FAQ Is Trading the Same as Gambling?

[Jason101]

@ ACstudio[/MENTION] -One of us is going mad here. So I have just checked the Oxford English Dictionary. Gamble =
"to play games of chance for money" so I am right. I checked the US definition too, incase there is a subtle nuance but no it pretty much says the same thing "to play a game of chance for money".

 

[Alliance01]

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

Thanks for the link! I'm not sure it says anything different to what I am saying though! Very curious as to exactly how you think these classifications are applied; I have never heard of anything like this except in the case of gaming machines in pubs and so on where the rate of tax is in part driven by net takings relative to payouts. That is totally different to taxing a gambler/spread bettors winnings. Insofar as spread betting taxes are concerned I can't work out how these are applied in practice except at the broker level where tax is paid on their commissions - again, that is completely unrelated to the profits taken by the bettors themselves.

 

[Alliance01]

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)

He was trading. he was just trading with a ridiculous risk position. We often call such a ridiculous position a gamble, but it doesn't preclude him from also having been trading. They are not mutually exclusive.

 

[barjon]

The point of my earlier post is that it's all "risking money on an uncertain outcome with the objective (hope) of financial gain" whatever you might choose to call it. A rose by any other name and all that.

True, there is some difference between taking a blind risk and a calculated risk but, essentially, you are still doing the same thing.

Rather like those who judged the best design from a range of logo hidden cars, but then refused to accept it when they found they had chosen the Skoda some just don't like being tabbed with a perceived "dodgy" label. Why turn dustmen into refuse collectors, or lavatory cleaners into hygiene operatives? It's all in the mind you know

 

[Jason101]

Barjon - exactly.

 

[Alliance01]

@barjon - fully agree - at the end of the day its P&L that defines our success, not what we call ourselves.

 

[Trader333]

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.

You can take the other side of a gamble when using Betfair

 

[MajorMagnuM]

I've always seen it as follows.
if there is a £50 note across the road, then crossing the road without looking to pick it up is a gamble. looking left and right before crossing instantly changes the scenario from a pure gamble to a quantified risk. can i get across the road before the bus hits me? will the other guy on the other side of the road get it before i do?

 

[binarymatt]

I think of gambling as risking money in the HOPES of a good outcome. If you have an edge, I don't consider that gambling.

Consider this game:

You roll a fair dice
If it lands 1, 2, 3, or 4, you win $100
If it lands 5 or 6, you lose $100

Is this considered gambling? You're wagering money in a game, but you have a huge edge. I don't think of that as gambling.

 

[Alliance01]

I think of gambling as risking money in the HOPES of a good outcome. If you have an edge, I don't consider that gambling.

Consider this game:

You roll a fair dice
If it lands 1, 2, 3, or 4, you win $100
If it lands 5 or 6, you lose $100

Is this considered gambling? You're wagering money in a game, but you have a huge edge. I don't think of that as gambling.

There is still a gamble here, an element of chance/uncertainty. The fact the probabilities are more with you than against you doesn't preclude the presence of some risk. Its just an odds on bet - I wouldnt consider thaking a freely available odds on bet as being anything more than a very obvious strategy rather than some unique, propriatary 'alpha' creating edge. the risk does still remain that such odds on positions reverse on people. Call it a gamble or whatever you lie but it is what it is; open risk.

This fabled ' edge' - i just dont get it. It seems to me you are either experienced, have done the hard yards and the bag carrying and have the benefit of that experience or you dont. Yes; you can come up with some stunning new model or uncover the magic patterns of markets everyone is searching for but lets be honest, these things are rare beyond belief in hypothetically efficient markets. The closest most can hope to get to an edge is a) inside info (lets not go there!) or b) really disciplined risk management which is actually very rare on a consistent basis and is in tself a pretty hard edge to get. I'm sure all of us try as hard we as we can not to put on that dumb trade or not tick up our positions but we all have....

 

[Emini-mouse]

I think of gambling as risking money in the HOPES of a good outcome. If you have an edge, I don't consider that gambling.

Consider this game:

You roll a fair dice
If it lands 1, 2, 3, or 4, you win $100
If it lands 5 or 6, you lose $100

Is this considered gambling? You're wagering money in a game, but you have a huge edge. I don't think of that as gambling.

all you are describing here is a Good gamble, one which we would all take
BUT it is possible you could roll these dice for the rest of your life and it lands 6 every time

 

[binarymatt]

@Alliance01 - not sure what you mean by "fabled edge". Edge is a real thing. It's just harder to quantify in the market as opposed to the contrived dice game
@Emini-mouse - True, there is still risk. If you only had a few hundred dollars you could very well go broke even though you have an advantage

 

[Alliance01]

@Alliance01 - not sure what you mean by "fabled edge". Edge is a real thing. It's just harder to quantify in the market as opposed to the contrived dice game

@Emini-mouse - True, there is still risk. If you only had a few hundred dollars you could very well go broke even though you have an advantage

Traders, or at least some traders, talk about ' edge' like it is something mystical, something that cant be described or pointed to. Its not hard; it called skill. I dont disagree at all that there is a concept of advantage/strengths amongst and between traders but it is what it is; skill. What i think is a particularlry virulent pile of old BS is when you get these people who describe their most recent/only successes as being doen to their apparent ' edge'. More often than not said edge cant be explained because they dont fully know how they did it!! The success of any trader (or any enterprise for that matter) in the long run comes from self-awareness, from knowing what you are doing, knowing your strengths/weaknesses, your markets, your limits and then sticking to them. work on your weaknesses, improve, develop. build on your strengths. Take the time to learn. Put in hard yards.

