Why is stock trading not gambling?

It’s high time we debunk one of the most popular myths surrounding the stock market– it’s just simply like casinos, and it’s nothing more than gambling. No, trading is not a game of chance and it’s not like playing odds in a casino. 

Although both entail taking on risks in the expectation of returns, however, there is so much more than meets the eye in trading. Hence, here are key reasons why you should never consider stock trading as gambling. 

Definition

Stock trading is the buying and selling of a company’s shares with the aim of making profits. When you own the stock of a particular company, that means you own a piece of the company. Generally, investors expect higher returns when the risk is higher snd lower return when the risk is lower. 

Gambling on the other hand relies heavily on chance and it’s like betting or staking something of higher value in hopes of getting again. This means betting with money or other valuables in something whose outcome is uncertain and the result is determined by chance or accident. 

A few examples include lotteries, casino games, card games, and many more. Hence, odds are generally stacked against gamblers. The chances of losing are higher than gaining greater than what was invested into the gamble. 

Trading requires  information 

It’s given: both trading and gambling require studying the historical performance, how its works and runs, and players behavior before making a move. Proficient gamblers understand how to research players, the track playing records history, and look for cues while playing. 

However, this is where the difference lies. Traders are armed with a lot of information to ensure successful trading. Company historical performance, management performance, company’s earnings and debts, including investment tools to help investors make informed decisions. Hence, investors understand where the company and the market are standing before making any financial commitment. 

In gambling, information is limited and gamblers can only rely on the current situation, and cues while betting. They might not even be aware of what happened in the casino a few hours ago and are more dependent on luck.

Gambling doesn’t allow you to mitigate loss

In gambling, when you lose, you lose and there is no way you can limit the loss of capital. Whether you bet online, on sports, scratch cards, or poker, or any other gambling. There are no strategies to help mitigate loss. 

In investment, investors are backed by various strategies to prevent total loss of capital. They can put options and stop-loss orders to protect against falling stock prices and total loss of income. Many have also embraced diversification wherein they own more than one asset class. This means when one stock is failing, the other is performing well and risk or loss can be reduced. 

Gambling is a zero-sum game

Gambling is a zero-sum game where one person’s gain is equal to another person’s loss. You either lose all to someone or gain all from someone. And when you sit at Macao’s gambling table, chances are high that you are losing to the house. Casinos stack odd against the gambler and likely steering your money to their pockets. This is how they simply make their money. 

There is no house advantage in stock trading and the investment is on the investor’s side. When stock prices rise, both the company and the Investors benefits. Besides, there can be varying degrees of losses and wins depending on the stocks you buy or sell and other risk factors. This means winning might be partial as well as losses. 

Trading is not time-bound

Gambling is a time-bound event and there are always set times and dates in which you realize you have won or lost a bet. In gambling, once the bet on a game, event, or sport is over, you have either lost all the capital or gain. 

Investment, however, is not time-bound and it can roll over as many years as possible. Being a part of the company as an investor, you get to receive rewards in form of a dividend for holding onto a company’s stocks for years. The longer you invest in quality stocks, the better and higher chance of making gains. 

Moreover, stock trading also comes with compounding interest. The more you reinvest your money, the more it compounds and grows over time. 

Conclusion

Though both gambling and stock trading entails risk and reward, they are totally different from each other. While gambling can be considered a quick-rich scheme that can also sink the financial wealth. Trading is far different. It requires in-depth knowledge of the market to benefit from what it has to offer and it’s a good way to grow their wealth over time. Trading no doubt can be interesting and lucrative if done right.