An ever-raging debate with traders new and old is, is trading gambling or not?
You probably stand firmly on one side of that debate, most likely in the no camp.
But there are a surprising number of traders who believe trading is gambling.
Here are two definitions of gambling.
play games of chance for money; bet.
take risky action in the hope of a desired result.
So, if we are using these definitions then, yes, trading is gambling.
I suspect though, that many, like myself, struggle with this definition.
I see gambling as a losing proposition, if not in the short-term, certainly in the longer-term.
Spreadbetting, CFDs and stocks
I first cut my teeth financial spread betting.
And, if you were to use the UK government definition, then spread betting is gambling.
If you’re not from the UK or are unaware of financial spread betting, companies offering this product are financial bookmakers.
Kind of similar to the bucket shops of Jesse Livermore’s day.
The trader bets on the price of an asset (spread betting firms have multiple asset classes) without ever taking hold of the asset.
In the eyes of the UK regulators spread betting is very much a gamble.
This is actually good for profitable traders, who never have to pay any form of tax on their winnings.
Similarly, we have CFDs, the larger cousin of spread betting.
According to some stock investors, CFDs are betting, yet stocks are not.
Again with CFDs, you don’t own the underlying asset. You are betting on the fluctuations only.
Stock traders think shares are more legitimate because they are buying something tangible.
I’ve had stock investors look at me like I’m the devil because I trade CFDs.
Shares are (supposedly) valued on the future income streams of the business, and are backed by real tangible assets.
Yet I’ve never ever once met a stock investor, hoping for his stock to be liquidated, so she can take ownership of the fixtures and fittings.
No, stock investors, just like us degenerate CFD traders, are just as enamoured with price movement.
One person can be a hopeless gambler in stocks, and another a prudent speculator in contracts for difference.
In fact, here in Thailand, the locals say, the poor bet on the lottery, while the rich bet on the stocks market
I don’t put much credence in the idea stocks are somehow much more respectable than financial spread betting, CFDs or Forex. It’s all speculation to me.
The real difference
It’s quite simple, IMO if you can make consistent money over time it’s not gambling.
In most gambling games this isn’t possible.
Besides poker or blackjack, there is no edge in games of chance
With slots, roulette, or even coin tosses, you cannot influence the outcome through your own skill.
And really for all us traders, that’s what we are trying to do.
Not about the odds
I use to think, if the odds of winning are less than 50% then it’s gambling.
And if the odds were over it’s speculation. But on second thoughts that’s not the case.
There are many trend traders who have an appalling win-lose ratio but make buckets full of money.
These guys are the very definition of superior money management.
After all, if you have a win ratio of 30% (or less) you better be damn good at cutting losses, and letting profits run.
Whichever way you put it, successful trading or successful gambling is all about using your skill to improve the outcome.
My gambling gene
To be honest, though I don’t really care for the semantics.
I no longer get upset when people say I’m gambling (ironically I stopped getting offended when I became profitable).
For me, and this is actually quite serious, there is a time when trading is gambling – and that’s when it’s an addiction.
I come from a family of gamblers.
I‘ve aunties who use dream interpretation books to give them lottery numbers.
My Ah Ma’s house was frequently a meeting place for high stakes Mahjong games.
I’ve family members who run an underground numbers racket.
And other members who’ve had to disappear because loan sharks were after them.
So, I am aware of gambling and the devastation (joy) it can cause.
Personally I never once considered myself a degenerate gambler – that is until I started trading.
It’s funny that my first 3 months of trading were among my most disciplined. I really took it to heart that I had to stick to my system – in the beginning.
Then I made my first rookie mistake, which over time led to a whole boatload of em.
Losing your money trading is like that quote about going broke – first, it happens slowly and then very quickly.
When all discipline goes out the window, and when your trading by the seat of your pants…..that’s when trading is gambling.
And it’s when serious addiction can occur.
I once went 50 losing trades in a row. Likely more, but I stopped counting.
Some of those losses were tiny. I realised as soon as I was in the trade, I wanted to be out.
Nevertheless, I was trading on impulse just like a chronic gambler does.
Stuck at the screen, hours on end, waking up in the middle of the night, seeing price bars when I closed my eyes.
Every hour was a potential opportunity to make back money. I was totally out of control.
Some of you will have been there.
Some of you are yet to experience it.
It’s hard to put into words so here’s a video of Tony Soprano and his gambling issues.
Replace horse racing, sports betting, or roulette with candlesticks charts or trendlines and you can hopefully appreciate that sometimes trading really is gambling.