FAQ Is Trading the Same as Gambling?

[Alliance01]

If you engage in any activity where the outcome is uncertain and money can be lost in doing so then why is that different for trading or gambling ? I know of professional gamblers who make a large and consistent income from doing so and I also know of traders who do everything right in terms of risk and money management but consistently lose. To say that one is gambling and the other isn't makes no sense to me as the variables for the ultimate measure of success (ie profit or loss) are no different in my view.

Couldnt agree more. It is what it is. If it looks like a duck, walks like a duck etc. Calling it something else is just form over substance in my view and that can be dangerous if people somehow believe the risks are magically transformed just through use of alternative language.

 

[Jason101]

Like what barjon and Trader333 says is good.

But what I am getting at is that every decision in life is a gamble. And the less a trader is likely to blow or have big draw downs the less of a gambler he is.

 

[Forexmospherian]

Trading via spreadbetting is looked upon in the UK as "gambling" and therefore remains tax free whilst over 75% of traders lose money and do not make consistent gains. If suddenly next year say 50% of all traders made consistent profits via spreadbetting - then under the gaming act - it would no longer fall under this heading - and would not longer be classified at tax free as viewed upon as a gamble.

Crossing the road and opening a new business in a new town - is a gamble - but not under the same definitions - ie out of 100 people who keep crossing the roads every day in their normal daily life - not over 75 die every year.

Similar I would slightly disagree with Trader 333.

Having a good MM and a safe risk policy etc etc - does not make you a winner in trading - it all helps but without getting the correct trades producing more gains than losses - then its still a gamble and thats maybe why so many lose and look upon trading as definitely gambling.

I no longer look at my type of FX trading as gambling - as I consistently everyday / week gain or win

But a Professional gambler is certainly in the minority with what ever he gambles on - whether the markets / sport / casinos / etc so if over 75% of participants lose - then - its still gambling

Whatever the terminology or phraseology - chose the one that suits you

If you are losing over weeks / months and years and not improving etc - then its gambling

If you are consistently winning or gaining weekly / monthly etc etc - then you might want to say its a proper business with a fancy name like speculating or investing

Sounds better than being a "punter " ;-)

F

 

[Alliance01]

Trading via spreadbetting is looked upon in the UK as "gambling" and therefore remains tax free whilst over 75% of traders lose money and do not make consistent gains. If suddenly next year say 50% of all traders made consistent profits via spreadbetting - then under the gaming act - it would no longer fall under this heading - and would not longer be classified at tax free as viewed upon as a gamble.

Crossing the road and opening a new business in a new town - is a gamble - but not under the same definitions - ie out of 100 people who keep crossing the roads every day in their normal daily life - not over 75 die every year.

Similar I would slightly disagree with Trader 333.

Having a good MM and a safe risk policy etc etc - does not make you a winner in trading - it all helps but without getting the correct trades producing more gains than losses - then its still a gamble and thats maybe why so many lose and look upon trading as definitely gambling.

I no longer look at my type of FX trading as gambling - as I consistently everyday / week gain or win

But a Professional gambler is certainly in the minority with what ever he gambles on - whether the markets / sport / casinos / etc so if over 75% of participants lose - then - its still gambling

Whatever the terminology or phraseology - chose the one that suits you

If you are losing over weeks / months and years and not improving etc - then its gambling

If you are consistently winning or gaining weekly / monthly etc etc - then you might want to say its a proper business with a fancy name like speculating or investing

Sounds better than being a "punter " ;-)

F

The treatment of spread betting or any gambling endeavour as gambling/tax free has nothing to do with what proportion of people are successful at it.

 

[Jason101]

The point of this podcast http://www.bbc.co.uk/programmes/b0128q83 is that it is gambling if it feels like gambling. If it gets your blood pumping, if its all you can think about, if it interferes with your relationships etc.

 

[ACstudio]

1st....Assuming we are not talking about gambling as "anything involving risk" as this would be pointless as we might as well discuss whether or not we should get out of bed in the morning.

I went through 23 pages and not one mention of the obvious. The simple difference is that when gambling (in the casino sense) you can only sit on one side of the table. In trading you can take either side. That's why it's called trading.

If it were the same then casinos would be gambling....but they are not. They are selling a gamble with an edge in their favor. The only gamble the casino is taking is in the business sense.

In trading, each party is the counter party to the other. In efficient markets one side does not have an inherent edge over the other. If you don't like one side of the trade....then take the other. You can't do that in a casino.

(poker or sports betting are another animal)

 

[tomorton]

gambling = betting money on an outcome in hope
professional gambling = ditto but an informed bet
speculation = a posh term for gambling
trading = gambling with the ring of a profession about it
investing = gambling for rational reasons

I agree with all of these definitions. And its possible to go further - every single decision in life that has a possibility of a negative outcome is a gamble - and all decisions have the possibility to turn negative at some point or at least deliver a poor return.

