Is Trading Stocks Gambling?

There is a myth in the market that the stock market is just like gambling. People who invest in the financial markets are just speculators and are lucky enough for their trade. Although there are a few similar features to investing/trading and gambling, they are very distinct. 

The variance in risk and return is the point of distinction between gambling and trading. In stock markets, yield may be greater than risk, while the risk is greater than yield in gambling. Stock markets encourage us to be both a buyer and a seller, while you can only be a buyer in gambling. Given the above people, lose money mainly in stock markets because they put money into stocks without knowledge or analytical skills. If you treat stock trading like a gambler, so it is certainly gambling for you. 

In the stock market, you have, an edge called statistical advantage, the key to success is doing continuous research, and you make decisions that are more informed whereas in gambling you more depends on the luck factor. Trading will be similar to gambling when you just take random stocks and make transactions. 

When you invest in something to generate profits, it becomes business. In businesses or trading, reward to risk is high, people lose money only when they fail to understand the risk to reward ratio before arriving at any decision. In gambling most of the time it is the dealer (bookmakers and casinos), who generate profit you speculate and the odds are never in your favor. 

Gambling is psychological and related to the lottery where you are ready to lose a small amount of money in anticipation that you will get a large return. In trading, you can predict or define your range of rate of return. Not only do gamblers trade with thoughts in dreams, but also with a risky lack of market analysis and risk management. Their purpose is to trade, not to study charts, and monitor risk. 

Traders tend to focus on profound research and logical thought. In games such as poker and blackjack, some elements make it more like trading, if you are smart enough and apply analytical skills there are chances that you can bring yourself in a position that can increase the probability of winning and bring down the odds in your support. 

At some point in time, traders might have gotten lucky or unlucky based on different circumstances but in long run, it is all about making informed decisions based on certain strategies, skills, risk tolerance, and other parameters, etc. Trading, however, if done skillfully and artfully, can put you in the position of the house, and Is no more gambling. 

The trading strategies should not be complex rather well tested and in limits with a disciplined approach. A trader predicts the market trend based on past trades and accordingly plan their strategy for every trade using technical and mathematical analysis. A must requirement for stock trading is logic and reasoning. 

Investors judge previous trades and then prepare their approach, i.e. where to spend, how much to buy, and how much to spend. The best traders have their exit plans in place before entering into the market. Trading in futures and options should be used as a risk management tool for hedging purposes. For example, you are a farmer and believe that the prices of your goods may come down or go up out of any negative situation hence took a position in commodity futures to offset risk on the current product. 

The key to success in diversification, monitoring, and follow the trends and respond quickly. Trading is a long-term game, but its short-term excitement appeals to many people. A winning trade provides them with the dopamine rush required, whereas a losing trade induces great pain. 

An advantage in trading is when you place a trade and stock doesn’t move in the direction you want the stock to move you can sell it off any time and protect your slice of initial investment back whereas in the same case in gambling you can lose all if you chose a wrong bet. 

A successful trader has consistency, self-control, and emotional well-being. Stock market trading is very volatile and depends on many factors hence volatility factor makes it very difficult to predict. In gambling, one wrong move can kill your financial wealth, emotional stability, and sometimes your relations too. 

It can be summarized as the following: In Trading, 

Reward>>Risk 

In Gambling, Risk >>Reward