There are many people that say trading is gambling. Often it is from people with little education or understanding of the real world. Often coming from a generally disgruntled person or otherwise misunderstanding the process of life to some degree. The trouble is, this comes up quite frequently in the industry from new players. So let’s dive into the ins and outs of what trading is.
What is Gambling?
Gambling is the act of staking an amount of risk (generally in terms of FIAT currency) in exchange for the chance of winning more than what you put in. Often probability of a gamble is around 50% or less, however some situations will allow for a slight edge. Gambling is often based around a predictable end result should your selection of the gamble is selected/wins. This is often for either a win or lose based on the stake applied.
Gambling outside of staking financials can be considered in other areas of life. Take this as an example, you have a job now, but you have a job offer that may or may not pan out. Those who are anti gambling, your general life decisions are effectively a ‘gamble’. Should you argue that the decision making process and assessment comes into it here, then you are effectively you are closer to considering trading as not gambling. Everything in life has a degree of gamble and which there is a for and against for each outcome.
Let us consider a casino. These are businesses that make a lot of money, by gambling. They follow a process and play every hand, and by having the slight edge over the bulk of players, come out of top over the long term. Just like a casino, you need a slight edge of probability for it to not be gambling. There is a fine line.
How could trading be considered gambling?
Trading is the act of placing orders to buy or sell an amount of a financial market. As a basic concept, when something is cheaper than it should be, buying now, holding and then selling at a higher price is effectively the process. You choose when you enter and exit. As an example, when something is cheap at the supermarket, often people buy more of them if they will last. In a week or two when they still have the product but it would have cost them double the price, in essence they have benefited from the ‘trade’. Trading financial markets isn’t too much difference however you are dealing in non-perishable items at scale.
I see how trading could be considered gambling. Often new and inexperienced players will throw their orders about like they own the place. That is gambling. There is no certainty, data, predictability and often little or no risk management. That is gambling. Trading is effectively staking an amount of money, in a hope for an outcome. That outcome is not defined by a winner or loser as such and generally speaking has no predetermined end result (like a horse race or round of roullette may have). You can hold the position and make educated decisions along the ride, add volume, reduce risk and moniter the position to make changes. Of course there is risk, however the control is much higher.
Does it matter?
Trading is the art of making a profit from your orders in financial markets. The more knowledge you have, the more experience of how things work and the understanding that the market is the overall decider, the more chance you have of sustaining long term profits. Gambling often refers to likelihood, and trading is a concept that, once mastered, can provide a lifetime of benefits. Does it matter whether it is gambling? Only if there is some religious belief that shall not be crossed. At the end of the day, what matters is did you make a profit or if you made a loss, how long can you sustain the loss until you are back in profit.
One Last Thing
Before trading on a real account, you want to make sure you are certain that you do have that edge, even if it is slight. If it is slight it may take a while to see positive results. If it is not slight, then you may be in for a great time with less risk and stress. Know the probabilities, know your exits and know when to take your wins. Do not gamble when trading. Trade like a professional and know the likely outcome before you risk your funds.
My take… Anything is a gamble, do you choose one industry or another as a career. Do you exercise a certain way or another. Do you eat fats or carb load. Do you be friendly or stern as a leader. Gambles are at your door every single day. Rise up, make the best decision you can with the information you have, and win!