Is Trading the Same as Gambling?
If you are contemplating trading, whether stock trading, forex trading or futures trading, someone has probably said to you “That’s just gambling!”. Is trading really the same as gambling? What are the similarities and differences? This article compares and contrasts the profession of trading against gambling and gives you some answers to this question.
Trading does have some superficial similarities to gambling. They are both exercises in applied probability and there is no sure thing in either. It is possible to lose money in trading and gambling.
There is a “house” in both cases that takes a cut, win or lose. In the case of a casino, the very existence of the casino is a testament to the fact that money has been extracted from the punters. The games have a built in bias against the gamblers that favours the house (for example, the roulette wheel has slots that you can’t place bets on.
The financial equivalent of this is the organised markets and brokers. The brokers will always make money irrespective of the fortunes of the traders. Markets are a place where traders can meet, similar to casinos. However, there is a difference insofar as there is no built in bias towards losing in the markets as there is in a casino – markets are not rigged against traders like casinos are against gamblers.
In some cases, the brokers “bet” directly against you. This is the case with many forex brokers who count on their customers losing, so simply take the opposite side of each trade. Again, they have no particular advantage, except that most traders do not have a sound methodology that allows them to consistently profit.
Sometimes, the same personality type is drawn to both pursuits. This type of person looks for stimulation from risk. Typically this personality type does not make a successful trader – the best traders are methodical and have a great respect for risk.
However, there are some very fundamental differences. Firstly, as discussed above, in trading there is no “house advantage”. There is no reason that someone should fail in trading, provided that they have a system with positive expectancy (that is, average gains are greater than average losses). In gambling, there is no such thing as a positive expectancy, in fact all games have a negative expectancy, so therefore over the long term it is impossible to win.
One other difference is the motive. Generally a gambler has a primary motive being excitement and a secondary motive of financial gain, whilst a trader expects to win by steadily applying a system, even if this is a very boring activity.
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