The short-term trading vs gambling comparison is often made by people who misunderstand the fundamental nature of the two activities.
While they both involve high risk (aka, the potential to lose money) and the potential for large financial gain, that’s about it. And it doesn’t even say a lot.
Unskilled traders rely on luck to compensate for their shortcomings. They lack the analytical and risk management skills to make a smart trade—and it shows in their win rate. For the most part, that’s a losing bet.
A gambler is always subject to the capriciousness of the gambling vehicle, be it a horse race, card game, or dice roll. Still, they might understand enough about statistics and betting odds to avoid making foolish bets.
Skilled traders hold the greatest advantage over unskilled traders and gamblers. While some part of chance still influences their success, skilled traders minimize luck and optimize for predictable price movement. Their win rate backs this up.
This article will examine the differences of trading vs gambling so that you’ll never be confused about the answer to the question, “is trading gambling?”
Table of Contents
What is gambling?
Perhaps the most fundamental characteristic of gambling is its unpredictability. Gamblers crave this, and if a game becomes too predictable, it loses its appeal—or it’s labeled as a “rigged” game that only fools will play.
Gamblers want to feel they have a chance to win, even when the odds are overwhelmingly out of their favor. Casinos and lotteries wouldn’t be viable business models if they couldn’t deliver feelings of excitement and possibility to their patrons.
There are some exceptions to this: activities such as horse racing and sports betting aren’t structured to favor “the house,” and many bettors claim to have inside knowledge or skills that give them an edge.
As a hobby or form of recreation, the downsides of gambling evaporate. You might spend just as much money collecting baseball cards or mountain biking—the goal is enjoyment, not profit.
However, the distinction between gambling and trading becomes critical when people consider gambling as a way to make money.
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What is trading?
Trading involves buying and selling financial instruments such as stocks, bonds, securities, commodities, cryptocurrencies, and other tradable assets, on regulated exchanges.
Long-term traders, sometimes called investors, use these markets to build wealth over months and years. Short-term traders work in time spans of days, hours, and minutes, optimizing for small price changes that generate a profit.
Traders rely on four dominant areas of strategy and technique:
- Fundamental analysis: This involves looking at key performance metrics such as profit, loss, market capitalization, debt-to-income ratio, and broad economic factors.
- Technical analysis: Short-term traders work heavily with charts and complex mathematical indicators that signal which way a price is likely to move.
- Risk management: All markets and investments have inherent risk (the potential to lose money). Professional traders keep risk management in mind and continually optimize their risk mitigation techniques.
- Discipline and planning: Although we categorize them as “soft skills,” make no mistake: they’re as critical as the hard skills. Successful traders have a high degree of self-awareness and emotional regulation.
Traders who perform successfully are highly capable in all of these areas. While it’s a challenging journey, luck has little to do with becoming successful.
Similarities Between Gambling and Trading
Now that we’re clear about what we’re talking about, let’s take a look at why people may be inclined to answer “yes” to our initial question: is trading gambling?
People even use similar terms such as “hedging bets,” “unlucky,” “bad bet,” “smart bet,” and “playing the odds” to describe trading activities. That’s why it’s important to clarify as much as possible.
- The risk is real: in trading and gambling, you can lose money or make it. There are no guarantees. When you execute a trade or place a bet, you accept full responsibility for the outcome. However, professional traders mitigate as much risk as possible with their risk management matrix.
- Luck can be a factor: in gambling, luck is the primary factor that affects your outcome. In trading, luck is one factor among many. The best traders in the world experience bad luck, but they have a process for managing risk and dealing with negative emotions.
- Addiction is possible: due to the fundamental nature of human physiology, nearly any activity can be addicting. Addiction is more likely with activities that create extreme emotional highs and lows, along with tangible rewards, such as money.
- Psychological rollercoaster: despite all the analysis and strategy, traders experience high and low emotions when trading—but they learn how to work with that. For gamblers, there’s very little they can do to ease the rollercoaster of emotion. Often, they deal with disappointment by placing another bet.
In reality, much of the similarities can also be said about trading and many other professions and activities. They are real, but they are also not very specific.
Why Short-Term Trading Is Not Comparable to Gambling
As mentioned earlier, gambling is usually based on structured games with uncertain outcomes. Gambling is designed to stimulate excitement and resist any attempt to improve outcomes through skill.
Of course, short-term trading is not fully predictable, because it’s based on a complex web of factors such as human psychology, geopolitics, supply chains, climate, and innovation. That said, skill and tangible value are rewarded.
Markets also rely on regulators to ensure anyone rigging the game is held accountable. By contrast, a casino’s right to rig games in its favor is a fundamental premise of what makes the business viable.
We’ve divided the differences of trading vs gambling in seven areas.
1. Facts and Figures
Although there is a sophisticated statistical component to gambling, it favors the house, not the players. A good gambler can try to make high-probability bets, but casinos and other gambling operations discourage anyone from succeeding too much at any given game.
Most games of chance don’t provide historical data to players to help inform their decisions. And many gamblers want each attempt to feel fresh with possibility. Gambling historical data can shatter this feeling.
Short-term traders make data-driven decisions using analytical tools to illuminate patterns or trends. A professional trader always seeks better data to make the most informed decision possible.
Short-term trading rewards higher profits for skill acquisition, discipline, planning, and analysis. Gambling rewards players with excitement, and leaves them penniless.
2. No House Advantage
Any experienced gambler understands the concept of “the house,” which refers to the entity that facilitates the game.
Even in high-skill games such as poker, the house takes a percentage of the buy-in money in exchange for hosting the event. Gamblers are at a perpetual disadvantage to the house.
