People often equate trading with gambling but the comparison is not totally fair. Both concepts do share some commonalities, however. When you understand what makes trading different from gambling, you will have a much better idea of what it truly means to be an investor.
You will also be able to apply some investment principles to gambling, and vice versa. Let’s take a closer look at the differences and some of the similarities between trading and gambling.
Trading is Not Purely About Luck
People who are successful long-term with trading are not “lucky”. No one can be consistently lucky, and no one can say that they are professional craps or roulette players. Successful traders follow a proven strategy and are consistent. This is why they can see consistent results and net more profits than losses.
While it’s possible to use strategy to make better decisions when playing games like blackjack, the house always has the edge. Good investors are living proof that the house can be beaten when it comes to investing.
Gambling is More Accessible
There is no doubt that gambling is much more accessible than trading, and, out of all people who get involved with investing, only a tiny minority truly understand how the economy works. Trading will require you to learn about markets, technical indicators, chart analysis, and how to read financial statements. All you need to play casino games is to be of legal age and have access to a casino. You don’t even need to leave the house today, with the advent of online casinos.
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Casinos are all about having fun, while trading definitely isn’t. While some traders will say that they’re having fun, they’re only talking about the times when they’re winning. When you go in with the right attitude and only bet money you can afford to lose, losing isn’t always the end of the world when playing at a casino. If the game isn’t fun for you anymore, then it’s a sign that something’s wrong.
Traders are Risk Averse
Traders absolutely hate risk and uncertainty, while gamblers live for it. The goal of a trader is to make predictions that will be as accurate as possible, while gamblers can’t predict anything. This is part of the thrill of gambling, but it’s something most traders will try to avoid at all costs.
You Can Build Wealth with Trading
Another difference between trading and gambling is that you can build long-term wealth through trading. Many people can build a nice nest egg through sound investments and by harnessing the power of compound interest.
This isn’t something you can do with gambling. You can’t bank on future winnings to pay your bills, and there’s no way to predict how much money you’ll be able to make week after week or month after month. This is why gambling should be viewed as a fun pastime and nothing else.
Gambling and Investing Both Require Risk Management
One characteristic that both gambling and trading share in common is risk management. Experienced gamblers are often very good at managing risk. They might look up a certain player’s history so they can get a certain advantage, for instance, or look up a racing horse’s pedigree and performance on different types of tracks before choosing who’s the best bet.
Likewise, a trader will look at price history on a stock, or try to get some background information on a company’s management team. The only difference is that the game isn’t stacked against investors.
Experience Will Make You Better at Both
Practice makes perfect when it comes to both trading and gambling. Some people end up losing a lot of money while gambling because they make rookie mistakes. Someone who knows the rules and the odds of a game like roulette will know which bets make sense and which ones are a bad idea. Someone who knows blackjack will start to sense when they should stop or take a hit.
Traders are very similar. In the beginning, you are bound to make simple mistakes like going into or out of trades too early or misusing leverage. But, with time, you will start to make better decisions and be better at identifying patterns. As you can see, there are some significant differences between trading and betting, but some similarities too. Whatever you do, try to gamble with an investor’s mindset and not the other way around.
By: Danny Andrews
Featured Image: @GabFoligno / Freepik