Trading Vs Gambling Revisited : An Interesting Short Article by Sam Seiden

Are you Trading or Gambling ? , Is there a difference ?, are the odds stacked in your favour by way of Reward and Risk ? , Sam Seiden revisits these question in his latest short article, see below:


A while back, I was spending time with a friend of mine I have been close with since we were children. For years, anytime my career comes up in conversation, he insists that my trading career is nothing more than gambling.


 At trading events and such, I often get asked if I think there is any difference between trading and gambling. It is a very hard question for me to answer because I think the whole question is wrong.


Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on Ebay, and so on, YOU ARE A SPECULATOR at some level.


The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the blackjack table to try and make $10.00. Pepsi pays for commercial television time at a network (risk) hoping to see a return (reward) on that investment much greater than the cost of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: "what type of speculator are you?"


Are you the type who only takes on risk when the odds are stacked in your favor, or are you the type that takes on risk when the opportunity "feels right" and "looks good?" My answer to my friend was simple. I said yes, trading and gambling are very similar, but there is one big difference. I said, "Imagine playing blackjack (21) and not having to bet any money until after you see all the cards and then being able to bet as much or little as you want, or even not bet at all. If you do place a bet, you can then take all your money off the table whenever you want; THAT'S TRADING, In trading, we have the ability to only put our hard-earned money at risk when the odds are very much stacked in our favor. A casino would love to have the odds that the astute market speculator is able to enjoy.


The issue is that most market speculators can't tell the difference between risk and opportunity. In fact, most get it completely backwards which is great for the astute market player. This novice group continuously falls for the many illusion traps in the market that disguise risk as opportunity.


Read the rest of the article. DIRECT LINK.

Kind Regards

Keith

Views: 304

Comment by amarjit on February 15, 2012 at 8:24am

Hi  Keith    Excellent   explanation ... very good article  The word  I am beginning to use is investing.

I suppose word  trading may be more suited to what we do a day to day basis in forex .Mind you trading and investing are similar in some ways ..but quite different from gambling . To take on any endevour without sufficent understanding and control of risk is the road to doom , gloom  and ruin.

Comment by Keith Shaw on February 15, 2012 at 10:21am

Hi Amarjit, interesting that you use the word 'Investing' . The hard core forex trader would not call himself an investor and would distinguish himself specifically as a ''trader'.

If you look at the broader view, essentially your are putting up a sum of money and expecting a return on that money (Risk / Reward), what period of time you are willing to hold onto that risk to get your reward  is perhaps one of the key differences between a trader and an investor,  no doubt there are other differences. The two BIG examples that come to mind are Buffet (Investor) and the hedge fund chap Soros (Trader).

Comment by genxtrader on February 15, 2012 at 1:56pm

 hi keith, ive gotten into quite a few debates over the difference between gambling and trading,so in order to sum up said debates quickly i came up with this. 

1) INVESTING- fundamental decisions based on intrinsic value.

2).TRADING.- logical decisions based on calculated risk.

3).GAMBLING- emotional decisions based on irrational hope.

Comment by Keith Shaw on February 15, 2012 at 3:17pm

Hi GenX, you had me thinking there buddy,  so I searched for some definitions of ‘gamble’ and ‘gambling’

Gamble (verb) : play games of chance for money

Gambling(noun) : an act of gambling; an enterprise undertaken or attempted with a risk of loss and a chance of profit or success.

Based on the above definitions I would say both investing and trading are acts of gambling, with a risk of loss and a chance of profit. The methods used to gauge the risk of loss and chance of profits i.e. a trade plan or investment plan I guess decideds the success or failure of your gamble. If that makes sesne (?)


Comment by genxtrader on February 15, 2012 at 4:16pm

 yeah, i guess the actual definition puts alot of things in the category of gambling, But i think there is a big difference between calculated risk, and hope of hitting the big one.

Comment by Keith Shaw on February 15, 2012 at 4:35pm

Agreed GenX, for the hope of hitting the big one we have the lottery, is it possible ? YES, is it probable? NO.

Comment by Janos on February 15, 2012 at 4:51pm

Comment by Peter jcp on February 15, 2012 at 5:44pm

Good article and i like Genx definitions of investing / trading / gambling.

You could say nothing in life is 100% ( yes forgot - we all die ) whether its crossing the road or starting a business or investing in learning some skills. The fact we do get a guaranteed income is the hardest to live with - but saying that there re loads of commission only people who only earn off achievements made, I have property investor and car traders friends who all take calculated risks and get caught out at times - so nothing is certain.- and in the end if you do a good job you get rewarded. If you depend on luck and no skill - then its a shame but you are not trading - you are gambling

Comment by Keith Shaw on February 15, 2012 at 6:28pm
Interesting concept 'death' Peter, some cultures believe in reincarnation, so although the 'shell' our soul currently resides in may wither away, the actual 'soul' or energy lives on. If you think of 'us' as billions of tiny particles of energy,which we are and the concept of, energy cannot be created or destroyed, but just changed from one form to another.
Comment by Sir Gissachance on February 15, 2012 at 8:44pm

If you invest, trade or even gamble then there is a very high probability that you may have called my name out aloud when things didn't go to plan........"Gissachance!" or "Give me a chance!" you may have shouted as you missed your boat so to speak.........And if you didnt then from now onwards you may use it... : 0 ) ............However lets be reminded that the further you draw away from Investing through to Trading then onto pure gambling then the more chances or risks you could be taking......All of the above three titles can win or lose constantly, break even or rarely win/lose.......Example... the Investor who took bad advise....the investor who took good advise......the investor who got lucky .....and the investor who was unlucky....and so on....... We can also say the same for some Traders,  the same for some who call themselves Traders and ditto to Gamblers..........Life and living is a huge gamble and everything surrounding it because there is so much which can and will go right or wrong........However we have to limit the risks by stacking as many odds in our favour,  pick ourselves up when we lose and learn/continue to develop providing we survive the aforementioned........Ah, then that brings me on to the best investment plan....its called "You" and personal development........Please remember that "Life is a Journey and not a destination"........And never be down hearted for "sUccess" has U  in it...... : 0 )........Sir Gissa (Giving you a chance) .....Out  !!!!!!!!!!!

Comment

You need to be a member of ForexStreet.net to add comments!

Join ForexStreet.net

© 2012   Created by FXstreet.

Badges  |  Report an Issue  |  Terms of Service