Is Day trading Gambling ?
According to experts, day trading is not gambling. Though day trading and gambling often get conflated, they are not the same.
They do share a similar goal: making a profit off the success of something or someone else.
Investment practices carry inherent risks; placing money on something you can’t control always has the potential to go right or wrong. However, knowing the differences between them is paramount. With proper research and strategy, all forms of investment can become profitable in the long run.
Day trading, gambling, and investing: all three activities are structured forms of betting money on an organization, company, or product’s success. All four have gained popularity among the younger generations as get-rich-quick schemes you can enact from the comfort of your own home.
Read also: Ten Signs You May Be Addicted to Day Trading
Let’s take a closer look at day trading/gambling. We’ll discuss in detail what makes them different, along with four reasons why day trading is not gambling.
Differences Between Day trading and Gambling
The fundamental difference between day trading and gambling involves the powers in control of each activity. The markets could not care less about who makes more or less money on an investment. In contrast, when it comes to gambling, the house always has the better position on a specific bet, meaning that the odds are always in their favor.
Day trading is an activity that wholly depends on the proper examination of past market trends, as opposed to the luck-based nature of gambling – albeit you do have to know the rules on what you’re gambling.
As a result, if both parties have done the same amount of proper research behind their respective activities, day traders run way less risk with their investments than gamblers. Still, the latter can net big wins much earlier if a single low-risk bet hits.
Furthermore, day trading is also a lot more skills-based than gambling – especially in sports books – because predicting a financial asset’s sudden rise in value involves a lot more research and analysis than an underdog upsetting the heavily favored opponent. In the gambling world, whether in sports, horse racing, slots, or roulette tables, anything that’s even remotely feasible can happen. Even games of skill, such as poker and blackjack, depend on a certain amount of luck — for example, the cards you’re dealt at the onset.
Four Reasons Day trading is Not Gambling
1. Day trading Examines Past Performance
Traders act on what the market is telling them and invest in stocks, bonds, or hedge funds that might rise in value over the next couple of hours, days, weeks, or months. These market fluctuations hinge on various conditions, such as product launches, the traditional concepts of supply and demand, market sentiment, fundamental factors, and new governmental policies being introduced into law.
In stark contrast, only two kinds of gambling exist: chance-based and skills-based.
- Chance-based gambling: Gamblers risk smaller amounts of money in the hopes of completely random events occurring. All players have an equal chance of winning, and none of them can influence what happens. Typical forms of chance-based gambling include the lottery, bingo, poker dice, slot machines, and many more.
- Skills-based gambling: In this form, gamblers depend more on their skill and overall knowledge of the events they’re betting on to increase their chances of winning big. Bets can range from small to large, and examples include sports betting (which is slowly becoming legalized and regulated across the country), blackjack, poker, roulette, and others.
While astute sports book gamblers can utilize historical trends to make decisions, the pure definition of gambling as a whole means that they’re banking money on something that is not known with certainty to take place. On the other hand, day trading consists of buying and selling batches of securities (financial instruments such as stocks, bonds, or hedge funds) within a specific period which attempts to exploit the upcoming short-term discrepancies within financial markets.
2. No House Advantage
While there are two different kinds of gambling, one constant remains: the odds are always in the house’s favor, and most bets always depend on a little bit of luck to come to fruition. The results of gambling games might well be decided solely by chance, as in the entirely randomized behavior of the ball on a roulette wheel; by physical talent, preparation, or athletic aptitude; or by a combination of strategy and random chance.
Conversely, when it comes to day trading, the markets don’t pose a particular advantage over their consumers. Success in daytrading depends on how informed the consumer is; there is no getting lucky on the stock market. Although wild price fluctuations can happen once in a blue moon, the success of a day trader depends on performing excellent research every day, establishing a sound investment strategy, and knowing the correct times to buy and sell financial assets.
3. Reason and Rationality
While day traders are meant to approach their investments with an elevated sense of rationality and coldness, gamblers are more prone to letting their own emotions cloud their judgments and pray the next bet is the bet that pulls them out of a slump. On the other hand, day traders can cut their losses on stock investments that seem to be sliding downhill; there is no emotional attachment to any lucky numbers or gut feelings. Cold, hard analytics inform the decisions of savvy day traders.
4. Slow Profits vs. Fast Profits
Someone who gambles is betting on a specific event taking place in order to win large sums of money. Gamblers put forward small and large amounts of money to make even more significant returns, meaning that gambling commonly correlates with a fast profits mechanism. In other words, gamblers seek to make as much money as possible within a short period.
On the other hand, profit-makers on the stock market depend on investments paying off over more extended periods to make their money. It’s more of a long-term game than gambling and entails a slow, passive income scheme.