Ethical trading in the broad sense is about buying products or services from socially responsible companies and countries. In the financial markets, ethical trading is about investing in products and firms that generate value for investors. It is also about maintaining moral principles by avoiding insider trading and misdeeds that could damage public trust and erode investor confidence.
It is vital to learn ethical trading to make moral investment decisions and exemplify an inclusive trading framework when dealing with the financial markets.
IS HIGH-FREQUENCY TRADING ETHICAL?
High-frequency trading is executing system-generated orders in the blink of an eye. High-frequency trading has a competitive edge over the other traders who have access to expensive, super-fast computers.
That said, high-frequency trading is ethical, and it does not break any law because the trades are on pre-programmed strategies with every possibility of making losses. Insider trading has an illegal competitive advantage since the trader has prior information on the likely outcome of a particular asset class.
IS FOREX TRADING ETHICAL?
Yes, forex trading is ethical as long as market participants do not manipulate currencies' prices to profit from its strength or weakness. Forex trading is a decentralized global marketplace to trade currencies with an estimated average daily turnover of over $5 trillion.
Large banks and financial institutions that gain prior information and place trades ahead of a significant commercial transaction come under the category of insider or unethical trading. One instance of insider trading unraveled in 2015, in which they involved forex traders from some of the biggest global banks in manipulating the foreign currency fix for several years.
IS DAY TRADING ETHICAL?
Yes, day trading is ethical. Any form of day trading that does not question a trader’s morality is ethical. There’s nothing wrong with using active strategies like scalping to profit from market inconsistencies or to enter and exit positions by the end of the day.
However, the morality of day trading is debatable when you carry out unethical trading based on insider information.
WHAT ARE ETHICALLY TRADED PRODUCTS?
Ethically traded products are those that are socially, economically, and environmentally sustainable. Companies that respect the worker's rights in their entire production chain made these products. Ethically traded products are broadly from the food, garment, shoes, and toys industries, and one way of identifying them is to look for products that carry a “Fairtrade Mark.”
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