Contrary to what many believe, trading stocks may have a few similarities with gambling but it is not the same as gambling. Like every other business, the purpose of trading is to generate cash in the short term. Trading stocks may not be gambling but a good knowledge of the business of gambling may be of help while trading.
Trading Vs Gambling
It is possible for you as a new trader to get attracted by ads that say you can earn $2,000 or $5,000 daily by trading stocks and eventually become a full-time stock trader. Such ads also come with additional juicy stuff like becoming a millionaire from home without being burdened by any day-job and affording the kind of life you’ve always wanted. That may be true but a whole lot goes into becoming a full-time trader like getting into the market to find winning trades, place them, and earn some money.
To enjoy the benefits of becoming a full-time trader or merely trading stocks, certain strategies must be in place. You must be able to learn how to predict stock prices, know when to sell or when to hold. This is quite similar to gambling. The major difference is that unlike gambling stock traders and investors put in more effort into predicting the market such as following the stock market news, studying industry trends, studying company history and public financial reports, etc. By doing this, the traders would be able to make a prediction about the ever-random stock prices. With the help of machine learning—algorithm, stock market experts have been able to successfully predict price movements at different times. Stock prediction also works with quantitative analysis which focuses on revealing how certain variables correlate with stock prices.
One major difference between day trading and gambling is that the price movement in the stock market is not controlled by any organization but can be influenced by certain variables. However, gambling is an unfair game that is designed to mostly work in favor of its owners. On the average, the house is always expected to win. The more gamblers fail, the more the house gains. In trading, the trader is responsible for determining what goes on by skillfully determining a stock price based on personal observation of the market or professional advice.
Similarities between stock trading and gambling
The reason why some people equate stock trading to gambling is mainly because of the practices involved. That is, placing a stake on a contingency that a particular stock would trade for a certain amount and time. There are a lot of uncertainties in the price movement of the stock market, therefore, investors and traders would have to predict the market until it works to their advantage or deliberately stir the market to work in their favor. This happens a lot in gambling. Many inexperienced gamblers have lost lots of money simply because they failed to understand that the Casino owners would always make the odds to be in their favor. Therefore, a gambler who seeks to win a game must ensure to beat their way around the odds working in the favor of the casino. So also, a trader who desires to make money rather than lose money must find a working strategy that would help them rightly predict the market and beat the odds.