Online Gambling and Stock Trading may seem to have a lot in common: both involve risk, thrills, strategy - and a little bit of luck. Both gamblers and stock traders also gave tendencies to follow their emotions, rather than rational thought processes, and much like us all - they both hate to lose.
Imagine that you have one thousand dollars in cash, on a table, right in front of you now. You're going to invest the money, but you're not immediately sure what in. You and you and your partner are going to decide on it together.
If you turned to your partner and said that you wanted to invest the thousand dollars in stock trading, your partner would probably be receptive to the idea. They would want to see some graphs and some projections, and they’d almost certainly want to see a qualified professional within the field before committing to any decision, but they’d likely consider it to be a sensible suggestion.
If, however, you said you wanted to take the entire thousand dollars and head to a casino to gamble with it, your partner would likely have a different view. They would likely insist - in no uncertain terms - that you didn’t take that course of action under any circumstances.
In real terms, though, would both options amount to the same thing? Is there any real difference between gambling and stock trading?
You've probably heard the phrase ‘high risk, high reward' before, and you'll have heard it concerning both gambling and investing. The theory of high risk and high return (which is sometimes called into question) says that to make significant profits in either gambling or stock trading, you have to be prepared to invest an equally significant amount of money.
How much to put in comes down to two things; choice, and risk. For a trader, this decision is about how much of their capital to invest - and therefore risk - in an individual trade. For a gambler, it’s about how much they want to spend on a single bet, whether that be a hand of cards, a spin of a roulette wheel or something else.
A good trader and a good gambler will have something else in common aside from the willingness to risk their money in the hope of a greater reward; they'll also have a risk management strategy. For a trader, that's about diversifying their investment by spreading it across different types of asset, always ensuring that a rise in one has the potential to cover a shortfall in another. For a gambler, it's about working out what the ratio of potential gains is against potential losses, and the probability of a bet going in their favor. Betting heavily in favor of a sports team winning a game when they're ahead and time is running out would be a safe bet. Making the same bet when the game is only half-way through would not.
Because of the above, a skilled gambler would be able to take your $1000 and use it to place bets which, through their own experience, they could be reasonably sure would come in. A skilled financial adviser would do the same. Neither of them could assure you of success.
Those who insist that there’s a material difference between gambling and stock trading will always point at something called the ‘house edge’ in a casino; the in-built expectation and facility by which a casino will make money. This is seen most easily in, for example, the ‘Return To Player’ (RTP) rate of an online slot game which is always less than 100%. In layman's terms, that means that the ‘house edge' is the difference between the RTP rate and 100. For every £100 put in, the RTP rate is how much, on average, the game will pay back out over time. Some players will receive far more, and some will receive much less, but the expectations are that the game will always earn more than those who play it.
A stock trade doesn't have an RTP, but there are still chunks that you can expect to come out of your investment. If you use a professional adviser, that adviser's fees will be deducted either as a lump sum or a percentage. If you invest in a certain stock, there may be transactional fees, drawdown fees or access fees. Then there's also a tax to take into account. Even if everything goes your way, what you get out won't be a completely clean transaction based on 100% of what you put in.
There is an expectation of growth when it comes to stock trading, but it still comes with an ‘RTP’ of its own.
Perhaps some of the negativity around gambling comes from the fact that it’s seen as impulsive. It’s an instant win or an instant loss, and then it’s over. You can either walk away from the table, or you can choose to put more money in. With stock trading, you invest your money and play a longer game. There’s a strategy involved which sees the value of your money increase over time, and so it feels more structured and secure. At least, that’s how things used to work.
In recent years, the rise of what’s become known as ‘day trading’ has seen strategies change when it comes to stock trading business. People are less keen to take the ‘risk' of leaving investments out overnight in volatile markets, and so try to ensure they get a return during the day, when they can actively trade on the stocks and ensure that they have some control over the direction of that trade. That means riskier, short term investments. If your chosen stock trade (or stock trader) goes for the long term option over the short term, then the risks are lowered - but is waiting longer for your money a good thing?
Here's another process which successful investors will claim to have insight on; the ‘form' of stocks. They'll know which stocks and shares are performing well, and which are struggling. They'll have key data which helps them to analyze both the past, current and potential future performance of any stock they trade in, and they'll use their experience to spot opportunities in the market. Knowing how the performance of one stock might impact the performance of another tells them when to leave money where it is, and when to move it around.
A good gambler uses very similar strategies, though. Sports betting is an obvious example - a team which has won its past three matches playing a team which has lost its previous three is always more likely to win - but a poker player does things more subtly. They'll be able to see tell-tale signs in the betting habits of their opponents, and they'll be reasonably sure when someone is bluffing. They might even be able to work out where cards are likely to be in a pack based on what's in their hand, and which cards are visible on the table. It's a different way of ‘analyzing form,' but that doesn't mean that it's any less effective.
Trading stock will always be seen as more ‘legitimate’ than gambling, because stock trading isn’t seen as a ‘vice’ in the way that gambling is. Because of that, people will always feel more comfortable putting their money into an investment than into gambling, because they feel like they’re doing something more ‘respectable.’
So long as you can make money trading stock, there's no reason not to do it. Just have an awareness that it's just gambling under another name. When you buy a stock, you have no way of being completely certain about whether the value of that stock is about to increase or decrease. You also have no more control about that change in value than a gambler does over the next turn of a card or spin of a wheel. It may feel like you do, but that feeling is based more on illusion than reality.
When looked at that way, the difference between gambling and stock trading is as simple as this: Gamblers know that they're gambling. Stock traders often don't.
Online gambling (such as sports betting, online casinos, online poker sites etc), traditionally attracts more people to it, with a fair proportion of these being people looking to ‘get rich quick’, or at least, have more frequent returns! On the other hand, stock market investing has far fewer investors flocking to it, and those investors who do traditionally are playing the long game.
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