FAQ Is Trading the Same as Gambling?

[normbeef]

Hi the hare,
I accept that retail traders have massive disadvantages compared to their institutional counterparts, so I agree with you on that front. However, I'm less convinced by your first para'. CTAs and institutional traders can't really be compared - can they? If, for the purposes of this discussion, you're suggesting there's no difference between them, and that bank traders who earn serious coin are really no better than chimps, then surely the banks' shareholders would demand that the trading floors were replaced with primates? Their annual spend on bananas might soar, but the savings made in staff salaries should just about cover it!

Tim.

I happen to know a few IB traders and they arent all they are made out to be.. just like in all industries there are the superstars and there are the rest (i.e the majority).

If you borrow some of the wisdom from Telab, the media depicts the wrong messages about the very top of most professions. We tend to believe that all professional footballers drive Bentleys and play for Man Utd. I also know a couple of ex professional footballers and they are skint. Most people I know with real money are all builders or printers.

Trying to get back to the point, I actually think that a group of chimps over the longer term given could have by sheer luck avoided the disaster of the past few years altogether. The banks are no better than gamblers as we have found out, they did not know what they were buying inside the CDO's i think they were called. Ultimately they showed that there risk systems and controls were so flawed they need not bothered at all.

just like gambling there will always be the odd individual that will rise to the top. the real danger is that they believe that they are more talented that everyone else and not just lucky.

I do think there is a degree of skill to trading akin to poker skills, but there is also an element of luck involved.

 

[BeginnerJoe]

the banks' shareholders would demand that the trading floors were replaced with primates?

Shareholder are nothing but lambs for the fleecing. Why do you imagine they have the intelligence to know what is good for them ? Are they not also gambling in their own right ? If the gambling doesn't work, they'd go find something else to gamble with.

I remember reading somewhere that chimps throwing darts could pick better stocks than most share buyers.

 

[normbeef]

Shareholder are nothing but lambs for the fleecing. Why do you imagine they have the intelligence to know what is good for them ? Are they not also gambling in their own right ? If the gambling doesn't work, they'd go find something else to gamble with.

I remember reading somewhere that chimps throwing darts could pick better stocks than most share buyers.

After trading / investing for a number of years I do believe that some people just have outrageous luck. I know a guy who got a tip from some other guy and made millions from it, no skill, just luck (that his mate was telling the truth)...

I will give him his due, he put about 40 grand down on a sheer punt, but it came good and now he's living on the interest..

hard work is not always the way to the promised land... :smart:

 

[timsk]

Shareholder are nothing but lambs for the fleecing. Why do you imagine they have the intelligence to know what is good for them? Are they not also gambling in their own right ?

Hi BJ,
Doubtless you're right about many shareholders, but not all of them by any means. I know how you love to take a contrarian view, but I assume even you won't right off Warren Buffet as someone 'who doesn't have the intelligence to know what's good for him'? If the likes of you and me are reading extracts from papers written by Nobel prize winning economists suggesting that traders aren't any better than Chimps, I think it's a fairly safe bet to assume that Mr. Buffet is aware of them too. When he bailed out BoA last year to the tune of $5 billion, I'm sure he didn't do it to ensure that the bank's traders earning serious money could keep their jobs - simply because he felt sorry for them and could afford to do it!

Tim.

 

[Lee Shepherd]

i think that spread betting could be considered as gambling

Spreadbetting IS gambling. Its just most spreadbettors prefer to fluff it up and say its trading as it sounds more important. The bottom and most important line should be......Do you make money. And to go further into that and more importantly than the first is.........do you constantly take money from your account or are you a topper upper - are you net profitable????

With Spreadbetting companies every position you open is a BET and therefore not subject to tax.

Lee Shepherd

 

[avtardhillon]

depends in what perspective you look at it to be honest, spread betting or binary options could be considered as gambling because you are betting in a sense on what will happen to the price in the next second however a gambler when he goes into a casino has just luck and bluff a day trader has info and anylses the data and uses it to predict what will happen...it depends on your perspective if you don't know what your doing then you can say it is gambling

 

[The Artist]

Great thread, can't believe I just found it after all this time.

