One of the frequently asked questions about trading is not pertaining to how it makes money or what is the best strategy. Instead, it is pertinent to how different is trading from gambling?
Regarding the question, most traders dislike the question. In their defense, comparing trading, which requires a ton of analysis and information in their pocket, to casino table games, in which everything depends greatly on luck, is nonsense.
In reality, as they might hate it, trading is comparable to gambling, in a sense that both are dealing with odds. Believe it or not, many stock traders are arguably gambling although there is no specific consensus investigating that.
However, there exists several distinctions that create a boundary between trading and gambling. To provide better presentation, let us breakdown how they are similar and how, subsequently, they are dissimilar.
Also Read: Is Trading Binary Options Gambling?
Trading vs Gambling: How They are Similar
As mentioned earlier, one of the biggest similarities lies in the odds they are facing. Yes, even in trading, you can never really tell what will happen.
Despite all the instruments and analysis which actually help trading to make a trade, it never claims that it knows what will the charts be. There is always no guarantee that your trade will be advantageous at a certain market condition.
In this sense, it portrays its similarity with gambling. In gambling, gamblers never know what is the outcome and, most of the time, they come with negative expectation (that they will somehow lose money).
How They are Different
Adam Sarhan, the CEO of 50 Park Investments, points out the difference between the two ‘interchangeable’ concepts. The difference, additionally, lies in the expected value.
In gambling, the expected value tends to be negative. Unless gamblers are very fortunate, they will most likely acquire less money than what they place at the end of the day. Also, there are not many things to analyze since their games begin when they are sitting against the table.
Meanwhile, in trading, the expected value is positive. This can happen because the time to prepare prior to making a single trade is longer. Traders can follow a set of rules, strategies, and analysis before going on a trade.
In short, so long as traders follow a set of trading rules, they are trading. Otherwise, they are just gambling.
Also Read: Are Forex Trading and Gambling Similar?
