Define risk

While as a professional trader I beg to differ on the similarity to card playing,I think it's the issue of risk is that one needs to be clear on. My ineptitude as a card player leads me to believe that playing cards for money is unacceptably risky. However,people take risks in all walks of life. In the UK I think risk is a dirty word-in fact we are told from day one not to take risks-it might offend our overlords. America was founded on risk,and risk takers are revered-how well received would Donald Trump be in the UK? As traders we know that taking risk is the only way to make money,and once we see it as no different from the farmer taking a risk sowing seeds,or a taxi driver taking risk driving for a living,it becomes more comfortable. In many ways we have more control of our risk than most other occupations-even teaching is high risk in Blair's Britain. In my world risk is a good thing,but gambling is still a sordid occupation. Thoughts anyone?

Windlesham1 said:

Thoughts anyone?

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Many, but I'm afraid I'm approaching a point with this forum where I feel unwilling to give my views for fear of being shot down in flames and insulted on such interesting subjects; better for everyone, probably, if I stay out of it, therefore. Interesting topic, Windlesham. Good luck with the subsequent conversation.

............how well received would Donald Trump be in the UK?

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With that ridiculous haircut he sports I would say "Not Very"

In my view risk is quite simply engaging in an activity where the outcome is not fully known. There are obviously different degrees of unknown outcome and some activites carry much higher unknown outcomes than do others in terms of predictability. Based on this my view is that trading is in the same category as horseracing and playing cards so could be classed as gambling. I have no issue with anyone who says that I am a gambler but I know many others on here really dislike being associated with the term and I have never understood why.


Paul

Roberto,
Me thinks you're fishing for compliments and I'm happy to pay you one . . .
I'd be very interested to hear your thoughts and I promise I won't shoot you down in flames.
:cheesy:

My thoughts are that whilst I agree with W1, it strikes me that this is a variation on that old chestnut (very appropriate given the time of year) of professional trading vs gambling. Doubtless, most members of T2W believe they belong to the former category whereas, in reality, they are actually entrenched in the latter. I know that I have been guilty of this myself, based on past performance and it's something that I'm working hard to redress.
Tim.

Windlesham1 said:

In my world risk is a good thing,but gambling is still a sordid occupation. Thoughts anyone?

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I'm inclined to wonder how skillfully you word the difference between the two?

The definition of "risk" and how you assume risk will define your interaction with the financial markets, and as such is a relevant and pertinant question. It should also be the starting point for all analysis.

The concept of risk however has a number of variable definitions dependant upon to whom you speak. Economists, Statisticians, Decision theorists, and Insurance theorists will all define risk differently.
A possible definition could read; risk, a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for.Possibility, would be defined as a probability between 0 and 1

Uncertainity, can very often be substituted in place of the word risk. Uncertainity however refers to a state of mind characterised by doubt, based on a lack of future knowledge, and therefore becomes a psychological reaction to the possibility of risk.
Risk can exist whether it is acknowledged, understood, or even comprehended. Uncertainity, would therefore indicate an awareness of the existance of risk.

The degree of risk and the measurement thereof must also be defined. Generally the degree is related to the likelihood of occurance, viz, the probability. The higher the believed probability, the riskier the risk.......
In Russian roulette, the addition of bullets to the chambers will add to the probability of an adverse outcome, increasing the risk. However, with the addition of a sixth bullet, probability goes to 1, and there is no risk, the outcome is known.

Within Insurance the terms hazard and peril are used interchangeably with risk. Peril should be defined as "a cause of loss" while hazard should be defined as "a condition that may cause or increase the chance of loss from a peril."

Classifications of risk refers to the distinction between financial and non-financial risks, dynamic and static risks, fundamental and particular risks.
A dynamic risk refers to resultant risks due to changes within the economy, static, are risks that accrue irrespective of change, ie hurricane, tsunami.
Fundamental risks are based on the difference of origin and consequences, while particular arise from individual events.

More relevant to this discussion would be the comparison and contrasting of some or more of these risks with "Market Risk".

Cheers d998

roguetrader said:

I'm inclined to wonder how skillfully you word the difference between the two?

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Like the difference between a sniper and a child with a shotgun. People allude to luck in gambling-that plays no part in my trading. All possible outcomes are known to me-like being the bookie,not the mug punter. I despise gambling,as it gives poor people false hope. Risk takers in my book,would be firemen,doctors,racing drivers. Gamblers-well I've never met a successful or happy one,but just wander into any betting shop at 4.30 most afternoons,and if you can see through the smoke...................
PS I trade options and futures where I can fix the outcomes -shares are a 1in 3 chance,if you read Kuyosaki.

