How Is Stock Trading Different from Gambling?
Author: George Davis
If you think gambling and stock trading are the same, then think again. Find out how is stock trading different from gambling in this blog post.
People who have never invested in the stock market often associate trading shares with gambling. Primarily because they believe success in the stock market depends on luck. While luck plays an important factor in every aspect of life, it has a minor contribution in determining whether you will exit the market with a profit or a loss. In this blog post, we will share the difference between gambling and stock trading to boost awareness among potential investors and to prove that stock trading is more than just luck.
Difference Between Trading and Gambling
Stock trading is the fastest way to multiply your wealth. Perhaps, that is why most people confuse it with gambling. However, success in the stock market depends on financial knowledge and trading experience. Here is how stock trading is different from gambling.
1. Risk Management
Gambling depends on luck, and if you try to count cards, you will be banned from the casino. In contrast, stock trading is more about technical and fundamental analysis to mitigate risk. Many investors use stop-loss strategies to exit the market at the right time. With experience, a trader becomes pro efficient in risk management, whereas a gambler has no viable means to mitigate risk other than betting low.
2. Gambling is Time-Bound
The major difference between stock trading and gambling is that the latter is time-bound. This means that you have a specific interval in which you either win or lose your money. In contrast, stock trading allows you to find the perfect opportunity to exit the market. In addition to this, gambling becomes an addiction, whereas mane traders have comfortably retired from the stock market.
3. Limit Your Losses
Where gambling is an out-of-control train on a rampage, trading is more controlled and focuses. That is why traders can limit their losses, while gamblers can only hope to win the next round. On the other hand, you can easily limit your loss by predicting the future outcome of a particular investment and sell your stock to someone willing to hold shares for longer periods than you.
Perhaps the deciding factor between gambling and trading is transparency. National level stock exchanges have strict rules that force listed companies to share their financial reports with the public. In contrast, gambling has little to no transparency. You cannot peak beneath the roulette table to see if there is a magnet or even figure out whether the dealer is holding cards.
Gambling and trading have no comparison, but the reason people associate trading with gambling is that both have the potential to make you an overnight millionaire. However, maintaining your winning streak in trading is far more challenging than it is in gambling.
1. APA Corporation (APA)
2. LGI Homes, Inc. (LGIH)
3. OneMain Holdings, Inc. (OMF)
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