Those unfamiliar with trading may associate it with gambling. However, the two are distinctly different worlds: Gambling is a game of luck, while trading is about skill. Below are some prominent differences between trading and gambling.
- Luck vs. facts and figures
- Trading vs. gambling: Science and technique
- Quick vs. slow profit
- Excitement vs. discipline
- Controlling outcomes
- Trade smart
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
Luck vs. facts and figures
As a trader in the market, you are certainly exposed to its fluctuations, but you also have a massive base of historical data to fall back upon. You can analyze existing price trends to make an informed decision about incoming ones, and you can also see how support and resistance levels are progressing in the market.
A trained eye can tell which market activity is stable and which is risky, but these things need to be learned before you start trading. The same cannot be said about gambling. For example, it is highly improbable that Apple stock would ever cost $1 one day but $1,000 the next. If there is to be massive growth of a stock in the market, it is always predictable to some extent. In contrast, the values of roulette numbers in casinos are variable and cannot be predicted.
Trading vs. gambling: Science and technique
When you put your money on a number in roulette, you are at the mercy of the wheel. Trading techniques, though, are supported by science and mathematics. Before any financial decision is made, traders carry out a fundamental analysis, whereby they look at the asset’s current data and related news. They also carry out a technical analysis to better project price action via the use and analysis of charts, trends and patterns. When it comes to gambling, you don’t have access to scientifically proven methods and certainly wouldn’t have time to analyze and act upon them in the midst of a game anyway. It’s just guesswork.
Quick vs. slow profit
There’s a story about a man who went to a casino one day and made a remarkable profit. Feeling lucky, he returned there the next day, made a small loss, and continued playing in an attempt to recover it. In the end, he lost all the profit he’d made on the first day and then some. Big wins can come easy, but they’re only an illusion that ropes you into sinking more money. Trading, on the other hand, is a game of skill and discipline. The focus is on managing your risk and protecting your capital, rather than rolling the dice. Therefore, the profits might be slower in trading than it is in gambling, but they are also safer and calculated.
Excitement vs. discipline
If a casino provides a lot of quick profits, gamblers keep coming back to invest money until they’re penniless (and some don’t even stop there). Gamblers usually opt for the bets that can yield high and quick profit, but the illusion of doubling earnings in no time with no effort always misguides them. Trading, on the other hand, requires discipline. That being said, trading can still bring a lot of excitement, just don’t let it control your decisions and always trade wisely. Excitement can be a great disadvantage in trading, as it can lead you into rash and irrational decisions. From a psychological point of view, that is a crucial difference between gambling and trading.
This point most strongly captures the difference between trading and gambling. As a gambler in a casino, you have limited control over a game’s outcome. You purely try to play against the odds and hope that the cycle of probability will work in your favor. As a trader, you have more control. Discipline is your best defense against market uncertainty. You also have the advantage of changing strategy if the market doesn’t go according to your analysis. The sheer amount of options that traders have in analyzing, reducing risk and implementing new strategies distinctly sets trading apart from gambling. Moreover, it’s important to remember that a casino is there to make money. Meanwhile, nobody owns the market, so no single entity profits from a trader’s loss like a casino does from its patrons.
Trading and gambling are different realities. There is a lot more science, discipline and control over outcomes when it comes to trading, while gambling is more like throwing caution to the wind and acting upon impulses. Keeping a trading journal will help you regulate your emotions so they don’t interfere with your decision-making process, while maintaining strong risk management and money management plans will grant you more control.
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Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.