ECONOMY Finance FINANCE&BANKING MARKETS

Is Stock Market Trading the Same as Gambling?

Stock market trading has often been likened to casino gambling, but while both ventures involve great strides of risk, they are quite different

Stock market trading has often been likened to casino gambling, but while both ventures involve great strides of risk, they are quite different. They are both about risking capital with the hope of making profits in the future. Gambling is a usually a short-term activity, whereas trading in stocks can last for a very long time, even a lifetime. In essence, it is a matter of luck in gambling, with a negative expected returns in the long run. It is not the same with stocks, as investors wait for the right opportunities to pounce, making it a profitable venture in the long run. So, let us delve into the nitty gritties of stock market vs gambling to understand the differences even better.

 

Stock market trading

 

Stock market trading is a form of investment where funds are committed to stocks with the expectation that they will appreciate in value over time, bringing in substantial profits to the investor. The core premise in stock markets is the expectation of profits in the form of price appreciation or income. Here, expected returns go hand in hand with the risk taken, where high risk translates to high expected returns.

To lower the risk in stock trading, investors apply what is known as a Risk Management Strategy, where capital is spread across various assets, or even various assets falling within the same asset class. This is safe investment as the chances of losing on all fronts are minimal, and in the same way, there are higher chances of getting returns from most of the assets.

For purposes of improving their holdings’ performance, seasoned stock investors take time to study the trading patterns through stock charts. Technicians leverage these charts to predict the future of stocks through what is known as technical analysis, before releasing their deductions to investors.

In stock markets, there is the involvement of brokers who earn commissions from investors to buy or sell stocks on their behalf. Commission paid out to these brokers has a direct effect on the returns on investment.

 

Gambling

 

The best way to define gambling is staking an amount of money on a contingency. Gambling, also known as wagering or betting, is about risking money on an event whose outcome is uncertain. Generally, it is a game of chances.

Like in stock market trading, a gambler must carefully weigh the amount to stake with, which determines expected returns. Most card games have pot odds that give a direction to where the likely outcome is expected, and that is what helps gamblers determine the risk amount, also known as risk capital.

To lower the risk in gambling, professionals employ proficient tactics of analyzing teams going into an event. Given the number of events taking place over a certain period, specialization is key. It enables gamblers to narrow down on a specific path, and to focus all their energy on a particular event.

 

Conclusion

 

No matter how you look at both, the ultimate prize is making profits. It all boils down to the strategies employed, and the willingness to take risks. In the end, they all involve great risks, hence; professionalism is advised.

Photo: EPA/Agerpres

 

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