Are You Investing or Gambling? (2024)

Gambling is defined as staking something on a contingency — wagering money on something that has an uncertain and potentially negative outcome. However, when trading is considered, gambling takes on a much more complex dynamic than the definition presents. Many traders are gambling without even knowing it trading in a way, or for a reason that is completely dichotomous with success in the markets.

In this article, we will look at the hidden ways in which gambling creeps into trading practices, as well as the stimulus that may drive an individual to trade (and possibly gamble) in the first place.

Key Takeaways

  • There are two common traits in those who exhibit gambling tendencies when trading.
  • If a person trades for excitement or social proofing reasons, rather than in a methodical way, they are likely trading in a gambling style.
  • If a person trades only to win, they are likely gambling. Traders with a "must-win" attitude will often fail to recognize a losing trade and exit their positions.

Hidden Gambling Tendencies

It is quite likely that anyone who believes they don't have gambling tendencies will not happily admit to having them if it turns out they are in fact acting on gambling impulses. Yet discovering the underlying motives behind our actions can help us change the way we make decisions in the future.

Before delving into gambling tendencies when actually trading, one tendency is apparent in many people before trading even takes place. This same motivator continues to impact traders as they gain experience and become regular market participants.

Social Proofing

Some people may not even have an interest in trading or investing in the financial markets, but social pressure induces them to trade or invest anyway. This is especially common when large numbers of people are talking about investing in the markets (often during the final phase of a bull market). People feel pressure to fall in line with their social circle. Thusthey invest so as not to disrespect or disregard others' beliefs or feel left out.

Making some trades to appease social forces is not gambling in and of itself if people actually know what they are doing. However, entering into a financial transaction without a solid investment understanding is gambling.Such people lack the knowledge to exert control over the profitability of their choices.

There are many variables in the market, and misinformation among investors or traders creates a gambling scenario. Until knowledge has been developed that allows people to overcome the odds of losing, gambling is taking place with each transaction that occurs.

If you or someone you know has a gambling problem, call the National Council on Problem Gambling Helpline at 1-800-522-4700, or visit NCPGambling.org/Chat to chat with a helpline specialist.

Contributing Gambling Factors

Once someone is involved in the financial markets, there is a learning curve, which based on the social proofing discussion above may seem like it is gambling. This may or may not be true based on the individual. How the person approaches the market will determine whether they become a successful trader or remain a perpetual gambler in the financial markets.

The following two traits (among many) are easily overlooked but contribute to gambling tendencies in traders.

Gambling (Trading) for Excitement

Even a losing trade can stir emotions and a sense of power or satisfaction, especially when related to social proofing. If everyone in a person's social circle is losing money in the markets, losing money on a trade will allow that person to enter the conversation withtheir ownstory.

When a person trades for excitement or social proofing reasons, it is likely they aretrading in a gambling style, rather than in a methodical and tested way. Trading the markets is excitingit links the person into a global network of traders and investors with different ideas, backgrounds, and beliefs. Yet getting caught up in the "idea" of trading, the excitement, or emotional highs and lows, is likely to detract from acting in a systematic and methodical way.

Speculation involves making a risky investment, but one with a positiveexpected return. The expected return for gambling is always negative for the player, even though some may get lucky and win in the short run.

Trading to Win, and Not Trading a System

Trading in a methodical and systematic way is important in any odds-based scenario. Trading to win seems like the most obvious reason to trade. After all, why trade if you can't win? But there is a hidden detrimental flaw when it comes to this belief and trading.

While making money is the desired overall result, trading to win can actually drive us further away from making money. If winning is our prime motivator, the following scenario is likely to play out:

Taylor buys a stock they feel is oversold. The stock continues to fall, placing Taylor in a negative position. Instead of realizing the stock is not simply oversold and something else must be going on, Taylor continues to hold, hoping the stock will come back so they can win (or at leastbreak even) on the trade. The focus on winning has forced the trader into the position where they don't get out of bad positions, because to do so would be to admit they lost.

Good traders take many lossesthey admit they are wrong and keep the damage small. Not having to win on every trade and taking losses when conditions indicate they should is what allows them to be profitable over many trades. Holding losing positions after original entry conditions have changed or turned negative means the trader is now gambling and no longer using sound trading methods (if they ever were).

Is Investing Basically Gambling?

Investing is the act of committing capital to an asset like a stock, with the expectation of generating income or profit. Gambling, on the other hand, is wagering money on an uncertain outcome, that statistically is likely to be negative. A gambler owns nothing, while an investor owns a share of the underlying company.

Is Gambling a Smart Way to Make Money?

Statistically, gambling is not a smart way to make money. The odds are against the gambler, with the house having a built-in mathematical advantage that grows over time. While it is possible to win a big payout, or to mitigate risk through selective playing based on research and odds, overall, most gamblers will end up losing money.

Is It Better to Invest Than Gamble?

