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FAQ Is Trading the Same as Gambling?

Trading is not at all similar to gambling, trading involves fundamental and technical analysis of the market to place trades while gambling is nothing more than luck.
You can make gambling of trading if you take high leverage not because probabilities change (low leverage just smoothes loss in time) but because it's much harder to manage large swings of equity. You have to have iron balls to not let this turn into emotional swings.
 
Is Trading the Same as Gambling?
In the roulette type of gambling over large number of bets - no, because in trading you are adjusting the odds in your favour (or trying to). But it can present itself as the same type of activity over a small number of trades
 
It doesn't have to be gamble.
Gambling means everything that has uncontrolled percentage for winning such as casinos *house always wins.
There are too many trades which are disciplined and trading from shadows in their favor for years, not showing off in a plane, lambo throwing money around and calling others to join their group.
Their secret is not earning big money in short time period and they are not going "all on black" mode. #berserkmode.
 
No its not the same guys. Trading is based on lots of logic and reasoning. Gambling is just luck.
 
LONG ANSWER

Benchmarks

The Oxford Dictionary of English definition of ‘gamble’ does not reflect fully the common usage of the word, as most people would not consider themselves as gamblers every time they cross a road. They tend to use the word to distinguish between an activity that is pure chance and cannot be controlled, as opposed to one that involves varying degrees of skill. This is important because it’s the application of skill that will allow us to pigeon hole any activity into ‘100% gambling’, ‘100% not gambling’ or some grey area in between. The starting point is to define the two 100% extremes and set them as benchmarks against which all other activities can be judged.

100% gambling
Few people would disagree that playing the lottery is 100% gambling. The reason for this is that it’s a game of pure chance over which you have absolutely no control. There’s no skill set that you can acquire and apply to improve your odds of winning. Additionally, once the ticket is bought, it’s irreversible and there’s no action that you can take that will influence the outcome of the draw. With any one ticket, regardless of whether you’re Einstein or someone with learning difficulties, your chances of hitting the jackpot are exactly the same. It’s entirely down to lady luck.

100% not gambling
By definition, an activity that’s 100% not gambling is the exact opposite of the above, so the desired result is achieved by the application of an acquired skill and is something over which you have complete control. Chance plays no part at all. For example, if you run a bath, undress, and get in it, you will get wet. Guaranteed!

The grey areas
Clearly, trading lies somewhere between the two 100% extremes. It’s not 100% gambling because, unlike the lottery, you have the potential to acquire and apply skills that will increase the probability of success. (Additionally, you could take inappropriate action that will increase the probability of failure). However, the same could be said about horse racing although, as has been mentioned already, this falls firmly into the gambling category in the minds of most people. At the other extreme, we can’t say that trading is 100% not gambling as we don’t have complete control over the outcome of each and every trade. At the moment, trading resides in no man’s land between the two extremes, along with crossing the road and horse racing. What’s needed then, is a revised definition of gambling that distinguishes between all these ‘bets’ and irons out the apparent contradictions.

Gambling: a revised definition
1. Risk of loss
Gambling involves placing a bet on the outcome of a future event. It carries significant risk which could result in the loss of something of value, e.g. your money, your time or your health.
2. Irreversible and based on chance
The result of the bet relies exclusively on chance. Once a bet is made, it is irreversible and the outcome is completely out of your control.
3. Positive expectancy
No skill set may be acquired and applied that will result in a positive expectancy. Whilst short term gains may be made, repeated bets increase the probability of cumulative loss. This is because a positive expectancy is not possible in the medium to long term.

(NB: the concept of positive expectancy is central the remainder of this FAQ. If you’re unfamiliar with it, an explanation is provided in the Essentials Of First Steps Sticky under the section entitled: ‘FIVE TRADING PRECEPTS’)

The key difference between the dictionary definition and the revised definition is the third point about positive expectancy. (+PE or -PE from now on.) In other words, if you have a +PE, probability is on your side and you're very likely to make money in the medium to long term. Conversely, a -PE means that probability is against you and you're highly unlikely to make money in the medium to long term. Let’s see what happens when the revised definition is applied to the various ‘bets’ discussed so far. To be free of the gambling label, any activity must fail to meet points 2 and 3 of the definition. In other words, the activity must not rely exclusively on chance alone and there must be the potential for a +PE.

Test application #1: crossing a road
You may recall from the Short Answer that – based on the Oxford Dictionary of English definition - crossing the road could be considered as gambling. So, we’ll start with that and see if the revised definition produces a different conclusion to the famous dictionary.
Risk of loss
There is risk of loss if you get it wrong. Your health is at stake and, possibly, your life. On the basis of this criterion alone, crossing the road is gambling.
Irreversible and based on chance
Have you ever stepped down off the pavement into the road, only to change your mind and swiftly step back up onto the pavement? In which case, you reversed your ‘bet’, directly influencing the outcome.
Positive expectancy
You may or may not have been formally taught the ‘Green Cross Code’ as a child. Either way, you’ve acquired and applied a skill set that enables you to cross roads safely, time after time. You have every reason to think that you will be able to continue to do this in the future. You, like most people, have an extremely high +PE.
Conclusion
Based on the revised definition, crossing the road failed to meet two of the three criteria. Therefore, it is not considered to be gambling.

