Whether expert traders or novices in the game, a lot of people struggle to make a distinction between trading and gambling. After all, most of the highs and lows of the stock market are the direct results of stock investors throwing the dice with crossed-fingers. To a lot of investors, it is a matter of going with their gut, picking a stock based on intuition and then hoping – and praying – that the share price goes up.
Of course, there are a lot of gamblers in the stock market who wear a fancy suit and pose as professional investors. However, there are a few distinctions to be had between the two, and that is exactly what we are going to do; we are going to draw the line so that you know the differences.
The Tactics of Managing Risk
The ideal principle is the same across both; it is a matter of minimizing risk while maximizing profits. However, the way in which this principle is adopted is different. Investors look at diversifying their investments as a means to minimize the chances of any potential loss. Gamblers don’t. Instead, gambling involves weighing up the chances of winning against the risk factors, and so the odds have to be favorable before they put any money in.
Limiting Your Losses
Gambling has no means of stopping – or even limiting – your losses. It is a bet and once you have made that bet it is closed. Your fate is sealed. Let’s say you bet on a football match, and you lose; that’s it. There is no way of limiting the damage. This is not the case with investing, whether that be stocks of trading binary options. Instead, investors have certain options available to them to limit any damage to an investment that has turned sour. It could be that your investment drops by a certain percentage of your risk capital, at which you point you sell your investment on. It may be a drop in price, but the damage has been limited.
Time Is A Big Factor
One of the biggest distinctions to be made between investing and gambling is the concept of time. You see, most financial investments acquire profits – or losses – over a long duration of time, often years. Gambling is much more time-bound than this. Once the facet you have gambled on – whether sports or casino games or whatever – has closed, your wager is done too, and that means you can’t improve your profits anymore. When it comes to investing, time is your friend more often than not.
Investing Has Quantifiable Information
There is no denying that information and research are critical in both investing and betting, it is far more valuable and accurate when it comes to investing. That is because there is much more quantifiable data at hand. There are financial reports to study, ratios, profit margins and a wide range of other contributing factors. In gambling, the data available is not quantifiable. It is far more turbulent and unpredictable and far more easily affected by outside factors.