Trading the same as gambling?
If you're on the buyside in any market with decent liquidity, retail or instit, you're definitely gambling for me. No matter what "edge" you have, it remains an "edge" over a defined sample period and cannot be extrapolated into a certainty of permanent profits. How many traders had an "edge" for the previous 10 days, 10 months, or 10 years, when they got into the office on October 19, 1987, and got rinced? As for those who positioned themselves short beforehand and made money that day, did they know for sure that it would happen, and happen the way it did? Of course not. How many times in their career did they position themselves for another event that never came, or had an opposite effect to what they expected? Probably many times, but they will never tell you about that naturally. And yes after 25 years in the market one can show a profit but that's more down to money management than anything. Some people show a profit after going to Vegas for 25 years as well. Some people show a profit after 25 years of sports trading. And you can find a country somewhere where one can improve the odds and make money from the lottery in the long run, like buying 1000 stubs every round of the lottery with the smallest (amount of numbers)/(average payout) ratio for instance. The existence of money management tools does not make all these not gambling.
I trade every day hoping my "edge" will be sustained long enough for me to accumulate cash. I know that it might not, and that's gambling.
If a trader goes to work in the morning knowing he will make money for sure over the next 20 years, that's not gambling. But as far as I'm concerned he's deluded and needs help.

It's another thing when you look at the sellside really, in particular markets with low liquidity or where marking making is not fragmented. For example, when ENRON power traders sat down at their desks after California deregulated electricity markets they were definitely not gambling. Well, they were gambling with the SEC, but not with their trading. Their position in the market was such that they had almost complete control over prices and there was no way they could lose money, and that's really what a significant, statistical "edge" is.

Since we mostly think about the first category when we talk about trading I definitely agree with those putting it under the gambling umbrella. Positive expectancy has limited application here for me because it is calculated over a sample period that is independent from future data. You can apply the positive expectancy theory to flipping a coin or the lottery because it is a standardised, identical event every time but any trading day, week, month, etc. is a different event from the previous one. To mention the original parallel with street crossing, well you might have positive expectancy on a back road in the middle of the Midwest countryside when you can see 5 miles either way, but try having positive expectancy downtown Mumbai or Manila.

Anyways that's just how I see it, there is no right or wrong answer just a matter of opinion I suppose.

 

[6am]

And you can find a country somewhere where one can improve the odds and make money from the lottery in the long run

It reminded me this story A lottery game with a windfall for a knowing few - The Boston Globe

 

[gregw]

I think it depends on you. You can treat the markets like a casino.you can treat a sporting event the same way..
if you're a gambler you'll always find places to gamble.

Speculators have been using the markets for hundreds of years as a way to earn a living and make profits.

To some extend any business venture where you stand to lose money can be a gamble. The trick of course is to put the odds of success in your favor.

fwiw, my 2 cents

 

[Deanster]

I think there is a lot of trading concepts in other areas of gambling and especially poker. The two overlap quite a lot and I know that several trading firms use poker concepts in their coaching and several poker coaching sites use trading as part of their coaching program.

I am not an experienced trader but have traded on the betting exchanges and read numerous books which kind of made me look at my poker in a new way also. I liked "The Way to Trade" by John Piper which in my mind was almost like reading a poker book.

Also Elder's books are very good and the usual Market Wizards 1 and 2 which everybody quotes. Risk management and the ability to be able to operate in highly fluid environments are similar. Selecting poker hands is akin to buying stock that can fluctuate within set time limits. It really is fascinating and I look forward to spending some time on this forum.

 

[bbstocking]

It all really also depends on what type of trading you do. I personally feel that anyone trading penny stocks for example, without constantly monitoring the stock (I mean literally being glued to the screen) is really gambling his money.

 

[GSTLj]

Yeah, no doubt trading is gambling. You never have complete control over what is going to happen no matter how smart you think you are, no matter how much education you have, no matter if you have all the best trading tools.

You can do things, just like gamblers in Vegas can do, to tip the odds a little better in your favor over the long run, but it's still gambling.

