Trading and gambling are often viewed interchangeably. Most people believe that trading is a form of gambling because it involves forecasting what will happen (spoiler: it is not).
This view is probably because many people approach financial markets without any real knowledge and without actually knowing what they are doing, reducing everything to a simple 'click and buy (or sell)'.
At times, people who are extremely successful in the casino have found substantial success in the trading industry. Indeed, the list of successful hedge fund managers who also gamble is really long.
In this article, we will look at some of the similarities and differences between a gambler and a trader.
What is trading?
Trading is the practice of buying and selling financial assets with the goal of generating a profit. Traders, unlike investors, have an extremely short horizon. This means that they are typically not interested in buying and holding an asset for a few days or weeks. This is a common similarity between a trader and a gambler.
There are many types of assets in day trading. Generally, the most common ones are stocks, commodities, indices, exchange-traded funds (ETF), and bonds.
Within these categories, there are other key segments such as major and minor currency pairs, industrial and precious metals, corporate and government bonds, and technology and industrial stocks.
What is gambling?
Gambling is a process where a person stakes his money in a game expecting a bigger return when it goes his way. There are several types of gambling. First, there is sports betting, which involves placing a bet that a certain team will win, lose, draw, or score a certain number of games.
Second, there are casino games that people participate in. Some of the most common types of casino games in the market are blackjack, roulette, video poker, and ruby fortune among others.
Third, it is also possible to gamble online. Indeed, during the pandemic, most companies that operate casinos like MGM Resorts, Las Vegas Sands, Wynn Resorts, and Boyd Gaming entered the online casino industry.
Related » Why Do Poker Players Become Successful Day Traders?
This happened as most of these companies were forced to shut their operations because they were deemed to be non-essential.
As with trading, the approach to gambling can be different. Some do it with little funds and for fun, while others make it a real job. In short, you go from a 'let's see if I'll win something' mentality to a 'let's see how much I can win' one.
Similarities between gambling and trading
There are some common touch points between gambling and trading. First, the two strategies have a 50-50 chance of making money and losing.
Whenever a trader opens a trade, there is usually a 50-50 chance that their trades will be profitable. Regardless of how thorough our analyses are.
The same is true with gambling. For example, in sports betting, if you bet that a certain team will win, it can either win or draw. Actually some times the percentages are less than 50% (in roulette in addition to black and red there is also the green 0)
Second, the returns of trading and gambling can be really high. For example, in sports betting, it is possible to place a bet of $10 and win thousands of dollars. The same is true with trading. In the past, we have seen many people grow their accounts from almost nothing to millions.
Third, in gambling and trading, the chances of succeeding is usually small. In trading, more than 80% of people who start doing so fail. Only a small percentage of traders ultimately make it in the industry. The same is true for people who start gambling. In most cases, less than 5% of people who start gambling succeed.
Related » Wise Traders Should Believe in Analysis, not Forecasting
How to succeed in trading (and gambling too)
Another similarity between gambling and trading is that there are similar steps you need to follow to become a successful professional in both. Let's analyze the most relevant similarities.
Training is important
One of the top similarities between trading and gambling is that training plays an important role in both.
To succeed in trading, you need to learn a lot about several things such as the various types of assets in the market, strategies to use, risk management approaches, and money management approaches.
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The same is true about gambling. Historically, people who gamble without first learning about the industry usually fail. You need to learn more about the different types of gambling markets, risk management when gambling, and how gamble with different types of individuals.
Fortunately, there are many free resources on both gambling and trading. Some of these trainings are in the popular platforms like YouTube and Vimeo. You can also enroll in courses in platforms like Udemy and Coursera.
Another way to make it in gambling and trading is to start small. This means that you should not go all in when trading and gambling. In both, you should always start with a small portion of your money and then grow your account over time.
This simply means that you should always risk funds that you can afford to lose, adopting common risk-reward ratio tactics. For example, if you have $100,000, you should simply start with about $3,000. Risking too much money early in your career will lead to unimaginable losses.
As mentioned above, trading and gambling are both risky approaches to make money. Therefore, it is important for you to consider having the highest standards of risk management.
There are several risk management strategies you should use. For example, you should embrace strategies like having a stop-loss and being less leveraged when day trading.
In gambling, you should embrace strategies like not over gambling, taking losses early, and playing games that you are aware about.
A key priceless thing that will help you succeed in trading is mentorship. Having a good mentor who has been there and done that will help you identify opportunities, reduce risks, and become a whole-rounded trader and gambler.
Regarding trading, one of the best ways to get an excellent mentorship is to join an existing trading office. Something we at DTTW™ are experts in.
You must have a good plan
We say it all the time, but trading without having a good plan behind you is like throwing a coin at the bottom of a well and hoping for good luck. It may work out once or twice, but it is not sustainable.
Creating a good plan requires:
- constant commitment
- being able to stay focused on what is important
- have specific goals to achieve
This also applies to casino players, at least those who want to do it in a provitable way. Knowing how and when to be able to place higher bets, having a spending cap, and other similar tactics are crucial to not losing everyone in a matter of minutes.
Managing losses and emotions
This aspect is often underrated, but it is crucial for anyone who wants to succeed. And the two are linked. No trader -and no casino player- can have an endless winning streak; sooner or later the losses will come. Probably soon, and they will not be isolated either.
Here, being able to keep calm and clear-headed in these situations can save your account! Too many times we've seen traders (and gamblers) react to some losses by doing everything they can to recover quickly … only to lose even more money.
But the emotions to pay attention to are not just the negative ones. That's right! Even the positive ones can be harmful.
Having a significant winning streak can lead a trader to want to continue trading, even on assets about which he does not have complete information, exiting his trading plan. This is commonly known as overconfidence bias.
The same is true for a casino player. Wanting to keep playing and pushing one's luck will often result in losing everything one has earned (and more).
Summary - Trader vs casino player: Which is better?
At DTTW, we believe that trading is much better than gambling. For one, there are more markets that you can use to trade. These markets include stocks, commodities, and indices. Surely, you will often find a market that suites your style.
Second, trading can become a full-time job. We have seen many people who have started their trading careers without a lot of money and grown their accounts organically over time.
Further, trading can lead to you being a successful hedge fund manager where people give you money to trade for them. This is almost impossible in the gambling industry.
External useful resources
- Is trading luck or skill? Is the stock market a casino? - Crafty Fin