Trading or Gamblingq

The following link gives a really good definition:

http://www.financial-spread-betting.com/trading-or-gambling.html

 

Trading or Gambling

Fortunately, none of us serious trader types ever really gamble. We all take our trading very seriously, like a serious business person should, when they're being serious about their business. Oh, sure, sometimes we might take a low probability position like buying a Gold call every now and then, but it's not gambling. We're far too serious and far too businesslike (oh, and serious, too) for that. After all, trading is a serious business and we treat it accordingly.

Some of you may now have an inkling of where I'm going with this...

Conservatism is not the opposite of risk-taking. Everyone on the face of the earth is a risk taker unless they're dead, and maybe even then (but I can't prove it). Every time you venture out of your house, you're risking your life. Every time you don't leave your house, you're risking your life. Tornadoes, earthquakes, drive-by shootings, house fires, deadly viruses and bacteria; the world is just not a safe place. Sure, we'll all die someday anyway, but pay no attention to the man behind the curtain because fatalism will harm you as a trader. Most of the time for most people, the risks that are assumed and taken minute to minute are small enough that we don't really even think about them. Yeah, an airplane might fall out of the sky and hit us, but probably not. It's not something that gets above the worry threshold.

"The line between investing and speculation or gambling in financial markets is always a pretty gray one," he says. "And speculation is always a motive."

"But Stiiiicks," you complain, "you're missing the point. Risking and gambling are different. I control risk in my serious business of trading. Actually, it's that serious, businesslike attitude that separates me from the gamblers. I mean, I'm cautious and careful, not like those frivolous, arm-pulling, dice-throwing, chain-smoking out of control monsters in those Vegas casinos. I'm a speculator... no, an INVESTOR. I even keep my tie on when I do my end-of-day analysis. I control risk, therefore I do not gamble."

Well, guess again. Yes, we most certainly are gamblers. Let's start with a dictionary definition. This one is from the 1981 American Heritage Dictionary:

1.a. To bet money on the outcome of a game, contest or other event.

2. To take a risk in the hope of gaining an advantage; speculate.

1. (v -tr) To expose to hazard; to risk.

This, my friends, is dead on target. Trading is most definitely gambling. You buy or sell an option or a contract because you have a belief that the market is going to behave a certain way. I don't care how confident or arrogant you are about your methodology, you do NOT have tomorrow's paper and you do NOT know for certain which way the market will go. You are therefore making a bet on the market. You may as well just call up your broker and tell him, "Five hundred bucks says Corn goes up next week." The only difference is that your broker does not say, "You're on," and take the other side of your bet. Another gambler in the market does that. The broker is the bookie.

Sure, you are "allocating margin", or "purchasing an option", but fundamentally you are betting money on the uncertain outcome of an event (that being the trading that takes place at the exchange).