Test application #2: betting on horses
Risk of loss
Financially, the risk is big. Additionally, there’s the risk of addiction which, in turn, could lead to other risks including relationships breaking down, stress and debt etc.
Irreversible and based on chance
The majority of people will back a particular horse on a whim based on gut instinct. However, it is believed that there are some professionals who have acquired – or have access to – great skill and knowledge about the sport in general; and horses, jockeys and trainers in particular. For this elite group, the success or failure of their bets is not governed by chance alone.
Positive expectancy
Only a tiny minority of people who bet on the result of a horse race enjoy a +PE. The vast majority will lose money over the medium to long term, based on a very poor -PE.
Conclusion
All three criteria are ticked when applied to the majority of people betting on horse races, qualifying them as 100% gamblers. However, there are a handful of professionals who are not gamblers according to the revised definition. These people manage to make money consistently over time. That said, they will always be tarred with the gambling brush because the vast majority of people lose money and, not only that, many of them accept that what they’re doing is gambling.

Some interesting questions to ponder . . .
If the majority of people who bet on horse races fulfil the criteria for being 100% gamblers, where does this leave the likes of Ladbrokes and William Hill who take their bests? Same question applies to casinos such as Caesars Palace and the Mandalay Bay Resort in Las Vegas. These are four immensely successful businesses; are their owners and directors not gambling just as much as the punters who walk through their doors? Many people would say no because: 'the odds always favour the house.' In other words, they enjoy a +PE, while their customers suffer from a poor -PE.

Test application #3: business
One of the examples provided in the dictionary definition was: ‘he was gambling on the success of his satellite TV channel.’ This might surprise and disappoint some business men and women as they tend not to view themselves – or wish to be viewed by others - as gamblers. As Ambrose Bierce, the American critic and satirist observed: “The gambling known as business looks with austere disfavour upon the business known as gambling.”
Risk of loss
Nearly every business has to embrace all manner of risk on a daily basis. E.g. the risk of losing customers, risk posed by competitors and failing to meet deadlines – to name but a few.
Irreversible and based on chance
The success or failure of any business venture is not governed exclusively by chance. Most businesses have the ability to remain adaptable and respond to changing market conditions.
Positive expectancy
If a business is able to identify a gap in the market and fill it with a product or service at a fair price, of sufficient quality, and backed by reasonable customer service, then it may well have a +PE. Equally, many businesses are doomed to failure from day one because they haven’t researched the market sufficiently, they don’t have the necessary skills and they are undercapitalized etc. In other words, they suffer from a -PE.
Conclusion
It could be argued that the market place is a giant sieve designed to filter out poor business people that don’t have a +PE. Businesses in this category are unlikely to survive for very long and the few that do rely heavily on chance. By contrast, professional business people will not only have a +PE, they will factor into their business plan the various risks associated with their venture. A huge chasm separates the amateurs from the pros: the former are gamblers surviving on a wing and a prayer, while the latter tend to be risk averse who leave little – if anything – to chance. So, are business people gamblers or not? The answer is that it entirely depends on the individual business and the people who run it.

Test application #4: trading
Risk of loss
Potentially, all the issues that face lovers of the gee-gees apply to traders too.
Irreversible and based on chance
Just like business people, traders can adapt to changing market conditions, enabling them to cut losing trades quickly and lock in profits on winning trades. Consistent profitability is unlikely to be the product of chance. Theoretically it is possible, but mathematically it’s highly improbable in the medium to long term.
Positive expectancy
This is the key difference that separates the pros who know exactly what they’re doing from the many wannabes looking for a short cut to an easy life. The pros have a +PE and the rest don’t!
Conclusion
Professional traders who enjoy consistent profitability over the medium to long term are no different from professional business people who make money year in and year out from their business ventures.

So, the bottom line is . . .
The bottom line is that based on the current Oxford Dictionary of English definition - trading is gambling. This is because it involves risk and the outcome of any one trade cannot be known in advance. Clearly, risk is a key component of gambling and it’s right that it’s included in any definition of it. However, it is misleading to label any activity as gambling based on the risk criterion alone. On this basis, most activities in life could be considered as gambling, as they involve ‘risky action undertaken with the hope of success’. Take something close to most of our hearts: food. According to Dame Deirdre Hutton, Chair of the Food Standards Agency, there are around 500 deaths each year in the U.K., caused by pathogens such as E-coli O157, campylobacter and salmonella found in food. Clearly, eating is a risky business, yet few of us consider tucking into our evening meal as gambling.

