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Is Stock Trading Considered Gambling?

by Martin Sevon about a year ago in investing
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What's The Bottom Line? What does gambling even mean?

Trading Is Gambling And So Is Our Whole Life

The answer to this question is yes, but the truth has certain limitations.

The term gambling has a certain definition but when you say it out loud, people like to associate it with poker, blackjack, and generally with other casino games. But gambling of course, has a much wider meaning and people don't realize that they gamble their whole life and even on a day-to-day basis.

Traders and investors like to fool themselves and others into thinking that their job has nothing to do with gambling since it’s ‘safer’. This is simply just not true at all. Gambling describes wagering something of value on things with uncertain outcomes. Trading and investing fit this exact description.

Gambling Definition

Gambling is the wagering of money or something of value (referred to as “the stakes”) on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. [Source]

When you’re trading stocks you’re literally wagering money on uncertain events where no one really knows the outcome. Good traders can speculate, deduce and assess a company's value and potential profit but so can poker or blackjack players during complex hand decisions.

What Is An Edge?

An edge is something that benefits a trader/player. It’s something that increases your chances of being ‘right’, part of an edge can be subject knowledge, emotional control, discipline, a clear mindset, risk management, or hard-working ability. All these can help you on your path but even if you had all of these nothing will remove the uncertainty or guarantee you a profit when trading.

The stock market is even worse as a matter of fact. There are only so many cards or dice sides within a casino game. It’s much easier to calculate your chances when you know the exact playing field. Traders on the other hand are vulnerable to completely unexpected disasters that no one could ever foresee and plan for.

No matter how good of an investor or trading you are, no amount of edge will make your job less of a gambling activity.

Bankroll And Risk Management

Gambling games are after all just games. As long as you treat them as such there is nothing wrong with having little fun from time to time. In fact, you can even use these games to their full potential and practice your bankroll/risks management. Most casino games like slots are perfect for practicing your skills.

A lot of traders and investors would benefit from practicing just a few hours a day on social casinos in order to exercise their managing skills within situations with uncertain outcomes. This is the exact same concept of paper trading.

Our Whole Life Is A Gamble

Gambling is a totally normal thing that you shouldn't avoid since we experience it on our daily basis. The whole human generation is here thanks to our ancestors who risked everything and built everything from nothing.

Imagine Christopher Columbus before his legendary voyage. For those who don't know, here's a little history lesson.

Christopher Columbus convinced the king of Spain to sail in the opposite direction to find a better way to India and during his voyage found something completely better -- a whole new continent.

While not discovering a better way to India, Columbus gambled everything on his edge -- his knowledge. While the whole world around him laughed since they thought the earth was flat, Columbus knew better and bet everything on his feelings.

This is just a small example, so you can visualize the importance of betting and doubling down on your decisions.

Gambling In Trading

At this point, you have to accept that trading is just a different form of gambling in the least. Trading requires complex calculated risks where the odds are not necessarily always in your favor. Unique elements of the stock market require you to have essentially, skills of a professional gambler

Problem With Casino Gambling

There is of course a good reason casino and gambling games are frowned upon in general. Problem gambling is a very severe thing that a lot of impressionable people fall into.

Just like in trading you could lose your money overnight but that doesn't mean casino gambling is to be avoided. The majority of casino games are always a form of entertainment, which is what a lot of people sometimes forget.

Whenever you take part in any casino game you need to take calculated risks or none at all as much as any good trader.

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Martin Sevon

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