Many people think that trading and gambling are pretty much the same thing – thus very risky! Not only is that assumption false. It also acts as a deterrent, keeping people away from the financial markets. Hence those miss the exciting opportunities that trading offers. This article will examine both activities, trading and gambling, and shed light on the key differences.
It’s a matter of fact that investing money as a trader or investor always bears a risk. And so does gambling – not surprisingly. Therefore, the misconception lies on the fact that both actions involve the same risk.
GAMBLERS MIGHT LOSE IT ALL
Yet examining the strategy of clever investors and traders, it becomes very clear that they have the opportunity to implement risk management strategies. Traders can set stop loss limits in order to well… limit the losses. With gambling it is totally different: One bets on something with a specific amount of money. With that one risks to lose the entire sum of the money with one single bad decision.
TRADING PROVIDES OWNERSHIP
Moreover, trading provides ownership over something, ranging from currencies and commodities to ownership in a company (stocks) to which we can add the concept of time and the pay of dividends. The ownership involved in trading will derive in profits if the price of the stocks goes up. The same occurs when the company is profitable and issues dividends. Although the financial markets have fluctuated over the decades, the general trend has been upwards. Furthermore, one of the key elements is to maintain a diversified portfolio, which would be complicated when betting.
Let’s sum it up: There is a similarity between trading and gambling, which is the fact that both activities involve monetary risk at the hopes of increasing future profits. Nevertheless gambling involves no risk management, whereas investing represents ownership over a product, the possibility to earn dividends from companies and implement several risk management strategies.
Author: José Gabriel Martínez Roa
Featured Image: Pixabay/ Dutchman 1887; Modification: SwipeStox