The revised definition seeks to address this anomaly with the inclusion of positive expectancy. Any activity that involves risk, relies exclusively on chance and has a -PE, is gambling. Without doubt, this can – and does – apply to a lot of ‘shoot from the hip, hope for the best’ traders. They are every bit as much gamblers as the casino punter who bets on the roulette ball landing on an even number. Professional traders, on the other hand, studiously try to minimise their risks, leave little to chance and, critically, enjoy a +PE. Under the revised definition, traders in this category are not gamblers. Or, at the very least, they are no more gamblers than the owners and directors of Ladbrokes or Ceasars Palace.
Best explanation and best comparison Thanks
 
there is a clear distinction between gambling and trading and in simple terms, real traders who long or short the market make money by analysing the market indices with their graphs on trading view. before they take a decison they have analysed the market and they know where the support and resistance of each commodity lies. however on the other hand there are some so called traders who have no indepth knowledge of trading analysis but they just see some notifications on twitter or the alerts of whales longing or shorting the markets and they just base ther trades on that. hence that is what is called gambling as you are just throwing money away
 
there is a clear distinction between gambling and trading and in simple terms, real traders who long or short the market make money by analysing the market indices with their graphs on trading view. before they take a decison they have analysed the market and they know where the support and resistance of each commodity lies. however on the other hand there are some so called traders who have no indepth knowledge of trading analysis but they just see some notifications on twitter or the alerts of whales longing or shorting the markets and they just base ther trades on that. hence that is what is called gambling as you are just throwing money away
Support and resistance lines are voodoo they don't exist in the real world. Price is determined by factors which constantly vary. If one of the bombs dropped by the Russians today had malfunctioned and hit the British warship it was dropped near to, none of your phantasy support lines would have held, the market would have plummeted.

Every time you open a trade you gamble that one of the millions of idiots in the world doesn't do something really stupid before you close it. There are too many factors beyond your control to make it anything other than gambling.

"Reuters noted the Su-24 dropped "four high explosive fragmentation bombs as a warning in the British destroyer's path."


PS: Welcome to T2W 😉
 
Hmm, controversial question. I think not. Trading institutions don't have an advantage over you. Every time you buy a stock, someone sells it to you. Every time you sell (or short) a stock, someone buys it from you. In gambling, no matter how successful you are there, the gambling house always holds the edge of advantage in its favor. You have to figure out for yourself whether you are gambling or trading. If you realize that you are really gambling, think maybe you should stop and protect yourself from losing all your money. I have had one gambling game in my life- iNasports88 . I understand that it's gambling, but I can't stop.
 
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No. In so far as gambling for a living is far and few between, 99.9 percent of gambling is for fun and a liesure activity. Trading much less so. The man point is this, anyone who thinks they can earn a living without paying tax is deluding themsleves. If your main source of income is trading, or gambling, then you have to pay tax.
 
Hmm, controversial question. I think not. Trading institutions don't have an advantage over you. Every time you buy a stock, someone sells it to you. Every time you sell (or short) a stock, someone buys it from you. In gambling, no matter how successful you are there, the gambling house always holds the edge of advantage in its favor. You have to figure out for yourself whether you are gambling or trading. If you realize that you are really gambling, think maybe you should stop and protect yourself from losing all your money. I have had one gambling game in my life- iNasports88 . I understand that it's gambling, but I can't stop.
This is a very good point of comparison between trading and gambling. In trading, if you have a proper regulated broker, the broker doesn't benefit from your losses. By the way, this is why binary options are problematic, because binary options brokers often do benefit from you losing.
 
Spot on WalletInvestor. FCA regulated brokers will only ever charge a pre agreed commission, they are obligated to give you a best price.
 
In as much as there is some risk - yes. Is it like flipping a coin? No. The point of learning to trade is to stack the odds in your favour and take calculated risks.
 
In as much as there is some risk - yes. Is it like flipping a coin? No. The point of learning to trade is to stack the odds in your favour and take calculated risks.
This is a really good and concise explanation. The point of trading is that the chances of winning are not just accidental, you have a way to affect the odds.
 
Some treat it the same unfortunately.
In trading we stick to proper money management and good RR .
Gamblers generally use the money at hand with sometimes little or no analysis on their sport
 
It's irrelevant what you call yourself, you are either making money or losing money.
We "gamble" at everything we do on a daily basis; the edge is being conscious of it most of the time.
Sadly most people are sleepwalkers.
Who cares if you are a gambler or a trader or you are the same thing?
 
Forex trading is not gambling nor a casino but it is an online business and we can make good money if we have good knowledge of it.
 
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