Is Trading Gambling? Stock Market Bets vs. Investing

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Stock trading may seem a lot like gambling, depending on how you go about it. For instance, sports bettors analyze numbers and tendencies in much the same way as market analysts. Plus, both involve winning and losing streaks. However, the differences become apparent when you closely consider gambling vs. trading on Wall Street.

What is Stock Trading?

Technology has made it much easier to play the stock market these days. With the mobile apps available, you can get in on a stock with just a few taps on your phone from the airport or the back of a cab.

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Simply put, stock trading is buying a share of a company. You become a voting shareholder, and your fortune in the stock depends on the company’s success. Dealing in the market has its advantages, depending on how you approach it.

A companies’ shares go up and down in value depending on its dealings, financial earnings, news, and future forecasts. Sometimes sentiment or popularity alone can sway the price of a stock.

Long Term Investing Should Be Boring

There is trading, and there is investing. It’s the instant rush of a daily wager, card game, or roll of the dice that gives gamblers satisfaction. Day traders buy the dips and try to take advantage of short-term price fluctuations in the market to stack big wins fast.

To gamblers, the idea of long-term investing isn’t much fun since it requires a set it and forget it mentality. Investors constantly buy small amounts on a regular schedule, regardless of the current market. Of course, you can still make investment-style plays through trading platforms by purchasing and holding ETFs or mutual funds.

401k and IRAs Aren’t Trades

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Trading is more active, with buys and sells frequently happening as you try to make gains when the market swings up or down. Investing involves putting money into an account regularly with the plan of not touching it while it grows for decades.

With retirement funds like IRAs and 401k, you’re giving your money to a financial institution to manage. They take calculated risks that are more likely to pay off in the long run.

To incentivize saving and investing, many funds reward you with built-in tax breaks or the ability to get mutual contributions from your employer. Keep in mind, you might not even be able to withdraw your invested cash without a penalty until you reach retirement age.

Why People Often Compare Trading to Gambling

Technology and mobile phone apps have made it easy to place a bet or a market play. The immediacy and ease of access of the internet age give you lots of information and the ability to buy and sell at the press of a button. And there is always someone with a hot tip or insider information.

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No amount of analysis can accurately predict what the market will do 100% of the time, and that’s the gamble in trading. Gamblers and day traders often use the same techniques and sometimes even employ formulas and algorithms to aid their decisions.

The prospect of winning big is why day traders, crypto buyers, and casino gamblers are in the game. All three are willing to take a risk that their bet will pay off. Sometimes the deciding factor in a play is nothing more than speculation, compulsion, or the desire for instant gratification.

Trades That Are More Like Gambles

Day traders make several plays between the opening and closing bells on the New York Stock Exchange. Anytime you’re playing the market on a whim, like the GameStop plays earlier this year, you’re essentially gambling.

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On top of that, there are informed ways of trading that give you more exposure and risk. For example, options contracts are an agreement to buy or sell 100 shares of a company on a specific date for a certain price. Despite your analysis, these deals can put you on the hook for a lot of money if things don’t go the way you plan.

Then there’s trading on margin, essentially making stock plays with credit that you’ll have to pay back when you cross a threshold. The brokerage loaning you the cash will ensure they get their money back first, even if it means forcing you to sell investments to pay them off.

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Finally, buying into a cryptocurrency also falls into the realm of trading. Some say its volatility and lack of federal backing or solid, valuable assets make it more like gambling. The thrill of “trading” new cryptos can be similar to hitting the right lottery numbers, the right roulette slot, or doubling down on the right blackjack hand.

The Difference Between Trading & Gambling

Despite the similarities, trading and gambling comparisons deviate under various circumstances, where the comparisons end.

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Winning & Losing

A play in gambling has a defined outcome; win, lose, or push. There is no value generated because it is a zero-sum game. If you put $5 down and win, the house loses and has to give you your prize. That effectively makes the casino less valuable.

In investing, there are still varying degrees of winning and losing. A company’s actions –not your plays– determine its value. Also, when you sell your shares, someone else is buying them from you keeping their value stable.

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Risk Calculation

There is a timer set on gambling. In the casino, you invest a certain amount of money in a game, play for a while and leave with the money you have left, win or lose. With sports betting, you set aside a bankroll for the day, month, or year and play from the budget, accepting the outcome.

With trading, you can set triggers such as a stop order that activates a sale at a certain price level. Your gains or losses are percentages based on the company’s value in a market you cannot control. 

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Informed Decisions

With a gambling game, you make decisions and rely on a certain amount of luck. Even in sports betting, where you can analyze teams’ statistics and tendencies before a game, the end of the match resolves your bets.

Stock market plays are all about analysis. You consider balance sheets, competition, dividends, several other factors when deciding on which stocks to buy. If a company has a downturn, you still own the same number of shares. You can wait until they bounce back before selling.

Stock Trading vs. Gambling in the Casino

There’s nothing wrong with gambling in the casino or on the stock market as long as you do it responsibly. Here are some pros and cons of both to ponder.

Stock Trading

  • Gain or lose value in percentage points
  • Decisions based on company analysis
  • Typically slower returns
  • Save for retirement
  • Usually, less volatile plays cost more

Casino Gambling

  • Win or lose wagers based on game rules
  • Quick decisions based on odds
  • Faster short term returns
  • Exciting and entertaining
  • House always has the edge

5 Signs You Might Be Gambling in The Stock Market

If you are gambling on the stock market, you may notice things about your behavior or habits. Here are a few signs that you may be betting on tickers and not investing.

  1. The Market Takes Up All Your Time

    Trading can become a compulsion or even an obsession. It’s what day trading is all about – spending all of your time figuring your next play.
  2. You Feel A Rush from Trading

    You punch the “buy” button and immediately turn to the big board to watch your play in action. It’s like watching a sports game. 
  3. You’re Irritable About Making “Bad Calls”

    “How could that possibly happen?” you may ask yourself when a stock goes south. Then when you go back and notice a factor you may have missed, you kick yourself. Day traders and gamblers have these ups and downs. 
  4. FOMO When you Don’t Listen to Social Media

    Facebook, Twitter, and other social media have become big players in the money-making game. You feel like you have to be in on the squawk to be in on the action. 
  5. You’re Moving Big Money Around for Quick Plays

    A few grand here, a few grand there, and soon you’re talking real money. It becomes nothing to put a significant amount down on a “buy” that becomes a “sell” tomorrow or the next day.

Serious Business vs. Fun

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A good chunk of gamblers get caught up in the thrill of a big win or eventually bust. Professionals in the stock market and casino floor make slow and steady plays to have a net gain in the long run.

The comparison between trading and gambling comes with a bit of advice: If you want to make long-term money in Vegas, get a job there. If you’re going to press your luck with real money casino games, make sure your bankroll is part of your entertainment budget and just have fun. Carefree fun and serious business make up the big difference between gambling and investing.