Stock Trading : Is it Gambling?
I’ve heard it before, “trading is gambling.” Have you heard it before? Maybe you’ve said it. Let’s face it there is risk associated in everything we do. Life is not about avoiding risk, it’s about managing it.
Life is not about avoiding risk,
It’s about managing it.
When I say everything we do has risk associated with it, I mean everything. There are NO guarantees in life. So if the definition of gambling is to assume risk, then I would agree… trading is gambling.
Merriam-Webster defines gambling in two ways. 1. “To play a game for money or property, to bet on an uncertain outcome” and 2. “To stake something on a contingency: take a chance”.
Let’s look at the first part “to play a game for money or property”. By this very definition, “to play a game for money or property”, one could argue that all professional athletes are gamblers. This leads me to my conclusion that this is a subjective determination, based on your level of dedication and how serious you "play this game". I don't believe a pro athlete would appreciate being labeled a gambler (nor do I), but rather appreciated that they took a game and mastered the skills required to play it - in order to justify payment.
Applying this same rationality to trading the stock market, I would argue that if you have developed a skill that affords you a consistent profit from the stock market, you are no more a gambler than a pro athlete.
A day trader is no more a gambler,
than a pro-athlete.
The second part of the first definition claims gambling is “to bet on an uncertain outcome”. I don’t feel I need to address this issue as there are no certainties in life. As Benjamin Franklin said, “in this world nothing can be said to be certain, except death and taxes.”
So let’s move on to the next definition, “to stake something on a contingency: take a chance”. Yes, this part is true. Opening a trade position is taking a chance. It is a calculated chance based on probabilities. So is getting married, or quitting your job of many years to pursue your dreams, or driving to work. Again, in a world that inherently lacks certainty, all of these actions are taking a chance that you will reach the other side unscathed. It’s well known that half of all marriages end in divorce. Those are pretty dim odds of success when it comes to marriage, yet getting married does not deem the participants as gamblers.
Why then is earning an income from trading the stock market perceived as gambling? My belief is it’s due to a lack of understanding and or exposure. Poker players have long been described as gamblers. One of Kenny Rogers’ famous hits is the Gambler, specifically talking about the poker player. Over time, poker has gained the recognition and respect of the general population as being a profession. Professional poker players, like pro athletes, have developed their skills to a high enough level to justify it as a career.
Professional poker players, like pro-athletes,
have developed their skills to a high enough level
to justify it as a career.
I would argue, trading the stock market is no different. The skill of technical analysis is the very practice of recognizing high probability moves. Mastering these skills can lead to consistent profits in the stock market making it a very viable career option. Is it easy? No. Neither is being a pro-athlete or a professional poker player. There are two components that lead a person out of the realm of speculation (gambling) and into the world of professional stock trading.
The first is mastering the technical or fundamental skills required to create a plan. The second, and most important in my opinion, is the management of risk. Risk management is one of the most overlooked components of trading, resulting in the myth that trading is gambling.
So can we agree that everything in life is uncertain? Then I think you will agree that everything in life to some degree is done with and has some level of chance attached to its success. If gambling is defined as taking a chance, then everything we do is a gamble. The component that separates these activities from acceptable gambling to unacceptable gambiling is the ability to control the risk. Risk management is the game of life... stop controlling your risks, and you cross the line from being alive to being a gambler.
Stop controlling your risks and
you cross the line from being alive
to being a gambler.