Horse-racing:
Gambler:
goes to bookies, picks a horse, and bets. Sees ONLY the odds, such as 10-1.
( doesnt appreciate that this means it is has only a 1 in 11 chance of winning. Sees only that he can make 10 units profit by "risking" 1 unit ).

Risk-taker:
goes to bookies, studies form:
how long is the race, which horse(s) is best over that distance. ( some horses are better over some distances than others )
whats the going. which horse(s) are better in the given going. ( some horses have greater stamina to run through wet turf etc )
whats the current form: which horse has won more recently etc.
weigh up the facts; make a decision. this is a more preofessional approach.

Card games:
gambler:
plays cards. relies on feeling "great" when a certain hand is dealt. bets according to feelings ( randomly ). relies on bluff, when he thinks appropriate.

professional:
plays cards. knows the probabilities of ceratin combos. probably card-counts - so as the gane progresses, has a greater chance of identifying good hand / bad hand. bets according to probabilities.
knows when to fold.

trading:
gambler:
trades. buys stocks because his mates gave him a hot-tip, or because he saw it on the news. believes in averaging-down. has no exit strategy. his methodology is based on emotions ( does this amount of drawdown "hurt", does this amount of profit give "pleasure" ).

professional:
trades according to a strategy - even if it is astrology or coin-flip. knows when to get out. doesnt get wed to a trade. no emotion - just numbers.

The difference between gamblers and professionals is not the environment ( horse-racing, cards, trading ) but the APPROACH.

Windlesham1 said:

Like the difference between a sniper and a child with a shotgun.

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Hmn interesting choice of analogy, why a child and not simply a "man". Could it be the need to invoke the idea that one knows what he is doing and one has no clue.

Windlesham1 said:

People allude to luck in gambling-that plays no part in my trading.

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You make the mistake here of not looking purely at the act but imposing your view on their approach. A professional gambler alludes no more to luck than a professional trader. For both there will be an element of luck.

Windlesham1 said:

All possible outcomes are known to me-like being the bookie,not the mug punter. I despise gambling,as it gives poor people false hope.

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I would suggest that a man placing a bet on a horse, and does not know all possible outcomes would indeed be a bit dim, but he would fare no better trading if that was his approach. For me you have identified in this, and other statements, the main reason *traders* resent the implication that what they do is gambling. Like the rest of the world you adopt the view that all gamblers are stupid, naive, desperate and child-like A very arrogant view indeed if I may say so. Like you the professional gambler knows all possible outcomes,and like you he has no control over the outcome, he can no more make the horse run faster than you can push your stock price up.

Windlesham1 said:

Risk takers in my book,would be firemen,doctors,racing drivers. Gamblers-well I've never met a successful or happy one,but just wander into any betting shop at 4.30 most afternoons,and if you can see through the smoke.

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Firemen and doctors take risks, generally for the benefit of others and indeed in the case of doctors it is the others that are at risk. Try telling a doctor, that you are a "risk taker just like him" should be a brief but interesting conversation. Again an interesting selection of risk takers, fine upstanding and glamorous. Fact of the matter is most people in life are risk-takers to one extent or another. Down to the joe in the street who with a bit of surplus cash buys a second property to let.

Windlesham1 said:

PS I trade options and futures where I can fix the outcomes -shares are a 1in 3 chance,if you read Kuyosaki.

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Ah, well I bow to your skill there, I should have paid more attention when I read this bit, makes my ramblings pointless, as since you can fix the outcomes you are indeed not any form of gambler.

But for the rest of us who cannot control the outcomes of our trades I would say at least give the gambler his fair due, pit yourself against an equal, not a child. A professional gambler approaches his business in the same manner, he assesses all the odds, seeks to minimise risk exposure, and takes his chances I find it sad that we need to find someone to look down on simply because the rest of the world looks down on us

In fairness I should of course point out that I have agrued the point from you perspective for quite a few years myself. It was not until I realized that I did not care if people considered me a gambler. that I started to see the overwhelming similarities.

trendie said:

The difference between gamblers and professionals is not the environment ( horse-racing, cards, trading ) but the APPROACH.

