Trading Vs Gambling

There is a myth in the market that the stock market is just like gambling. People who invest in the financial markets are simply speculators who are fortunate enough to make a profit. Although there are a few similarities between investing, trading, and gambling, they are very distinct. The variance in risk and return is the point of distinction between gambling and trading. In stock markets, yield may be greater than risk, while risk is greater than yield in gambling. Stock markets encourage us to be both buyers and sellers, while you can only be a buyer in gambling. Given the above, people lose money mainly on the stock market because they put money into stocks without knowledge or analytical skills. If you treat stock trading like gambling, then it is certainly gambling for you. 

  • In the stock market, you have a statistical advantage, and the key to success is doing continuous research and making more informed decisions, whereas in gambling, you rely more on luck. When you take random stocks and make transactions, trading will be similar to gambling.
  • When you invest in something in order to profit from it, it becomes a business. People lose money only when they fail to understand the risk to reward ratio before making any decisions in business or trading. The dealer (bookmakers and casinos) generates the majority of the profit in gambling, and the odds are never in your favour.
  • Gambling is psychological and similar to the lottery in that you're willing to lose a small amount of funds in the hope of receiving a large return. In trading, you can forecast or define your rate of return range. Gambling addicts not only trade with their dreams, but also with a dangerous lack of market analysis and risk management. Their goal is to trade, not to study charts and track risk.
  • Traders tend to prioritise in-depth research and logical thought. Some components in games like poker and casino games make it more like trading; if you are smart enough and apply analytical skills, you can put yourself in a position to increase your chances of succeeding while decreasing the odds in your favour.
  • Trading strategies should not be complex, but rather well-tested and limited in scope with a disciplined approach. A trader forecasts the market trend based on previous trades and plans their strategy for each trade based on technical and mathematical analysis. Logic and reasoning are essential for stock trading.
  • Investors judge previous trades and then prepare their approach, i.e. where to spend, how much to buy, and how much to spend. The best traders have their exit plans in place before entering into the market. Trading in futures and options should be used as a risk management tool for hedging purposes. For example, you are a farmer and believe that the prices of your goods may come down or go up out of any negative situation hence took a position in commodity futures to offset risk on the current product.
  • The key to success in diversification, monitoring, and follow the trends and respond quickly. Trading is a long-term game, but its short-term excitement appeals to many people. A winning trade provides them with the dopamine rush required, whereas a losing trade induces great pain.
  • When you place a trade and the stock does not move in the direction you want it to move, you can sell it at any time and protect your portion of the initial investment, whereas in gambling, you can lose everything if you choose the wrong bet.
  • A successful trader possesses consistency, self-control, and emotional stability. Stock market trading is highly volatile and is influenced by a variety of factors, making it difficult to forecast.
  • One bad decision throughout gambling can destroy your financial wealth, emotional stability, and sometimes even your relationships.