When trading becomes gambling

As far as trading in stock exchange is concerned, one has to put in his money to buy stocks/derivatives or has to make a promise to buy the same at future value via quick sale, an act, by which a person can make additional money or lose a portion/all of his money, hence, trading is also an act of risking money with the hopes of more monitory gains. Also, the trading, by definition is done for a short duration lasting anywhere from a few minutes to a couple of days. Again, there are many cases of people making supernormal returns and people loosing all their wealth. Both of them coming back again in the market with new hopes and having a kind of addiction to the stock market. There is a sudden rush of traders and even analysts making deals based on instincts and astrology. The stock market has also ruined many families and ripped many aristocrats.

With these arguments, any layman can easily accept this hypothesis that trading is another synonym of gambling. Indeed a trading is a form of gambling, a gambling with a difference. The first difference is that in a gambling, the odds of winning are never above 50%. These odds of winning fall further in professional gaming zones or slot machines. Some slot machines have around thousand combinations of outcomes out of which only 25 to 30 combinations of symbols are rewarded. A roulette wheel has 37 positions where betting can be done on each number or a set of even/odd/black/red/first/last half numbers, but, here as well the chance of winning is at max 18/37, slightly less than half. Coming back to trading, the chance of making money keeps rising with more experience and use of sophisticated tools. From technical analysis to fundamentals, speculation, global news, there far too many sources to increase the predictability. Hence, the decision taken in trading is an informed decision, not solely based on luck, but, on hundreds of other parameters. Another key differentiator is the level of losses. Unlike gambling, where most of the games or machines are designed to take away all the betting amount on loss, trading has a choice to limit the losses with stop-loss and similar inputs.

Both of the above key differentiators create a boundary line between trading and gambling. But, these lines are very faint as many people don’t buy the argument that trading is different from gambling, all because of incorrect or partial knowledge. It is because of such people that the bad fame of trading as gambling spills over to investment group as well and people mistakenly believe that the entire stock market is gambling. This belief has caused a destructive effect for the market by keeping many potential investors to stay away fromĀ  pooling in their resources. The solution to this problemĀ  is to either create much more awareness for these prospects or reduce the number of traders as, no one needs these traders anyways. No company management would like its shareholders to be composed of only short term traders, neither do the long term investors like them. The only group appreciating them and lobbying for them are stock brokers, who want more and more trading volumes as their income is not dependent of client’s profits or losses but just merely the volume being traded.

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