There are a lot of similar variables that relate to both trading and gambling, they both require luck, strategy and involve risk. These three elements link them both together but, they are also the cause of great controversy and debate. Read the entire guides below and have the clear conception whether the stock market like gambling.
Does High Risk Equal High Reward?
The term risk, or risk management is a buzz word when discussing trading, but also when considering how much to bet with whilst gambling. This ideology means that the more that you invest, or bet, will lead to a larger return, if your initial investment or bet is worth it. This initial risk of how much capital you should invest,or are prepared to invest, is supposed to be high to see a worthy return.
The difference between a trader and a gambler would be the risk management strategy they have in place. Traders will read into their markets, tracking and educating themselves on the peaks and troughs of their potential investments. They will also diversify their investments, this is done by spreading them across a plethora of assets or accounts, this way any risk is covered by other investments to there is minimal damage if any trade does not go to plan. For gamblers, a less managed approach is adopted, the use of probabilities, ratios or feelings are used to help decide upon a bet. Nevertheless, neither a skilled trader nor a skilled gambler could assure you a return.
Dealing With Losses
The risk management strategy is just another way to explain the mitigation of losses or how it has been dealt with.
This is a huge difference when discussing gambling or placing bets, unlike investing, when your bet is incorrect there is no way to recover any of your losses.
When investing there are particular settings one can add to their investments to stop their losses, ensuring that even if their share prices take a fall ninety percent of their investment is saved. This reduces the initial risk associated with investing or trading stock, and highlights the gamble of betting.
As it has been touched upon before, traders must educate themselves on the stock market, stocks and trading and the best end up spending years doing so. Traders usually have to work their way up through various internal roles before they can flourish into reputable names within their fields. It is a common misconception that a university degree is needed to undertake a trading job, which is always desired and valued by employers, but is not a definite need. In fact, this is one of the key elements of the role, it is not down to a vast and impressive education, but the ability to read and manipulate numbers and stocks with ease.
The Value of Time
As most gambling activities rely on a specific date, time or game, they are less easy to moderate and monitor, it usually comes and goes quite quickly. Nevertheless, investing is a long game, it can take up to ten years for a company to really shine in the stock market or develop enough recognition to take more risks.
As it is a longer journey, there is more opportunity to learn, pass on lessons and help to grow knowledgeable traders and build a reputable company. This time also allows them to grow into better traders, they can map out stocks or investments and see use their historical peaks and troughs a better education of the stock is gained. When placing a bet, there are both time and knowledge constraints relative to the particular sporting event or game one is betting on, showcasing the difference between betting and investing.
Of course, both gamblers and investors will want to keep a record of their investments and spending, but this is a legal requirement of investors. They usually keep an investment diary, a profit and loss accounts and various spreadsheets worth of information to help them both track and make investments.
These documents are invaluable and are a requirement for all professional traders. It is also important if you are a day trader as it goes so fast, these documents are necessary, and it is also really important to help the trader keep track. Now a lucky gambler may keep hold of his betting slip as a momentum or to cash in their successful bets. This is not mandatory and is just based on the personal preference of the lucky winner.
This article discusses all of the additional aspects of trading and investing, helping to remind you that contrary to popular belief, it is not down to luck or gut feelings when investing. It is a science; it takes time to get recognised and learn important lessons which allow traders to grow more reputable. To become a successful trader, it is not based on luck, meaning that successful trades or being able to choose the right stock to invest are not always a fluke. Unlike anyone that puts on a bet, they use luck, they may have gotten a tip or try to use the rational response to these choices, but almost every time when a big jackpot is won, it is down to luck.
This is not to say that there have never been any traders that have not used gut feelings, or luck to help determine which stock to use or how to invest their capital. We are only human, sometimes great coincidences happen and luck is in our favour but, it is wrong to assume that the stock market considered gambling. This is a naïve assumption and has definitely ruined the integrity of a trader’s job role, although some traders are made to feel like gods due to their investing abilities.