Is Stock Trading Gambling?
Is Stock Trading Gambling
Most people claim that when you invest in the stock market, then you’re gambling. Both the stock market and gambling are unpredictable and require you to put up money for a chance to increase your returns. Is stock trading gambling then?
To a certain degree, you can predict outcomes using statistics and other mathematical algorithms for both the stock market and gambling. The reality is, the stock market and gambling are not the same.
Gambling is waging something of value in hopes of making more than you wager, but the outcome is uncertain. You can do research and learn useful information to better your odds of a particular gambling event.
The odds are typically stacked against you as you’re playing against the casino or (the house). Casinos in of itself are already unpredictable and will win more games than losses from gamblers. It’s how casinos continue to remain in business; otherwise, they would be closed.
They do take precautions to prevent cheaters by switching multiple card decks, set up many cameras, track one’s winnings, and other tactics. Gambling gives instant satisfaction if you win and makes you feel more inclined to gamble more.
Winning a gamble releases dopamine (Feel good chemical) into your brain, and you receive large amounts of money in return based on the amount you bet. Thus, you’ll more likely continue to gamble.
However, when you lose a gamble, then you’ll feel terrible and fall into the gambler’s fallacy. It’s the belief that if an event happens repeatedly, then the event will be different than before.
Such as, if you’ve been losing a lot of money from gambling but you believe you’ll win now. In reality, gamble outcome remains unpredictable as past events don’t change future events.
Stock market investing is buying a percentage of ownership of a corporation with hopes of the price moving in your favor. You want to either generate income or capital appreciation with stocks.
When you want to invest in a company, you have more information at your disposal to make an educated investment. You’re able to review financial history, news, industry, and other facts to reduce your overall risk and improve your odds by investing in a profitable company.
Difference Between Gambling & Stock Investing
1.) Risk
Gambling has a much higher risk than investing in the stock market. The casino has a “house advantage” an increased chance of winning compared to the gambler.
It varies between casino games, but on average, the casino has a 5.3% advantage of winning. The advantage percentage is small, but it works as many people play many games multiple times, and it builds up over time.
Also, the casino tries many ways to keep you playing casino games. They would offer you free beverages/drinks, the casino layout is maze-like, with no clocks displayed, bright-lights, and other distractions.
The longer you keep playing casino games, it increases the casino’s odds of winning. They are not looking for people who play it smart and leave after making a quick win.
The stock market has a variety of methods to reduce risk. As mentioned, you can review a corporation’s records and documents to make informed investment decisions. By diversifying your money in multiple stocks, you reduce your risk and potentially increase your returns.
2.) Time
Gambling lasts only for the duration of the game. You will have to accept your wins or losses once the game is over. Gambling is a high risk and high reward activity.
Your money can increase the “X” amount based on the casino game but has a high risk of losing it all too.
Stock investing lasts as long as you want until you decide to sell your stock. The benefits of holding onto a stock can increase the stock price and or offers dividends to you.
You don’t need to sell your stock when it falls in price and can wait for the potential price rebounds.
3.) Information
Information is readily available to the public for stock investing. Search the SEC Company Filings for financial documents and other public information. Unlike casinos where you have no information on which games have better odds of winning from previous data.
4.) Winners & Losers
With gambling, it’s a zero-sum game where one party must win, and the other party loses. The casino remains in business from the gambler’s loss.
However, stock investing both the corporation and investor benefits together. The investor gives funds in exchange for potentially higher returns, and the corporation uses those funds to grow the business. Everyone wins with stock investing.
Why People Think Stock Investing Is Gambling
With gambling, it’s a zero-sum game where one party must win, and the other party loses. The casino remains in business from the gambler’s loss.
However, stock investing both the corporation and investor benefits together. The investor gives funds in exchange for potentially higher returns, and the corporation uses those funds to grow the business. Everyone wins with stock investing.
