of traders as parasites extracting value often comes from people who don’t understand what traders actually do. And that lack of understanding leaves them vulnerable to the very market forces they dismiss.
What Would Happen If All Traders Stopped Tomorrow?
Here’s a thought experiment.
Imagine every short-term trader including day traders, high-frequency traders, swing traders, market makers, and even hedge funds were to disappear overnight. If only long-term investors remained, here’s what would happen:
- Bid-ask spreads would explode. Without market makers, the gap between buying and selling prices would widen dramatically.
- Transaction costs would skyrocket. Every trade would move prices significantly, making it expensive to buy or sell anything.
- Price discovery would collapse. New information would take days or weeks to incorporate into prices instead of seconds.
- Volatility would increase, not decrease. Without traders absorbing imbalances, small mismatches between buyers and sellers would create wild price swings.
- Capital allocation would suffer. If prices don’t reflect information quickly, capital flows to the wrong places.
This isn’t speculation. We’ve seen versions of this during market crises, flash crashes, and periods of extreme stress.
Traders Don’t Build Products. They Build Markets.
Traders don’t build products. Neither do marketers.
Both build participation, continuity, and trust in systems that only work when individuals are free to act on their own information and preferences.
When those systems function smoothly, we stop noticing them.
When they don’t, we suddenly remember how much value invisible work was creating all along.
The question isn’t whether traders create value.
It’s whether we’re good at recognizing forms of value that don’t come in physical form.
