Trading vs Gambling – Is there a Difference?

Put a trader in a group of non-traders and the conversation will inevitably turn to gambling.   At a recent family gathering I was asked about my share trading by an interested (or polite) family member, to which I responded with my usual cheery, ‘Good thanks!”

I had just mentioned that we were planning on selling our house and using the money to trade with, when a bystander with good hearing said rather loudly ‘Put it on Black!

These situations come up rather a lot; in fact some of my closest friends have expressed their thought that in the stock market it’s all luck and pretty much a 50/50 bet.  And for them, it probably would be.  Meanwhile I quietly bit my knuckle (hard) to stop myself from climbing a-top my soap box.  Because it was a dinner party, after all.

It seems the general population (in particular men in their forties on grand final day) don’t seem to consider a few quite important points, including but not limited to the fact that –

1.      It is highly offensive to be considered a gambler, particularly when you’ve just said you’re selling your house for funds.

2.      As traders we might have a slightly better idea of how the markets work than they do.

3.      A ‘girl’ in her extremely early thirties could have any knowledge at all of things they themselves don’t understand.

So, what is the difference between Trading and Gambling?

The difference between trading and gambling is, for me, enormous.  But I must admit that for a lot of ‘traders’ (or ‘speculators’ which is probably more accurate) there really isn’t any difference at all.  Even though I didn’t realize at the time, I started out as a share market gambler.  Now, however, I am not. To me, these are the differences –

·        A gambler is in it for quick bucks.  A Trader knows that profits often take time.

·        A gambler is caught up in the excitement.  A Trader knows that the job is boring, repetitive and mundane.

·        A gambler has the odds against him.  A Trader has a back tested edge that, over time, will consistently win.

·        A gambler focuses on the potential for winning, with no concept of risk.  A Trader focuses on the risk before anything, knowing profit will come as an afterthought.

If you are involved in the stock market, does your trading style sound more like that of a gambler, or a trader?   You might be surprised!