We have often heard people say that trading is not gambling. Experts have a unanimous opinion when it comes to the difference of these two. They opine that trading is a systematic method that you learn seriously although it involves an element of what they call an “informed intuition.” However, what actually happens in real life is that many traders – both amateurs and expert professionals – often slip their way into gambling in between the trades that they execute. And what is more interesting is that they do this without actually realizing that they are not trading, but gambling.
But what is wrong with that? This is a question that might have popped up in your mind. You may be thinking that they are experts and so they would do well even when they use a gambling approach in their trading. This is not so. Because gaining good returns consistently from forex trading is a long-term affair. A couple of badly executed trades can affect not only the profits but also the confidence level of the trader. Hence, it is imperative that traders abstain from slipping their way into gambler’s approach at all times.
What’s The Difference Between Trading & Gambling?
To understand this better and to check whether you are doing this mistake, we need to understand the clear difference between trading and gambling.
Unlike gambling, trading is not based on luck. People trade in the stock or forex or commodity market based on the information they have, analysing them threadbare, and managing their money and risks skilfully. It is a skill that can be learnt, cultivated and mastered. There are specific pre-defined strategies in trading which when learnt properly gives favourable results.
Gambling, on the other hand, is a game of luck based on available odds. There are no scientific methods of data analysis or money or risk management. Moreover, the counter party, which is the casino, is also interested in profits and hence will take every measure to ensure that you do not make much profit.
How Does One Slip Into Gambling?
Now that you know the main difference between gambling and trading, you may wonder how a trader, who has learnt systematic methods of trading can slip into gambling all of a sudden. Well, the answer lies in the fact that after all the trader is also a human being with emotions, habits, and tendencies. Let us look at them in detail.
It is quite natural for anyone to get carried away with success. So when a trader makes gains from a series of trades executed with the help of good data analysis, precise execution, and sensible risk management, there is a tendency for him to become complacent in his work. He takes it for granted that his approach is fool-proof and that he can continue to make profits even if he does not analyse every option threadbare. In this way, he gradually slips into a level where he executes his trades without using the methodical approach mentioned above. And when someone embraces such an approach, it is nothing but sheer test of luck. That exactly what gambling is – trying your luck.
Another factor that traders seldom realize is that, with good performance, they tend to develop a “must-win” attitude. This may be partially due to social pressure too – people know that you make good profits and hence to maintain that image, you want to win trades at any cost.
When such an attitude develops in the mind and it gains strength, traders conveniently forget the fact that trading is a not a game played to win every day at any cost. There may be days when the market situation is not conducive for a particular trader to make profits. This may be due to several factors like his trading style, size of his investment, the strategies he use, etc. But the attitude change that happened in the trader will make him forget this fact and force him to trade until he wins. This will only lead him to severe loss as he is using his emotion to trade and not his intelligence.
Even though these are the tell-tale signs of a trader slipping his way into a gambler, it is to be understood that any trade that is not planned without doing necessary data analysis, executed without following the scientific strategies and ignoring the risk involved is to be considered as a gamble.Posted on