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Is the Stock Market Gambling? Why Trading Isn’t Gambling if You’re Informed.

Author: Adam
Published:September 14, 2022
9 mins 4 secs
Is the Stock Market Gambling? Trading Isn’t Gambling if You're Informed

Is the Stock Marketing Gambling?

There is a tendency to consider the stock market as a means of gambling. 

It is looked down upon by many, and this question often comes to the fore – is the stock market gambling? 

If not, why?

Definition of Gambling

Before we answer the question “is the stock market gambling?”, Let us first of all look at the technical definition of gambling. 

Gambling is defined as taking risky action with the hope of a positive result. You don’t only have to gamble with money. You can gamble with chances. You can even gamble with your life.

There are many different ways and means of gambling. But in the end, gambling is where you put out stakes of something of value with the hope of some gain.

But the results are rather uncertain, and perhaps would be achieved by fluke.

Definition of the Stock Market

As against the world of gambling, the stock market is an organized marketplace wherein stocks and shares of registered companies are placed for buying and selling.

So, when you buy stocks and shares on the stock market, you are investing. You pay money intending to multiply it.

The increase in value can be forecast through a variety of calculations and projections which is not possible with gambling.

Stock Market vs Gambling

Investing in the stock market and gambling do share some similar characteristics. But there are a few wide differences.

A person who gambles throws money with the hope of something happening without the basis of a technique or calculation.

An investor who trades in stocks and shares will not equate the process to gambling. They will consider this money as a serious investment which they would want to grow to provide them with assured future wealth.

Stock Market Explained

Stock Market

When you buy shares of common stock, you are purchasing part ownership of a company.

Every time you spend a bit of money once the transaction is complete; you own a small portion of that company.

A common mistake that investors make is to lose sight of the fact that when they buy shares, it is not something on a piece of paper but a part of a company that they are buying.

Value of a Company

It is not an easy task to determine the value of stocks and how they are likely to increase in the future.

There are numerous variables involved and to the layman, the upward and downward movement of the price of stocks and shares may seem random.

It is not so. In the short term, share prices may and do fluctuate wildly.

But this fluctuation moves in a more positive direction as the company to which those shares are attached grows.

You may trade in a company that seems to be moving in a downswing, but if you know that your investment is sound and you have confidence in the particular company involved, you can see earnings for that company in the future.

So, when you hold on to stocks for a long time and you choose carefully which stocks to hold onto, you may see an eventual rise in the value resulting in a certain amount of profit.

Similarities Between Investing and Gambling Strategies

You may see many similarities between investment and gambling, which makes people consider them as a single entity. Here are some prime common points:

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Studying Behavior

Investors and gamblers both look at the odds. They study trends and try to predict results accordingly.

In gambling, particularly in games such as poker and blackjack, behavior is the prime characteristic that you want to look at.

In the case of these games, behavior alludes to the mannerisms of the players, their body language, and facial expressions. Opponents get information from what they see and act accordingly.

The form of odds that investors look for is what they get from stock charts, trading patterns, and upward trends. All this helps them make predictions about the price of stocks.

The advantage of investors in the stock market as against gamblers is that investors can take the help of some extremely scientific data.

All the information is available on the internet or company filings and stock market information.

There are certain databases where you can find out about the nature of assets held by particular companies and if there are any other associated companies held under the same umbrella

An example is the Edgar database and company filings. You can see cases like a renowned online casino 888holdingsplc.com.

This company has many other subsidiaries like 888holdings plc, 888sport.com, 888poker.com, and 777.com.

So, here’s the paradox! Let’s assume that you engage in online gambling in any of these online gambling companies.

Then, if you hold shares in any one of these companies, you would become an investor and a gambler simultaneously!

Risk Factor

Another common factor in both of these processes is a risk. You have risk involved in gambling, which is well-known.

You probably have often heard people referring to the stock market as being a risky business.

