Trading stocks and other securities have become extremely attractive in recent years. However, people often ask, “Is trading on the stock market a gamble?” because it seems to many that money earned on the stock exchange purely depends on luck. Those who made a profit on the stock market are often said to be “lucky,” although most often, hard work lies behind that “happiness”. Most likely, stock trading can seem like a game of chance for many because even here, investors can’t know the outcome of the started trading. Therefore, we need to discuss: is the stock market gambling? What similarities and differences do they have?
Why Stock Trading is Not Gambling
Still, stock trading is not gambling in the term’s ordinary meaning. Why? Another difference between investing and gambling is that you can manage risk even after starting trading. We can’t do that, for example, in online roulette real money betting because there, after throwing the ball into the wheel, we can’t increase or decrease our stake. You may check it by playing demo games or going straight to money stakes to combine the pleasure and the earnings.
While, in roulette, you have almost no possibility to analyze your situation before starting the point, we can study the current situation on the stock exchange by applying technical or fundamental analysis. A trend or some level can give us a specific advantage in the market. By learning and practicing, we gain a routine that allows us to achieve a particular advantage in the market by applying the appropriate information and research.
On the other hand, the stock exchange is sometimes unpredictable and depends on multiple global and local factors which are not under our control. It’s almost impossible to monitor all the factors including the minor coefficients which, nevertheless, have some impact on the market. Besides, the experienced traders admit that sometimes the stock events happen in contravention of every rule. At the same time, the rules of gambling activities are always the same and never change unexpectedly. Some developers are even proud that their casino software, for example, Plinko online game, is completely fair and has an honest algorithm.
Stock is Ownership
Stocks or shares represent equity security, representing a shareholder’s ownership in a company. Namely, the company’s total capital represents a certain number of shares, and everyone who owns them is the owner of a proportional part of the given company. On the other hand, when you gamble, you own nothing but a hope of an upcoming victory.
Value of a Company
Companies divide a part of the generated profit to shareholders. The value of holding is in proportion to its share. However, this right is a two-way alley. Usually, companies pay dividends the same way online casino payments work using the most up-to-date innovations: credit cards, digital wallets, cryptocurrencies. Still, sometimes a company may decide not to pay a premium but to reinvest that amount of profit in the company to make even greater profits for investors in the future.
Similarities in Investing and Gambling Strategies
Even among financial super-professionals with solid experience, there are no traders who will give a 100% guarantee that their forecast of market movements will prove to be accurate. Too many unpredictable things are involved. The same goes for gambling. There is no guarantee that your prediction will be accurate.
Take sports betting, for example. You placed bets on a team in a winning streak playing against the last-placed on the chart. Still, they can lose the game from a last-minute penalty. Therefore, investors and successful gamblers always study behavior, skills, and risks related to an investment.
Let’s take poker as an example as it’s a game combining luck, skills, and investments. In poker, as in life, the rule is that the one who is not in a hurry and plays it safe wins. You will admit, this is not some “cool” advice, but you will notice that if you follow it, you will increasingly come out as winners and against players who are better than you.
In gambling, some people have a natural talent for the game while others do not win. Also, unsuccessful investors often associate this with luck, but, in reality, there is an excellent reason why a select few are consistently good at poker; they understand what they need. To be successful in card games and investing in the stock market, one must possess three essential qualities: intelligence, discipline, and self-confidence. If someone does not have at least one of these critical attributes, it will be challenging to achieve consistent success.
Investors study trading patterns like gamblers study poker hands or blackjack moves when considering chances. Risk mitigation strategies help both parties determine possible outcomes and define whether the road to glory will be bumpy. Accordingly, they must always decide how much money they want to risk.
The same applies to gamblers who should have a dedicated bankroll within which they plan potential losses according to the casino’s proclaimed RTP values. There is a small risk if you benefit from a 10 euro deposit casino as you do not need to spend a large budget to gamble. But all real professionals have a successful risk management strategy and make their moves based on thorough research. For example, they study the team’s history, house edge, recent winnings, etc.
Differences in Investing Strategies and Gambling
All gambling games presume a winner and loser, even if you bet on a draw. Investing comes with varying degrees where we can see total losers and absolute winners. Moreover, companies use their plans and strategies to build a new value, while gambling money transfers from a loser to a winner, i.e., from a house to a player.
Neither beginners nor professionals can get out of losses, so you need to treat them more calmly. But it would help if you still reduced the likelihood of them occurring. You can use the method of protective orders for these purposes. The essence of this method lies in the fact that the trader must indicate before the start of trading how much loss he can get by the wrong steps of entry.
The moment the price goes against you, the loss will also increase, and within the given limits, this will lead to a stop loss, i.e., the activation of the protection order. With slight losses, the trader will be able to save most of his funds.
If that’s your winning strategy, the time factor difference means that you can hold stocks for a specific period or hold them forever. Then, at some point, investors will trade them for cash. Gamblers only have the luxury of starting a game at any time or joining the table during the casino’s working hours. Everything else in-between is fast-paced and time-sensitive.
When you want to invest, there is a wide variety of sources to get helpful information. You can read books, browse the Internet, hire brokers, and take valuable advice. Things are entirely different when gambling, especially online. Poker players can catch an opponent’s reaction, but there is no way to receive additional information. Things are slightly better with sportsbooks and information about teams, players, stats, etc.
The stock market is not gambling. Trading on the stock exchange is a type of investment where we achieve returns through a planned approach by applying appropriate analysis and risk management methods and not based on luck. Of course, some see the market as a gamble. Still, if we want to achieve above-average income on a regular basis, we must first acquire the necessary knowledge which will enable us to reach the aim.