Are you really trading or gambling? This is a very critical question to ask yourself, especially if you find yourself trading without a definite trading strategy and plan.
While trading involves a systematic and well-thought-out approach, it may not be so for gambling, whose approach may be momentary and based on mere luck.
For a similarity, both Trading and Gambling involve risking capital in anticipation of profits.
If a trader places trades without a plan or a trading strategy, relying on mere luck, then they might tend to believe that trading is actually some sort of casino. Look at these scenarios for example:
- A trader who invests irregularly, sometimes low and sometimes high amounts of capital earning high returns, will be tempted to think that trading is actually not far from gambling.
- Traders who invest little capital using a small duration like seconds or minutes earning huge amounts of returns will also be vulnerable to the thinking that trading is some form of gambling.
- A trader who trades indiscriminately without observing any data analysis and using any form of indicators to inform their bias is most likely to fall for the lie that trading is actually some sugar-coated gambling.
Since you have been confusing your trading for gambling, what if we now get to actually distinguish between the two? Are you really a Trader or a Gambler? And what’s the difference between the two?
Let’s draw the subtle line between trading (Investing) and gambling.
Beginning with trading.
What is Trading (Investing)?
Trading is an investment that involves committing your funds to an asset such as currencies, stocks, indices, cryptos, ETFs, and commodities.
You commit your funds to such an asset anticipating to profit from its price changes as well as interest changes.
Gambling on the other hand is betting or staking your capital on a contingency. It actually involves committing your money on an event whose outcome is based on luck. Winning or losing is a matter of chance in this case.
Difference between gambling and trading
Let us discuss these two; investing (trading) vis-à-vis gambling, under the aspects of duration, returns, mitigation of loss, and access to information.
These 4 points should actually help us to bring out the striking differences between investing/trading and gambling.
I promise. Reading this to the end will help you understand what you have been doing in the name of the other. Haha.
Duration (The Difference Between Investing and Gambling).
Trading is not time-bound, especially for Forex Trading. You can hold your trades for as long as you desire as long as you achieve your target profits.
Actually, the more you hold a trade, the more you are likely to earn as the price moves to hit your targeted profit.
In addition to that, some assets, on top of the profits you anticipate to earn, they pay you interest for waiting longer to achieve your profits.
On the other hand, gambling is bound by time.
Once the game time is over, the opportunity is gone, whether you won or lost your capital; it ceases to matter.
Do I want to still say that Fixed Time Trading is not gambling?
Yes, it isn’t, because you can actually manage your capital well, adjust the trade duration, and make a comeback by analyzing data on why you lost and what needs to be done to win.
Remember, you cannot manage your capital, know why you lost, or adjust the trade duration in gambling – everything is based on mere luck and your fate is almost sealed when the event you are betting on begins.
Trading and investing in assets is a sure way to earn because the value of such assets as stocks appreciates with time.
We already mentioned that the more you hold a trade, the more you are likely to earn as the price moves to hit your targeted profit.
In addition to that, some assets, on top of the profits you anticipate to earn, will pay you interest for longer awaited durations.
Gambling is the complete opposite, because the house always has an upper hand over you, the gambler.
Mathematically, your returns in gambling are actually something close to zero because the house will always have an advantage over the player.
That then means that in gambling, your chances of winning are actually minimal while your chances of losing are very high.
To settle the scores, try to answer this!
Is the probability of losing in gambling higher than that of losing in FTT? I guess not, and with proper risk management and analysis, you should have better chances of winning on Fixed time trades.
Mitigation of Loss.
Trading has so many ways of mitigating losses on the markets.
Simply put; even if you lose, you can still turn things around and emerge victoriously successful.
Employing proper risk to reward ratio by risking the much you can lose and not all of your capital as well as targeting a profit which is multiple times the risked amount ensures that you take a smaller risk to earn huge profits.
The use of stop-loss points to cut losses as well as using trailing stops to protect your profits is another easy way to mitigate losses in trading.
Did you know that even Fixed Time Trades have a provision where you can exit a trade before its expiry? I guess that’s the only thing borrowed from gambling.
Gambling, on the other hand, has no even a single way you can mitigate losses.
If you lost, you lost and that doesn’t change whatsoever.
Whatever you stake; if you lose, you lose. There is no way you can manage risk and protect your capital. It is an all or nothing affair without any loss mitigation strategies.
Are you trading without any loss mitigation strategies like stop losses and proper risk to reward ratios? Try changing that.
Access to Information.
While trading, you have access to past data for technical analysis as well as news events for fundamental analysis of your asset prices and their future movements.
You can research or even have your broker relay such information to you.
In brief, information is readily available for traders to use in analysis and make informed trading decisions to become profitable.
We can’t say the same for gambling.
If you just visited a casino, you don’t get privy information on who won and lost in the past and why they won or lost.
There is no way you can have a clue on how to win. This leaves you to investing with instincts and relying on luck.
Wrapping up on the difference between Investing and Gambling
Are you a trader or a gambler?
Well, you have the answer. According to this discussion, it is clear that you would rather trade than gamble, as the benefits of trading are just so many and inimitable compared to gambling.