But the term "gambling" has a negative implication for most people and they are never going to be prepared to accept such a label for themselves. Its sad these people can't face their own reality because of some blindly accepted social negative connotation.

But even more unhealthy than that is the fact that they are effectively "gambling" with an over-weight position - they're consciously committing resources to an enterprise with an uncertain outcome, but they're at the same time unable to accept the clearest perception of what they are doing.

If you can't "see" what you're doing in life, how can you see when you're wasting it?

 

[Jason101]

1st....Assuming we are not talking about gambling as "anything involving risk" as this would be pointless as we might as well discuss whether or not we should get out of bed in the morning.

I went through 23 pages and not one mention of the obvious. The simple difference is that when gambling (in the casino sense) you can only sit on one side of the table. In trading you can take either side. That's why it's called trading.

If it were the same then casinos would be gambling....but they are not. They are selling a gamble with an edge in their favor. The only gamble the casino is taking is in the business sense.

In trading, each party is the counter party to the other. In efficient markets one side does not have an inherent edge over the other. If you don't like one side of the trade....then take the other. You can't do that in a casino.

(poker or sports betting are another animal)

I just don't think it is that simple. I think the difference is in psychology and a trader can become a gambler in an instant.
About an hour ago I opened a trade with a fat finger. The commission alone on the fat finger trade was about the same amount as I should normally profit in a whole days trading. I instantly phoned the broker to back out of the trade, while on the phone it started to go my way and into profit. I was getting exited!
Now the gambler in me said, hang up the phone and keep it open, but the trader in me new I had to close it straight down. At that point I did the right thing and closed it down.
I think that all us traders can swap between trading and gambling in an instant by not following our rules, usually through fear and greed. And it is subjective, interchangeable and not black and white.

 

[ACstudio]

I just don't think it is that simple. I think the difference is in psychology and a trader can become a gambler in an instant.
About an hour ago I opened a trade with a fat finger. The commission alone on the fat finger trade was about the same amount as I should normally profit in a whole days trading. I instantly phoned the broker to back out of the trade, while on the phone it started to go my way and into profit. I was getting exited!
Now the gambler in me said, hang up the phone and keep it open, but the trader in me new I had to close it straight down. At that point I did the right thing and closed it down.
I think that all us traders can swap between trading and gambling in an instant by not following our rules, usually though fear and greed. And it is subjective, interchangeable and not black and white.

Then if what we are talking about is just "what someone feels" then the entire discussion is pointless.....as would be any discussion if it was just based on what one felt.

 

[Jason101]

No its not about what you feel but what you feel that makes you break your trading rules.

 

[ACstudio]

No its not about what you feel but what you feel that makes you break your trading rules.

Are you suggesting that the question is defined by an event?

 

[Jason101]

Not the event but the decision. If the decision is reckless (usually through fear and greed) based on the decision makers prior knowledge and experience, then this crosses to gambling. For example if a business man (shop owner) tries out selling a new line and he purchases a greater amount of this new stock (maybe the wholesaler is offering a bulk discount) than his experience of new lines and his cash flow wold suggest is appropriate. Then this is the business man taking a punt.
I would see no difference in the business of trading.

 

[ACstudio]

Not the event but the decision. If the decision is reckless (usually through fear and greed) based on the decision makers prior knowledge and experience, then this crosses to gambling. For example if a business man (shop owner) tries out selling a new line and he purchases a greater amount of this new stock (maybe the wholesaler is offering a bulk discount) than his experience of new lines and his cash flow wold suggest is appropriate. Then this is the business man taking a punt.
I would see no difference in the business of trading.

If the definition is simply your interpretation of what is risky or too risky then it is completely subjective.
An objective definition would be that in trading I can take either side of the trade of an efficient market...in gambling I cannot.

As per your analogy if I thought that one side of the trade was a "punt" then in trading I could simply take the other side ie...the wholesaler's side. That's the difference.

 

[lawrence-lugar]

Is Trading the Same as Gambling?"
...this is an endless debate...

"Nick is hiding huge losses as he gambles away Baring's money with little more than the bat of an eyelid"
http://en.wikipedia.org/wiki/Rogue_Trader_(film)

Nick Leeson was GAMBLING, Not Trading ; -- there's a Difference
(Rogue Trader is free on youtube, the full movie -- i just watched it yesterday)

 

[Jason101]

If the definition is simply your interpretation of what is risky or too risky then it is completely subjective.
An objective definition would be that in trading I can take either side of the trade of an efficient market...in gambling I cannot.

As per your analogy if I thought that one side of the trade was a "punt" then in trading I could simply take the other side ie...the wholesaler's side. That's the difference.