For traders, the only equivalent to a “house” might be the company that operates the exchange. Companies such as the New York Stock Exchange or NASDAQ make money by charging transaction and membership fees. However, they don’t make money when traders lose. They want more trades, not fewer, so, if anything, they’re incentivized to help traders win.
While the best traders can lose up to 60% of their trades and still pay transaction fees and taxes on their profits, it’s nothing compared to gamblers’ losses.
3. Rationality and Reason
Gamblers and traders are both subject to emotional decision-making. While excitement is part of the gambling experience, it’s likely to cause more harm than good when trading.
Short-term traders seek to regulate their emotions and rely on reason and logic for trading decisions. Sometimes, well-reasoned decisions lead to trading losses, which is part of any profession or business venture.
Professional traders build on the lessons of past trades. Gamblers can only hope their luck will change before they run out of money.
4. Slower Profits vs Fast Profits
One similarity that can mislead people into comparing trading and gambling is the possibility of huge gains. Statistically speaking, some gamblers bring home huge wins, and some traders make way more money than they expected to on a given trade.
These big wins are exceptions that prove the rule: slow and steady beats fast and furious. If your trading strategy is built around getting lucky with a trade far exceeding expectations, you won’t get very far as a trader.
Gamblers who win big are notorious for losing the money on subsequent gambles, convinced they can repeat the trick. This behavior favors the house.
Smart traders avoid these trades because they know long-term profit is built on steady gains and minimal losses.
5. Short-Term Trading Can Make Money in All Conditions
Traders know how to make money in bullish or bearish markets. While it’s easier to make money when prices go up, it’s just as feasible to make it when the market falls. That means smart traders can hedge their trades and even use arbitrage to secure their profits.
Gamblers have a much harder time making money, no matter the game’s outcome. Gambling is designed to offer few opportunities to win against many opportunities to lose.
Short-term traders study market volatility and have the most opportunities to make money, regardless of which direction the price of an asset moves. Technical analysis and pattern recognition help short-term traders capitalize on these movements and exit the trade before a reversal happens.
6. Short-Term Traders Use Advanced Technical Tools
Gamblers can’t bring tools or technology to assist their betting process or sway the game. The casino or game facilitator wants to keep every player as evenly positioned to lose as possible.
Conversely, short-term traders should study advanced trading tools and techniques to help ensure the success of every trade. The only stipulation is that traders can’t use “inside information” or non-public company information to make trades. If they’re caught using inside information, the penalties are steep.
Short-term traders often rely on the following tools to assist with their daily trading activities:
- Asset watchlists.
- Computer-monitored trading alerts.
- Breaking news.
- Technical indicators.
- Charting methods.
In other words, traders are encouraged to use every tool and legal advantage they can to increase the likelihood of a profitable trade. Gamblers have to stick with luck.
7. Risk Management
Gamblers can do little to manage their betting risk without a basic grasp of probability and statistics.
Short-term traders who master risk management can enjoy higher profits, lower losses, and less stressful trading sessions. Risk management includes stop-loss and take-profit orders, evaluating portfolio risk, and diversifying trades to avoid harmful correlation.
Common Misconceptions About Trading vs Gambling
It should be clear by now that short-term trading and gambling are fundamentally different activities. Several misconceptions perpetuate the idea that gambling and trading are the same.
Let’s examine some of the most common ones.
Traders Rely Only on Odds
A skilled trader should have a strong understanding of odds and statistics. While most asset prices move sequentially, erratic movements are also possible. Understanding the most and least probable scenarios helps to eliminate rash trading decisions.
However, knowing the odds of a given trade is not enough to ensure success. Short-term traders gather information, analyze it, and apply proven trading techniques to every trade.
In most cases, all a gambler can do is play the odds and hope for the best.
An Easy Way to Make Money
As we’ve established, it’s easy to lose money when gambling or trading without proper training and skill.
On the other hand, it’s not easy to make money as a short-term trader. Just like it’s not easy to become a successful musician or athlete—it takes dedication, hard work, and a genuine desire to succeed.
If you want to make a career as a short-term trader, you need to study the best traders, develop your skills, and learn through experience. The more skilled you become and the larger your portfolio grows, the easier it gets to make money. You also have the risk of losing more money as well, especially if you engage in leveraged trades.
Just a Hobby
Many people enjoy short-term trading as a hobby thanks to trading apps such as Robinhood, E*Trade, and thinkorswim. They buy a few stocks and hope to make a few bucks here and there as the price fluctuates. There’s nothing wrong with this approach to trading.
Some people make the mistake of thinking that short-term trading is only a hobby and that it’s impossible to make a living at it. That’s untrue.
Take Real Trading, for example: we have more than 3,000 traders in 90 countries who move more than 400 million shares or assets in a single day. Our model is to find the smartest traders, train them to become professional traders, and then give them the tools and resources to launch a fulfilling career.
Requires a Lot of Capital to Start
If you want to trade with your money, starting with a lot is better. On the other hand, if you’re looking to make a career as a short-term trader, there’s no reason to bring a big bag of cash. In fact, you can start trading with as little as $500.
We recommend looking for a prop (“proprietary”) trading firm that offers training, proprietary technology, and sets you up with a funded trading account. Sometimes, you may only have to pay for your training and a nominal deposit before trading with the firm’s money.
However, beware of shady firms that require you to keep investing money to “unlock” buying power.
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Trade Smart and Don’t Push Your Luck
Risk is fundamental to trading. It is the mechanism that allows anyone to make a profit. Thus, risk is not a bad thing. It’s simply a factor that deserves respect and demands management.
Short-term traders train, strategize, and test their skills relentlessly. Anyone can become a professional trader, but few are willing to commit. It’s easier to blame your losses on bad luck or a rigged market than taking ownership and raising your skill level.
Now that you’ve read this article, you don’t have to be confused. Instead, you can take your new knowledge to the bank.
