Is trading gambling?

All trading involves risks, and your trading model would have to factor all of them out of the equation to really be considered not gambling, and if it does effectively eliminate risk to the point where it is pretty much non-existent, well then for you trading is not gambling.

Gambling is defined as staking something on a contingency. However, when trading is considered, gambling takes on a much more complex dynamic than the definition presents. Many traders are gambling without even knowing it – trading in a way or for a reason that is completely dichotomous with success in the markets.

gamble is simply a game with a random outcome. Buying a stock whose return you do not know is a bet that the stock’s return will reward you for the risk, and also hedges the “financial risk” of the market growing faster than your wealth (basically locking in your proportion of the world’s wealth in some statistical way).

Once someone is involved in the financial markets, there is a learning curve, which based on the social proofing discussion above may seem like it is gambling. This may or may not be true based on the individual. How the person approaches the market will determine whether she/he becomes a successful trader or remains a perpetual gambler in the financial markets. The following two traits (among many) are easily overlooked but contribute to gambling tendencies in traders.

Gambling is very similar to trading in this way and you can learn a lot about advanced money management from successful pro gamblers. Pro gamblers have similar behavior to pro traders, and loser traders have similar behavior to amateur gamblers (those guys who feed slots or play roulette or whatever hoping they’ll make some money) What you really learn, though, is the fact that money management is everything. Throw away prediction you don’t even need it – You can roll a die to determine whether to go long or short, and given you cut your losses and run your gains, you’ll make money.

Trading in a methodical and systematic way is important in any odds-based scenario. Trading to win seems like the most obvious reason to trade. After all, why trade if you can’t win? But there is a hidden detrimental flaw when it comes to this belief and trading.

 

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