Musings | Stock Trading

Thoughts on Trading and Gambling

Scenario 1

Imagine walking into a gambling shop, you put your money into a machine, you do the up and down movement on the device, wait for some seconds for the computer to produce the results of your action. In those waiting moments, probability plays its magic while your heart races as you wait for the results. You might walk away from the gambling house a rich man or lose your money.

Scenario 2

You do technical and fundamental analysis. You consider happenings in the market. You place your money based on information gathered, but then there is the tendency that what you have studied might not gain the intended results. You might lose your money, and you might become richer.

These are two scenarios with similarities and differences.

In gambling, the odds are usually stacked against the gambler. Out of nine plays, the probability of winning is hard. However, in the case of trading, you can carry out extensive research to make an informed decision.

For years, I have always heard the argument about whether trading is gambling or not. Trading, in my mind, is calculated gambling of sorts. That means that you are putting the stakes in the machine of a trade armed with the necessary information that will make you come out as a winner. However, if you don’t have a strategy as I mentioned in my last article, you might be stabbed with the information you do have. Simply put, in trading, gathering information (which is long and hard) sharpens your decision.And, a lot of people who enter trading quite often, leave willingly without a compulsion to carry on the trade.

The statistics show what happens to beginner traders and why they often leave trading quickly.

In gambling, you’re banking on luck. The game of probability is complex and presents itself in varying proportions.

Take, for example, a football lover who has seen his club destroy their counterpart over the years and thinks that his club will always carry out these destructive measures on other clubs without much effort. With this information, he decides to input some money that his club will win every time they play against this particular club. On this day, however, his club was trashed. Does that mean the information he had about his club is wrong? Many factors might be wrong about that particular day. Perhaps, the head striker is having personal problems and couldn’t perform the way he would usually achieve, or maybe the keeper has a stomach bug, and there is no extra keeper to keep the goals pouring in. This information is not readily available to the fan who is not curious about behind the scenes reports. As such, the fan might lose money.

The above is one type of gambling. However, I am talking about the ones who play on machines and cards. These games become addictive and it’s hard to leave.

There is always an upward movement in people who gamble daily. The addiction is sickening.

Although I don’t gamble or do the extensive trading, I know for a fact that there are some aspects in gambling that makes the individual psychological attached the said game they are playing. Shaffer Howard J. Addiction and James Abingdon, in their paper, “Strange bedfellows: A Critical View of Pathological Gambling and Addiction” observe that gamblers often have the craving or compulsion, loss of control and continuing strange behaviours to indulge in gambling. It becomes a dangerous habit. The numbers in gambling and gamblers increase yearly according to the Global Gambling Statistics.

“The house always wins” the saying goes. Does it mean that there is always going to be an existential risk of losing your money before you start playing your game? That said, there have been people who have made money from gambling. Look at Dan Blizerian, he made his fortune from engineering the wheel of gaming, and he is living the life! If that’s your thing, then go for it.

Any investment decision made without extensive research tilts towards gambling. Many traders often go into the space of their game with data. It is this information that they use to make a killing from their investment. Another thing they do is that they have a strategy.

On the other hand, ask a gambler if they have a winning strategy and they will tell you they don’t. It is simple. Players in this space, play with the hope that they get positive results; their optimism is chance-based and not practical.

Similarity or Differences?

There is a similarity somewhere between gambling and trading, though. A poker player and the trader can’t predict the outcomes of their investment. They can’t give you a definite answer whether they will get a return on their investment or not.

Events can affect them differently. For example, the President of the United States of America, tweets something can force movements in the market. During a pandemic, as we have seen via COVID-19, traders can’t control the structure of the market. The market dances to many forces, and these have markedly influential positions on the trade. While in gambling, these forces do not necessarily affect the gambler from staking his place in a said game, and she can still win in any online bets.

I would argue that what separates both is the use of information and the existence of information and, again, it depends on the type of gambling. But, strategically, there is little information that a gambler can use in betting. Some argue that the same way trader spreads investments into various markets so also can a player bet on different games to ensure that if there is a loss somewhere, the gains from another game can cover him.

Let’s conclude…

Comparing gambling to trading as most people do might be right, but they often forget the various implications that both forms represent. In trading, there are different forms of trading. A wise trader knows the strategy they will use in the market. And they ought to be able to understand when to buy and sell. They are trading in various markets, that is, commodities, securities, stocks, to mention those three. They are buying these things with the intention that when there is an increase, they can quickly sell and get a return.

Trading and gambling are both games with broad and unbelievable risks, but the players in the game know the rules(or should know the rules) before they make their move. Both players know that there would be times when they can win and when they can lose. Both players understand that there will be times when the controls of the market forces are out of their powers, and these market forces might influence results.

So the next time you hear people talk about trading being gambling, you have the right to understand where they are coming from, first of all, and second, you have the right to educate them or third, you have the right to ignore them. Both games can make you a lot of money or lose a lot of your money, and they involve very high risk. But, if I were to choose, I would trade.

What do you think? Let me know….

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