We all have heard during conversation about cash investment someone would say: “Investing or trading at stock exchange is like playing in a casino”? In fact, investing and gambling are related by the fact that they are associated with decision-making and risks – in particular, with the risk of complete loss of money or big income.
Is stock market trading a gamble? Many people ask this question from time to time. And when you buy stocks, and they immediately go down, this, of course, looks like a gamble in an online casino – you can win or lose all your money with one click. So, is there a difference between online casinos and the stock market? Are they so much alike?
Stock Exchange Details
A stock exchange or securities market is a place where buyers and sellers of stocks, bonds, bills, futures and other types of securities gather.
Shares represent ownership of the enterprise; they may include securities listed on the public stock exchange, as well as shares that are only traded privately. Bonds, promissory notes, etc. are the equivalent of a loan. There are a lot of types of securities, and each of them has its own characteristics, advantages and disadvantages. There are also two types of operations in the stock market: investment and trading.
SMI or Stock market investment
The money investment is a distribution of cash or a venture in an asset, such as a stock, with the hope of profit. Risk and profitability go hand in hand when investing – with lower risks you have low income, while higher returns usually come with higher risks.
So you always need to decide how much you can risk. The people who came to play casinos have to do the same. Long-term investors are constantly hearing about the benefits of diversifying various asset classes. Anyway, the expected risk and return can vary greatly inside the identical asset class, specifically if it is as large as the stock class.
Investing is focused on the long term. Good investors check the company before investing their money in it, because they know that it will take a lot of time before they receive a substantial income. Similarly, with gambling – casino players try to find out some information (about dealer cards, other players and other secrets) during the game, but, unfortunately, they cannot have a lot of information, but for investors, usually all information is available.
Trading is an act of buying and selling securities. All participants of the stock exchange trade them, but for investors, the purchase and sale transaction are very rare, and they make big profits by finding a good opportunity, buying cheap and selling at a much higher price sometime in the future. But traders are not investors.
Traders seek to capitalize on short-term divergence in market prices. In general, they do not take a lot of risk on each transaction, so they do not receive a lot of profit on each transaction. Some traders usually risk 2-5% of their capital in any particular transaction.
They act fast. Traders look at what is happening in the market and react accordingly. Just like blackjack players – they look at which cards already out, which are now on the table and try to calculate the probability of a particular card being drawn.
A casino game is a money dispute or something valuable (called a “bet”) in relation to an event with an uncertain outcome. The main purpose of the dispute is to win money or other material values. The size of the winnings depends on various circumstances, including the skills of the player.
Thus, gambling requires three elements: bet, risk and profit.
And although the players cannot get enough information about the game situation on the field, like investors or traders, they can compensate for this by studying the game strategies, the behavior of other players at the table and other nuances of the game.
Does the stock market look like an online casino?
As you can see: bet, risk and profit are the main elements of investment, trading and playing in a casino, so they have more kindred than you think.
Both in investment and trading, and in gambling, everyone risks capital in the hope of making a profit. In all cases, the key principle of the participants ’actions are to minimize risk with the highest possible reward. So, yeah, they are near same.