Is trading a form of gambling? Key similarities and differences
Trading and investing and gambling have many things in keeping. But notwithstanding their differences, some people would still argue that they're, actually , the same. Could trading really be described as a type of gambling? Let’s see what those two have as a common factor and what sets them apart!
How gambling and the stock market are similar
In the event that you look at the dictionary and the Wikipedia definitions of gambling, you will observe it sounds as being similar to trading. Gambling basically means an action where some one places a bet on an uncertain outcome. When trading stocks, you risk an amount of money that isn't predefined initially on a conference that has an uncertain outcome. The aim is to earn more income, nevertheless the amount is also not known.
Nevertheless , if this perspective could be up for discussion, here are some undeniable similarities between gambling and buying stocks:
- Exposure to risk – gambling and investing are risky activities, as they involve using an amount of money to get value without once you understand if you will gain a profit, lose the complete amount, or only lose a few of it. In both activities, participants need to know their risk tolerance. This implies they need to often be aware of simply how much they have been able and ready to lose and how long they are able to go with it. Not knowing when to stop can leave you empty-handed in both situations;
- Developing strategies – some casino games solely involve luck no strategy may be placed on them, the classic table games bring the salt and pepper with this activity. In games such as for example Poker, Roulette, and Blackjack, players can develop their particular strategies with time and increase their odds to win. The same applies to trading, as investors study charts and use their experience and knowledge to predict a stock’s future price. The information is easily available from trustworthy authorities including the SEC (Security and Exchange Commission), rendering it easier for traders to really have a genuine image of the stock market’s present situation and predict a potential future;
- The element of luck – despite having an excellent strategy, both gamblers and traders can have misfortune. Both their activities also rely on luck, and they need certainly to manage the great and bad luck as it is available in order to carry on and potentially reach their goals;
- A means to make fast money – daytrading is in lots of ways similar to gambling, since it only relies on luck, and many transactions are performed for a passing fancy day. This happens each time a gambler plays a slot machine and makes multiple bets hoping for a great outcome.
What makes trading different from gambling
There are many differences between trading and gambling, which is just why most investors do not consider themselves to be gamblers. Here are the key things that split this activity from playing at a casino:
- It’s based on facts and figures – traders are constantly analyzing stock charts and studying a number of parameters and price trends to determine if they should invest in a stock or not. This is especially valid for long-term trading. Meanwhile, gamblers don't have any facts to depend on, and even if a few strategies derive from mathematics, they are still not guaranteed in full to work;
- Ownership and the time factor – in the event that you choose company’s stocks, you have them, unlike gambling, by which there is nothing for you yourself to own. Because you possess the stocks, you could profit from them when you would like when you decide it is best. You can certainly do that by selling them once they have reached the worth you have expected, or you can keep them and receive dividends if the organization pays them. This really is a steady income as a result businesses will continue steadily to pay dividends provided you hold onto the stock;
- Does not have a house edge – the house edge in gambling shows how much the house could keep from the cash you gamble on the future. The word “the house always wins” holds true, and the player can only just be at an advantage if they know when to avoid. Investors don't have to cope with a residence edge. Whilst the casino it self is the counterparty of the gambler and just one of the two can win, in trading, both investors and the company’s shareholders win if the stock prices rise;
- Provides more control over the capital – when a casino player loses a bet, the complete risked amount is lost. If the bet was C$10 and it absolutely was an unlucky one, the whole C$10 have left from the player’s account. Which means that for another round, they need to set another risk capital. Meanwhile, stock traders can mitigate losses in various ways, and the easiest one is always to sell the stock when it drops 10% below the price. This permits them to still keep 90% of the capital they’ve risked and reuse it;
- Offers the opportunity to evolve – you will get better at Poker or Blackjack, but most gambling activities require nothing more from you than the usual wager. Which means that there is nothing you can learn with time which will make you an improved player in the future. Spinning the reels of a slot machine game or playing the lottery could be the same each and every time. Investors learn from their mistakes, and the veteran ones are far more successful because they acquired the skills they have to make it.
Gambling and stocks trading – which one is better?
Now that you understand the significant similarities and differences between gambling and trading, you might wonder which one is better. There is absolutely no correct answer here, and everything depends upon what you want forward to doing. If you are looking for a fun way to invest your own time which will also bring you extra cash, gambling may be the one for you personally. But if you want to get serious and continuously raise your income by spending some time analyzing and trading, you might want to be an investor.
As you can plainly see, trading just isn't fun like gambling is. It takes a whole lot of energy, attention, analytical thinking, and whatever you will be doing is be alone at a computer exchanging stock all day long. There is absolutely no adrenaline involved because all decisions ought to be made after research, not at random. Consequently , in the event that you were buying a more entertaining activity, trading just isn't the one for you personally.
Can stock trading become addictive?
There is a kind of addictive-like behaviour that is a subset of gambling disorders, presenting most of the symptoms a gambler shows when they gamble and in addition once they make an effort to stop doing it. Day traders are far more exposed to this than long-term ones because their activity is more similar to gambling, primarily how exactly it affects them. In these cases, the payout intervals are short, allowing them to reinvest straight away. Sustained over a lengthy enough time period, this can become as addictive as gambling, and the following signs may appear:
- The need to chase losses by reinvesting more money or in more assets;
- Large profits make sure they are think they have all the skills to predict any such thing in the currency markets successfully;
- They start getting the illusion of control and could experience something near to the “near miss” concept in gambling, because they start to believe they almost succeeded despite their obvious losses;
- They become competitive and hungry for social success in the world of traders.
These can reinforce addictive behaviours if overlooked.
Psychologists have conducted studies upon this matter and concluded that trading might trigger an addictive-like behaviour for a few individuals in certain conditions. For that reason it really is imperative to always focus on your own actions and feelings and determine if the activity, be it gambling or trading, affects you significantly more than it should or on a deeper level. Self-assessment is the first faltering step towards preventing or solving such a problem.
The information in this article has been obtained from the following sources:
- Exorbitant trading, a gambling disorder in its right? A case study on a French disordered gamblers cohort
- Is Investing in Stocks Just a Form of Gambling?
- The Similarities Between Day Trading and Gambling
- Going All-In: Investing vs. Gambling
- 7 Reasons The Stock Market Isn’t What Many Think It Is