There's different types of gambling though. Gambling in black jack is different than gambling in the lottery. But when ever you place a bet on a future event happening that you have little, if any, control over, it's gambling.

 

[boy2boy]

just my 2 cents, if trade with proper MM and workable system, it is trading. if trade with "feeling" and guessing here and there, it is call gambling.

 

[Profitsniper007]

If you have quantified that your strategy/methodology works x% of time and your risk/reward ratio is x/x you know if you have a positive expectation.

Let's say you have a strat that wins 40% of the time, and you have a 3:1 R/R - you risk 10 to win 30.

You take 100 trades, you win 40 and lose 60.

You have lost 600 and gained 1200

Net profit 600.

This is clearly not gambling, and if it was deemed as gambling, you are doing it very well since you have a edge.

 

[Trader333]

You take 100 trades, you win 40 and lose 60.

On a very large statistical sample this may be the case but that is not how things generally work.

 

[Splitlink]

Anyone who experiments is taking a gamble of one kind or another. Careful gambling involves a shrug of the shoulders if ir does not work. Careless, unplanned, experimentation involves a panic attack if it does not, to the point of chucking oneself of the top of a skyscraper, in some cases.

I am a born experimenter, as far as trading is concerned, because I have to put an idea to the test. I'll be curious until the day I die. Even, today, I am looking forward to Monday morning because I have an idea that may well work.

 

[Profitsniper007]

On a very large statistical sample this may be the case but that is not how things generally work.

Of course, it is not by any means a science and there will be numbers set in stone, but to do some kind of maths to back up what I said, I had to pick numbers

I think you need to have some idea of your percentages to justify your R/R.

For example, I have found if I trade a ABCD target one hits over 50% of the time.
So if I trade ABCDs at 2:1 there is a positive expectation.

 

[Splitlink]

If you have quantified that your strategy/methodology works x% of time and your risk/reward ratio is x/x you know if you have a positive expectation.

Let's say you have a strat that wins 40% of the time, and you have a 3:1 R/R - you risk 10 to win 30.

You take 100 trades, you win 40 and lose 60.

You have lost 600 and gained 1200

Net profit 600.

This is clearly not gambling, and if it was deemed as gambling, you are doing it very well since you have a edge.

Why did you pick 40% and 60%? I'm sure that it is because those figures have been quoted so many times that, now, it is accepted as gospel.

I believe that the figure is much more extreme than that and that most traders/gamblers would be very happy if that was their trading statistic.

Sadly, I think that the truth is that the majority lose more money than they can afford. I hope that I am wrong.

There is a statistic that says that 10% of the population owns 90% of the country's wealth. I am sure that that figure works for trading, as well.

 

[the hare]

If you have quantified that your strategy/methodology works x% of time and your risk/reward ratio is x/x you know if you have a positive expectation.

Let's say you have a strat that wins 40% of the time, and you have a 3:1 R/R - you risk 10 to win 30.

You take 100 trades, you win 40 and lose 60.

You have lost 600 and gained 1200

Net profit 600.

This is clearly not gambling, and if it was deemed as gambling, you are doing it very well since you have a edge.

You are gambling that the edge continues to exist. I trade with an edge, but I classify myself as a gambler.

 

[Profitsniper007]

Why did you pick 40% and 60%? I'm sure that it is because those figures have been quoted so many times that, now, it is accepted as gospel.

I believe that the figure is much more extreme than that and that most traders/gamblers would be very happy if that was their trading statistic.

Sadly, I think that the truth is that the majority lose more money than they can afford. I hope that I am wrong.

There is a statistic that says that 10% of the population owns 90% of the country's wealth. I am sure that that figure works for trading, as well.

I picked these numbers as this is what I personally go for, strategies I have found are effective for me at least 40% of time.

I referenced one above (ABCD)

Another is the London open.

London open marks the high/low of the day about 35% of the time, and other times when it is not the high/low of the day it will be the high/low of the EU session and overall is not beyond expectation to trade the London open with a 3:1 R/R using the high/low of that candle as SL and hit your target 40% of the time.