When we come to the subject of gambling and risk, we are reminded of a famous song by the late Kenny Rogers, The Gambler. Its refrain goes like this:

“You’ve got to know when to hold ‘em

Know when to fold ‘em

Know when to walk away

And know when to run.”

How true! In the song, a gambler meets a person to whom he exchanges some pearls of wisdom about gambling in exchange for a few drops of whiskey.

What the gambler means here is that there are times when you have to push your luck (know when to hold them).

You need to sometimes exercise constraints (to fold them), and then, there are times when you need to withdraw from the game (to walk away) or, to make a hasty retreat, you have to know when to run!

In the stock market too, there is the ever-present risk of losing everything you have as in gambling.

So here as well, you need to avoid risk by moving the money around in a safe way and using the data at hand to steer away from risk as far as possible.

Strategies Involved in Gambling and Investing

Stock Market vs Gambling

Both gambling and investing are games of strategy. In investing you can have some losers, a few moderate winners, over the short-term and the long-term.

But gambling is a “zero-sum” game. In gambling, there are the winners and the losers, and there ends the matter. So, the winner takes the money, cuts, and runs, and the loser is left with nothing.

In investing the degrees of profit and loss, winners and losers occur in varying degrees.

You may see some absolute losers or winners but by nature of the buying and selling, you will see partial winners and partial losers.

Because the fact here is that you are not invested in a single share of a single company. You are invested in different stocks and shares.

You if you make huge profits in some, might incur some loss in others. But on average, you may make a modest profit. This doesn’t happen in gambling, where you either lose or you win.

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Investing Limits

Sometimes an investor may limit their losses by temporarily moving out of trading. It is known as a “stop-loss.” A person’s broker calls in to execute the action.

For example, you may be purchasing shares at a significant percentage less than the purchase price.

At a particular point, you may want to stop trading on the off chance that there may be a selling frenzy which could cause the price to plummet before you get a chance to sell your shares.

You can also place a similar arrangement when the value of the stock rises. This technique is known as “swing trading.”

Here, you sell shares when they are up and there is a lock at a particular target profit to ensure minimum profits which would avoid continuing to sell when the price suddenly dropped.

Time Horizons

Here again, is a major difference between trading and gambling. With trading, you can look at what we call “time horizons.”

They give you projections on how the stock market is trending how the prices of stocks are moving and the likelihood of profits in the distant future.

However, with gambling, there is no such provision. You put your money on the table, and within seconds, you either win it all back with a profit or lose all of it.

Limited Information

With investing, there is no dearth of information. The stock market abounds with highly technical algorithms, graphs, projections, and predictions.

They all come together to give you a huge database on which to base your assumptions. You have company filings, stock reports, online forums, and a whole load of other information databases for investing.

But with gambling, the best you can do is pick up a few signals and expressions from your opponents, and perhaps try to read their faces to get an idea of where you stand in the game.

So, between investing and gambling, you are likely to get better, scientifically proven, authentic information while investing than you would in gambling.

Is Options Trading Gambling?

Before we close this interesting discussion, let’s have a look at another aspect of stock market trading known as options trading.

Options trading is a specialized branch of the stock market wherein you buy and sell contracts that give you a guaranteed price at a particular point in the future when you can sell your stocks.

Options trading is a hundred-year-old practice as part of stock market trading. It is one of the ways of safeguarding your money while trading in stocks and shares.

With options trading, you can trade without needing to pitch in money at a particular time. It is merely an agreement to buy or sell something of value at a particular point in the future.

Options contracts have the advantage of buying shares on their own because if you are sure about the directions and asset it is going to take, then you can also trade your stock at the optimum value thereby assuring you of your returns.

Conclusion

Is the stock market gambling?

When it comes to gambling, well, gambling is gambling. You are putting your money down on something that may or may not give you some return. If you do not use available information to your advantage, you could lose your money.

However, unlike gambling, there is a whole load of information out there that you can use to predict possible profits from trading in stocks and shares.

Ultimately, we can conclude that the stock market is by no means a gambling place for those who know how to make a profit out of it.