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Trendie, your approach is refreshingly different in that you would fight the "professional" gamblers corner rather than sneer down at him, as you can see the clear common ground with this individual. You compare yourself with an equal. I have been down this road also, the trouble is we argue against the accepted understanding of what the dictionary defines as gambling, sure we can pick a single definition out to cover ourselves but if we take all the definitions to gambling we find that bith we and the professional gambler are there

How people are labelled is of no consequence to me.
The very act of placing people in little boxes and attaching a label is a rather poor way of trying to understand them by placing them into easily identifiable groups. It also leads to the most horrifying consequences for some.
Sometimes people ask me what I "do" and when I tell them their response is often, "well that's just gambling". My normal reply is, "I have been doing this full time since 1999 to earn my family's iiving, because I enjoy it and it gives me freedom - would you still call me a gambler?".
That normally makes them change the subject.
Value the individual for who they are, not your pre-conceived notions based on race, religion, politics, age, gender, job, label etc
Richard

Trader333 said:

. I have no issue with anyone who says that I am a gambler but I know many others on here really dislike being associated with the term and I have never understood why.


Paul

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Couldn't agree more Paul, it is my belief that the reason lies in the blanket concept that gambling is a fools venture, supported by the premise that "Gamblers always lose" either conciously or unconciously, therefore to accept that we were gambling to any extent would be to condemn ourselves as fools.
People who choose to demonstrate the difference will always pit a seasoned profitable trading model against the worst gambler imaginable, what about he 80% odd of traders who fail Once you accept that a gambler can be an intelligent individual capable of assessing risk the differentiation becomes more difficult

Good to see some lively banter here-one question though. It is widely accepted that most traders,(and I've seen stats of between 80-97%), fail or lose money. I suspect this is a myth put about by the underachievers in the city who lose other people's money consistently. I'd be interested to know the percentage of gamblers who lose-that is certainly 80-99.9%. Anyone know otherwise?

Interesting thread to end 2004 with.

My own concept of risk is the possibility of an event or result opposite to that which I want to occur. Within a trading context, this would be a trading loss rather than a trading profit. On a social level it may be the emotions generated by watching Wigan RLFC. Desired outcome a resounding victory, risk is depression caused by defeat, dodgy refereeing etc.

If placing money on an unknown outcome is classified as gambling then all trading must fall into that category unless you have insider knowledge or sufficient funds to move the market in your desired direction. FX traders like myself will probably not be in that situation.

However, if gambling is defined as 'to take risky action in the hope of a desired outcome' then anybody who trades for a living would rightly be offended by being described as a gambler, as risky action and hope would not enter their strategy.

A final thought for 2004. If anybody has a few too many sherbets tonight, maybe they can think of another word to describe professional gamblers/traders.

How about traiblers?

Windlesham1 said:

Good to see some lively banter here-one question though. It is widely accepted that most traders,(and I've seen stats of between 80-97%), fail or lose money. I suspect this is a myth put about by the underachievers in the city who lose other people's money consistently. I'd be interested to know the percentage of gamblers who lose-that is certainly 80-99.9%. Anyone know otherwise?

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I see that statistic a lot, it is widely quoted somewhere within the values that you have outlined, on this webaite, and many others, and many books on the subject of trading. In fact the statistic is so widely quoted that it would be difficult not to accept that there must be some truth in it. I think one does have to realize that "traders" in this instance refers to anyone and everyone who has opened an account and roundtripped some stock within a time period that would be construed as trading, with a view to becoming a trader. Since successful trading is undoubtedly a skill it is not surprising that a high % fail, add that to the fact that most people attempt to teach themselves.

Windlesham1 said:

I'd be interested to know the percentage of gamblers who lose-that is certainly 80-99.9%. Anyone know otherwise?

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If we step away from the debate of gambling/trading and stick to what are commonly accepted as gamblers,their failure rate I suspect is much higher than traders. the lure of "easy money" likely draws the same high numbers of novice who have attempted to teach themselves, but they have an added problem in that their "market" is much smaller than ours. Take for instance someone who has developed the skill of card counting, a skill that gives him an edge. he will not be long in a casino before he is ejected and barred. We on the other hand are able to develop our skills with relative anonimity because of the vastness of our casino it is impossible to see the effects of the skill we develop, until of course the strategey is adopted by sufficiant numbers and the market moves to neutralize it.

Risk is part and parcel of nature you can not ever escape risk, it follows every living thing on this planet, it is embedded into to mainline evolution, risk is evolution to a certain degree, you can never live without risk? Think about it!

It's up to you how you deal with it?

Rudeboy, I will have something to contribute to your comments and questions later on, as I am very busy at the moment, sorry.

you can never live without risk?

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And for as long as I live with my wife, that risk is enhanced.