 

[binarymatt]

Traders, or at least some traders, talk about ' edge' like it is something mystical, something that cant be described or pointed to. Its not hard; it called skill. I dont disagree at all that there is a concept of advantage/strengths amongst and between traders but it is what it is; skill. What i think is a particularlry virulent pile of old BS is when you get these people who describe their most recent/only successes as being doen to their apparent ' edge'. More often than not said edge cant be explained because they dont fully know how they did it!! The success of any trader (or any enterprise for that matter) in the long run comes from self-awareness, from knowing what you are doing, knowing your strengths/weaknesses, your markets, your limits and then sticking to them. work on your weaknesses, improve, develop. build on your strengths. Take the time to learn. Put in hard yards.

Ah ok I see what you're saying now. Yeah that makes sense. I used to trade options so I'm used to talking about edge in terms of how many ticks above value you sold something or how many ticks below value you bought something. I guess some people can chalk up their results to "edge" without really knowing how they achieved those results

 

[neil]

Traders, or at least some traders, talk about ' edge' like it is something mystical, something that cant be described or pointed to. Its not hard; it called skill. I dont disagree at all that there is a concept of advantage/strengths amongst and between traders but it is what it is; skill. What i think is a particularlry virulent pile of old BS is when you get these people who describe their most recent/only successes as being doen to their apparent ' edge'. More often than not said edge cant be explained because they dont fully know how they did it!! The success of any trader (or any enterprise for that matter) in the long run comes from self-awareness, from knowing what you are doing, knowing your strengths/weaknesses, your markets, your limits and then sticking to them. work on your weaknesses, improve, develop. build on your strengths. Take the time to learn. Put in hard yards.

That sums up a lot of it. Hard work, experiment, time, and a HUGE bull****/Scam detector.

 

[forker]

what is the point of this debate!

There are as many common attributes as there are not which makes this very subjective. If this isn't clear then read the last 26 pages of differing opinions. I do find it humorous that some people have a clear rejection to being classified as a gambler with the most common answer being skill. This is ironic since it is yet another common attribute with the gambling industry having skilled participants that make a living from it. Would you class them as gamblers or professionals!!! Same can be said for having an edge. Professional gamblers clearly have an edge to allow them to live off gambling so that again is a mute point.

 

[aag100]

if your winning your a trader and if your losing your a gambler.

 

[TradingSoftware]

Like Life I believe trading is similar to gambling but with the right tools you can stack the odd in your favor.

 

[CostaKapo]

So many people get very confused with probabilities. Those with no formal education in the subject can get definitely confused. But even those with a formal education in the subject easily can get off track.
One area of confusion I see often is people thinking that processes, such as stock movement, follow probabilites, instead of probabilities describing processes. Probabilities are just mathematical descriptions based on past history and other considerations. The processes themselves know nothing about the probabilities. They don't know when you had started counting your sequence, for instance. They have no memory.

How about the so-called gambler's paradox. A gambler is watching a roulette wheel and notices that it has landed on black ten times in a row. He knows that the odds are 50/50 (ignoring "0" and "00" for the moment) between landing on a black or a red for each individual spin. He also know that the probability of getting ten blacks in a row is 1/1024 (2 to the tenth power is 1024); that is, virtually zero. So he thinks that FOR SURE the next spin has to be a red since the chances of NOT getting a red in 11 spins is virtually zero.
What the gambler has forgotten (or, more likely simply ignorant of) is that the roulette wheel has no memory. For each individual spin the chances are 50/50 between red and black regardless of the recent past.
So even though it is true that BEFORE THE 11 SPINS there is an exact probability of 1/2048 that in 11 spins of a roulette wheel you would get 11 blacks in a row, once the first ten have occurred and you notice all blacks, you cannot say anything about the next spin other than that there's a 50/50 chance for either black or red--just like all the other spins. Again, the roulette wheel has no memory of what has occurred prior.

The same is true with stock market probabilities. Even if they were exact like the roulette wheel (and stock market probabilites are surely not exact), you can use them only as guides into the future for a particular time range. But once the stock movement has started to occur, you need to at the very least recalculate the probabilities for whatever range of time is still of interest to you. If the stock hasn't moved as much as it was "supposed to" have during the initial part of the time range, you cannot assume it will "make it up" in the latter part. If you think this, you are falling victim to a version of the gambler's paradox.
One more thing: Along the lines of what I just said, I've seen traders completely misuse probabilities and standard deviations when attempting to make correct market decisions. I once read a pseudo-scientific article written by someone whom I believe was sincere. But ... oh so how misguided! His system went something like this. Throughout the trading day he constructs a bell-shaped (normal) curve of a stock based on its intraday movements. If a majority of the bell curve seems to be being built on either the left or the right side of the bell, he says there is a great chance that the rest of the bell "has to be" built on the opposite side. Thus, he would use this "knowledge" to day trade the latter half of the trading day.

The errors in his thinking are numerous. One of the errors, of course, is that the stock movement doesn't "know" its on someone's left- or right-side of a bell. Indeed, if he had instead constructed a bell in real time with a total time range of only the first half of the day (instead of the full day), he would have ended up with a completely different bell that is is "filled in" on both sides. Everything about his method is arbitrary including the time range. There are an infinite number of time ranges and an infinite number of possible histogram bin possibilities when constructing your histogram. Yet he swore by this "scientific" system. Lots of ignorance abounds.

 

[roberk]

I would say it is absolutely gambling