When I visit a London casino, I lay down some bets at the roulette table, have some free drinks, and get my car park ticket stamped for free parking. After this I go to the theatre, and then drinks and then go home.
As far as I am concerned I did not gamble in the casino. I made a prior decision that the couple of spins at the roulette table was a bargain way to pay for my West End parking.

Whatever "side of the trade" you take you will only know the right side retrospectively. Everything in life is a gamble, its just that trading is a purer form.
In order to keep it under control comprehensively planned risk control measures are required.

 

[ACstudio]

As long as someone wants to re-define the term "gambling" to fit their needs or makes assertions that everything with risk is "gambling" then any discussion as to the relationship between a casino bet and trading is pointless.

Usually what this discussion is really about is when someone says "Trading the stock market is just gambling" as if to say that a trader is at some weighted disadvantage. My point to that is that they are NOT the same. Because in an efficient market you can take either side of any trade. If you think any particular trade has an advantage over any other you can choose. When you go to a casino you cannot do this. For me that is a distinction that cannot be ignored.

To say that trading is gambling because the outcome is unknown does not sufficiently describe the differences between the two as this can be said for nearly everything we do in life. Also to say that domain expertise or lack thereof causes one to be gambling and the other to not be is lacking as this is subjective to ones own interpretation of that expertise.

Usually I find the simplest explanation holds the most truth...in this case...simply put...One is a 2 sided market, the other is not. That is what makes them unique and distinctly different.

 

[Forexmospherian]

The treatment of spread betting or any gambling endeavour as gambling/tax free has nothing to do with what proportion of people are successful at it.

Sorry

Have to 100% disagree

Under the gambling act its one of the most important components.

Do you think if say it was the other way round and 50 or 70% of all gamblers won at what ever they do - then it would remain tax free and still classified as gambling??

Regards


F

 

[Alliance01]

Sorry

Have to 100% disagree

Under the gambling act its one of the most important components.

Do you think if say it was the other way round and 50 or 70% of all gamblers won at what ever they do - then it would remain tax free and still classified as gambling??

Regards


F

If you can point me to the part of the Act that defines gambling by the win/loss ratio of the participants then I will happily concede but I think you will struggle on this one for some very simple reasons; gambling/betting is not defined by the win/loss ratio but by the nature of the game itself and the presence of chance. Skill can also be present and can even outweigh chance (and hence the ability for people to regularly be successful at it). Whether a participant is regularly successful at it, even in a systematic way, is irrelevant to the fact that it is an enterprise of chance and is proven in case law (and forms the basis of many a discussion with HMRC on same and even their own guidance).

Also; if 50-70% of 'gamblers' won, someone else must by definition be losing (bar the brokers/bookies commission/rounding betting should be a zero sum game). That is one reason why it is tax free - if you tax winnings, you must offer tax allowances on losses. On spread betting you are playing against other participants and the broker - you are not entering a physical market.

 

[Forexmospherian]

If you can point me to the part of the Act that defines gambling by the win/loss ratio of the participants then I will happily concede but I think you will struggle on this one for some very simple reasons; gambling/betting is not defined by the win/loss ratio but by the nature of the game itself and the presence of chance. Skill can also be present and can even outweigh chance (and hence the ability for people to regularly be successful at it). Whether a participant is regularly successful at it, even in a systematic way, is irrelevant to the fact that it is an enterprise of chance and is proven in case law (and forms the basis of many a discussion with HMRC on same and even their own guidance).

Also; if 50-70% of 'gamblers' won, someone else must by definition be losing (bar the brokers/bookies commission/rounding betting should be a zero sum game). That is one reason why it is tax free - if you tax winnings, you must offer tax allowances on losses. On spread betting you are playing against other participants and the broker - you are not entering a physical market.

Maybe this will assist

http://www.financial-spread-betting.com/Tax-free.html

I will try and find the article with regards to percentages for classification.

With for example Fruit machines - the pay out as to be over a certain percentage - I believe over 5% - SO for example on over 100 spins of a FM then at least 5 of them must offer money back to the customer.

With Financial spread betting - the classification is at 25 /75%

As long as it can be shown more then 75% of all customers lose - then it remains under the classification of gambling and tax free status in UK - but as you will see in the article - still a loop hole for government to tax professional gamblers

Many say in FX trading 90% of all traders lose money in the long run

Brokers try and prove its maybe better than that - ie They reckon 25 -35% trader win on regular ongoing basis.

I personally reckon its only 10 -20 % maximum who win on an ongoing basis at FX trading.

Will try and find the other article related to 2001/ 5 act and also connection with FSA part

Regards

F

 

[Jason101]

@ Acstudio, I can not disagree with you more. By your analogy a coin toss is not a gamble because you can take either side of the bet.