The Difference Between Stock Trading and Gambling

Gambling has been around for more than 2000 years while the first official stuck trading started about 247 years ago in 1773. However, the New York Stock Exchange, which is now the most popular stock exchange in the world, started in 1792. Gambling involves taking risks just like stock trading. This is why many people believe that stock trading is a type of gambling and they aren’t entirely wrong. The thing is that they aren’t entirely right either. Stock trading might have a lot of similarities with regular casino gambling but it is much more complex.

The Difference Between Stock Trading and Gambling

What is the Difference Between Stock Trading and Gambling

With casino gambling, you’ll be placing bets on games and your chances of winning or losing will depend more on luck than strategy. With stock trading, you will be placing bets on company stocks and shares. Stock trading can serve as a long term investment that is much more stable than gambling.

If you buy stocks from the right company, you can become a billionaire who never needs to work again. Let’s use Apple for example. When Apple went public in 1980, they sold their stocks at $22.00 in the initial public offering. At the time of writing, each stock was worth $119.14. If you were among the initial investors who put in thousands of dollars into the company, you would have made millions by now thanks to the success the company has made over the years.

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Gambling isn’t something you can use as a primary source of income. It is something you do for fun. The money you make, if you win, is just a bonus. With stock trading, you’re placing bets on the future success of companies. When your shares appreciate, you can sell them and cash out the profit. The right equities can last for a lifetime.

There are stock options that allow you to invest a certain amount and take only the profits on a monthly, Bi-yearly, or yearly basis. It all depends on what you choose. If there is no expectation of returns, you can’t say you’re investing. That’s just charity. With gambling, you’re doing it for the adrenaline rush that comes with gambling but you hope that you can gain some money as well.

Long-term, you’re more likely to lose money gambling than you are to lose stock trading. This is especially so if you trade stocks through a reliable broker. In both stock trading and casino gambling, the higher risk usually means higher returns. The best strategy with stock trading is diversifying your portfolio. Since you’ll be executing different trades, you can minimize risks by investing no more than 5% of your capital in each trade. The risk and return expectation varies greatly across stock options. This is why investors spread their investments across different assets but within the same asset class.

The stock market is not as unpredictable as a casino game. If you learn how to read and understand technical charts, you can predict what direction certain assets will go in the short and long run.

When you’re stock trading through a broker, you will have to pay a certain percentage to the broker as commission. With casino gambling, the only money you’re required to pay is the one you’re wagering. With online sports betting, however, a small percentage of your money goes to the broker whether you win or lose.

Risk management might be one of the hallmarks of stock trading but some professional gamblers know how to establish risk management strategies effectively. These people don’t just see gambling as a fun way to spend their time, they consider it one of their primary sources of income. With time and consistency, a casino gambler can learn to shift the odds in their favor when playing certain skill-based games.

Similarities Between Stock Trading and Gambling

  • Both investors and traders deal with odds
  • Both investors and traders take risks with their capital
  • Both stock investors and traders hope for a return on their capital
  • Both gambling and stock trading can be extremely unpredictable

Differences Between Stock Trading and Gambling

  • In gambling, winning a bet will cost the casino money but in stock trading, everybody wins
  • Stock traders have more ways to mitigate losses than gamblers
  • Stock trading becomes favorable to the investor in the long run but gamblers almost always lose more long-term
  • Gambling is time-bound but shares in a company can last for as long as the company exists
  • Stock traders usually have more information to analyze at their disposal compared to gamblers

How to Get Started With Stock Trading

Step One: Consider Your Options

Stock trading, like every other form of investment, is not meant for everyone. Before you divert all your savings to trading stocks, you need to find out if it is the best strategy for you. Stock trading is primarily meant for people who have maxed out their 401(k) matching at work. If this is the case with you, you should consider purchasing index or mutual funds with any extra money you have left. Note that this isn’t the same as trading individual stocks from a broker. As stated above, stock trading is a risky investment option. So, you shouldn’t dive into stocks until you have saved up a significant amount of money for retirement. You might end up bankrupt if you spend all your savings on the stock exchange.

Step Two: Learn Everything you Can About the Stock Market

Information is everything when it comes to investing. You can’t just pour money into an investment when you don’t have enough information about how it works. The good news is that you don’t need a college education to become a stock trader. Thousands of online resources will help you learn everything you need to know about trading stocks. Some of these resources are free and some are paid.

You can start with the free ones and work your way up as you become more advanced. Websites like Udemy and TD Ameritrade have full online courses for beginners. TD Ameritrade and many other brokers also offer trading simulations that allow you to trade with paper money. Everything about the stimulation is the same as the actual trading. The only difference is that you will not spend real money.

Step Three: Select an Online Broker

When you’ve got a clear understanding of how stock trading offers a favorable environment for beginners and start trading. You mustn’t go for an advanced exchange if you’re a beginner. You might end up losing your money before you even start trading. The best brokers for beginners offer 24/7 customer support, educational resources, trade limits, and account limits as well. These limits help players minimize losses. Some of the best brokers for beg are Robinhood, TD Ameritrade, Charles Schwab, and E*TRADE. There are also many online trading communities where you can ask questions and share insights about trading.

Step Four: Set a Budget and Start Researching Stocks

In the stock trading world, the money you devote to trading, and the more you earn is placed in your virtual portfolio. Since the stock market is as addictive as gambling, you will need a lot of self-control to create a portfolio budget and maintain it. Don’t just start investing blindly. Research the nest stocks in the market and follow the technical indicators and tips on the brokerage of your choice. If you’re interested in individual stocks, read as much as you can about the company. Learn all you can about how their stocks have traded in the past and read productions for the future. Most importantly, read their risk ratings.

Step Five: Start Trading

No matter how much info you have about a company, you can’t give a 100% accurate prediction for the stock. The only way to know exactly how a stock will trade is if you get insider information. Insider trading is a crime and you might go to jail if the SEC finds out what you’re up to. So, instead of waiting for Insider information stick to making smaller trades across assets. Don’t put all your eggs in one basket. Take things slow and steady and only spend money that you can lose without regrets. You should also set a stop loss for yourself. When a particular stock falls below this level, you should sell and cut your losses. There is no need to wait until all your capital is gone.

Bottom line

Stock trading is a more logical investment option compared to gambling. With the right strategies, you can generate millions in profit from trading stocks. Gambling is a recreational activity and it should always be treated as such. Whether you’re gambling or stock trading, you should never let your emotions influence your choices. The last thing you want to do is place a huge bet emotionally and lose all your capital in the process.

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