The reasons people trade (Larry Harris)
Money is something that is fundamentally zero-sum. Its power lies in its ability to facilitate trade, as per the motives stated in Larry Harris' excellent taxonomy:
- Investment -- one invests to transport cash today into the future, matching a positive cash flow today with a negative cash flow tomorrow
- Borrowing -- one borrows to do the opposite of investment, matching a negative cash flow today with a positive cash flow tomorrow
- Asset exchange -- one exchanges items of lower subjective value for items of higher subjective value
- Hedging -- one hedges to buy insurance, paying a premium to obtain greater certainty in outcomes
- Risk dilution -- one transfers idiosyncratic risk / uncertainty to many different participants, allowing diversification to reduce the net impact of uncertainty on human happiness
- Gambling -- one gambles for entertainment, receiving amusement from the uncertainty of outcomes
- Speculation -- one speculates to profit from predicting future prices
- Dealing -- one deals to profit from matching buyers to sellers