While both involve minimizing risk to reap rewards, an investor's odds are generally better than that of a gambler. That's because with gambling, the house has an edge, a statistical advantage over the gambler that grows the longer the person is playing. A gambler can still strike it big, but it's more likely the person will ultimately lose. Investing can yield great losses, but the stock market generally appreciates over time, and if you keep investing, the odds are generally in your favor, certainly more so than for a gambler.

The Bottom Line

Gambling tendencies run far deeper than most people initially perceive and well beyond the standard definitions. Gambling can take the form of needing to socially prove one's self, or acting in a way to be socially accepted, which results in taking action in a field one knows little about.

Gambling in the markets is often evident in people who do it mostly for the emotional high they receive from the excitement and action of the markets. Finally, relying on emotion or a must-win attitude to create profitsrather than trading in a methodical and tested systemindicates the person is gambling in the markets and unlikely to succeed over the course of many trades.

Are You Investing or Gambling? (2024)

FAQs

Are you gambling or investing? ›

Gambling is a time-bound event, while an investment in a company can last several years. With gambling, once the game or race or hand is over, your opportunity to profit from your wager has come and gone. You either have won or lost your capital. Stock investing, on the other hand, can be time-rewarding.

Do you agree that investment is a gambling? ›

Investing is the act of committing capital to an asset like a stock, with the expectation of generating income or profit. Gambling, on the other hand, is wagering money on an uncertain outcome, that statistically is likely to be negative. A gambler owns nothing, while an investor owns a share of the underlying company.

What are the key differences between investing and gambling? ›

Key Takeaways

Gambling is a short-term pursuit where the individual owns nothing, with negative average returns expected over time. Investing provides ownership in an asset (for stocks) or an expected return (for bonds), over a much longer time frame.

Is investing a good idea yes or no why or why not? ›

If you have built up your emergency fund and don't carry any high-interest debt, investing your extra money can help you grow your wealth over time. Investing is crucial if you're going to achieve long-term goals like retirement.

Why do people think investing is gambling? ›

Some people view the stock market as gambling because both involve risk and uncertainty. In both activities, there's a chance of gaining or losing money based on the outcome of events that are often unpredictable.

Is investing a game of luck or skill? ›

There is an element of luck at play in the stock market. Of course, skill and hard work will play a part in your success, but other factors such as timing and luck also play a part in a stock's performance. For instance, there are times when stocks go on streaks and outperform themselves.

Why is gambling considered wrong? ›

(1) Gambling directly appeals to covetousness and greed “which is idolatry” according to the Apostle Paul (Colossians 3:5). Gambling breaches the 1st, 2nd and 10th commandments. It enthrones personal desires in place of God. Jesus warned: “you cannot serve both God and Money”.

Is gambling good or bad why? ›

Harm from gambling isn't just about losing money. Gambling can affect self-esteem, relationships, physical and mental health, work performance and social life. It can harm not only the person who gambles but also family, friends, workplaces and communities. Here are some signs of gambling harm you can look for.

Are options just gambling? ›

Both activities involve an inherent level of risk that cannot be entirely eliminated. In options trading, investors wager on the future movements of financial assets, while in gambling, individuals bet on uncertain outcomes in games of chance.

Is gambling a sin? ›

Although there are some who experience gambling as something rewarding and fun, it tends toward being highly addictive and potentially ruinous. The Bible doesn't call gambling a sin as such, although the Bible warns against the love of money and get-rich-quick schemes.

How do I start investing? ›

Here are 5 simple steps to get started:
  1. Identify your important goals and give them each a deadline. Be honest with yourself. ...
  2. Come up with some ballpark figures for how much money you'll need for each goal.
  3. Review your finances. ...
  4. Think carefully about the level of risk you can bear.

Is day trading basically gambling? ›

The main difference between day trading and gambling is that gamblers play available odds while traders strategize based on market trends, price movements, and past performances. Traders often use sophisticated analytical tools and real-time market updates to decide which stocks to buy or sell and how much to spend.

Does investing actually work? ›

Over the long term, the average annual stock market return is 10%; that average falls to between 7% and 8% after adjusting for inflation. That means $1,000 invested in stocks 30 years ago would be worth over $8,000 today.

What are the pros and cons of investing? ›

Bottom Line. Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.

Why is investing better? ›

Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.

How do you know if you are gambling? ›

If you have a problem with compulsive gambling, you may continually chase bets that lead to losses, use up savings and create debt. You may hide your behavior and even turn to theft or fraud to support your addiction. Compulsive gambling is a serious condition that can destroy lives.

Is gambling like cheating? ›

Gambling is a particularly tricky form of financial infidelity, as it carries a considerable amount of societal shame and can often develop into addiction.

What does the Bible say about gambling? ›

Although there are some who experience gambling as something rewarding and fun, it tends toward being highly addictive and potentially ruinous. The Bible doesn't call gambling a sin as such, although the Bible warns against the love of money and get-rich-quick schemes.

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