Day Trading is often used in the same sentence. Furthermore, the two strategies can help you make a lot of money by risking a small amount of money.
For example, if you spend $1,000 to buy a stock that rises by 10%, you will have $1,100 in that session alone. In gambling, you can risk $100 and make more than $1,000 in a single session.
In this article, we will look at the key benefits that trading has over gambling.
What is Trading Gambling?
Gambling is the process of investing a small amount of money in the hopes of making huge profits. There are two types of gambling: based on skills gambling and chance-based gambling. Roulette and blackjack are two examples of skill-based gambling strategies.
The lottery is the most popular type of chance-based gambling. You put a small amount of money at risk for the chance to make a large amount of money.
Trading is the process of buying and selling assets, such as stocks, bonds, or currency, with the aim of making a profit. Trading can take place in various markets, including stock markets, commodity markets, and currency markets. Traders can make money by buying low and selling high or by selling high and buying low. Trading differs from investing in that it involves more frequent transactions, and traders often use technical and fundamental analysis to make informed decisions about when to buy and sell assets. Trading can be risky, and traders need to understand the market and have a well-researched plan to minimize their risks. Trading can take various forms, including day trading, swing trading, position trading, and arbitrage
Is Trading Gambling?
There has long been a debate as to whether trading qualifies as gambling. The answer to this question is controversial. Some experts believe that day trading is a form of gambling because it consists of risking a small amount of money and expecting a larger return.
However, some analysts say that trading is not gambling as it involves careful analysis of underlying conditions and the prediction of future movements.
Still, careful analysis shows that trading and gambling share some similarities (and some common strategies, too). In addition, they involve taking a small amount of money and risking it in exchange for a larger return.
Why Day Trading is Not Gambling
1. Facts and Figures
While true gamblers simply play the odds, day traders always research the past performance of target stocks before making a purchase. As a result, traders have access to a wealth of information.
Individuals will be perfectly capable of determining which stocks to buy using market tools rather than pure chance.
With the right facts and figures, most investment attempts should be successful.
2. No House Advantage
Day trading, unlike traditional gambling, has no inherent house advantage! This is how bookmakers make their money in Las Vegas, for example.
Day traders will be dealing with markets that are not worried about whether they win or lose. Day traders are likely to succeed in making a profit if they have enough good information and a strong aptitude for analysis (technical or fundamental).
3. Rationality and Reason
Day traders approach their jobs with cold rationality, whereas gamblers are often drawn to their doom by raw emotion.
If a stock is expected to perform poorly in the coming days or weeks, most traders will simply ignore it for the time being. Men and women who excel at day trading are almost always pushed to success by logic and reason.
4. Slower Profits vs Fast Profits
Day traders are also happy with creating wealth incrementally. This is in stark contrast to gamblers, who frequently expect to win big money quickly.
Traders have an excellent chance of turning a long-term profit with slow, steady gains. Rather than making rash, high-risk bets, investors will buy and sell stocks in an organised, careful manner.
Top 10 common mistakes that Day Traders Make
Here are Top 10 common mistakes that Day Traders make:
- Trading without a plan: Day trading is not gambling, which means you can’t stake your money on chance. Day trading is about making quick, calculated moves that will minimise your risk of loss and maximise your potential for profit. Therefore, it is important to come up with a plan and stick to it.
- Risking too much on one trade: Risking more than you can afford on one position is a common mistake, especially for new traders. It is important to manage your risk and not put all your eggs in one basket.
- Trading too much: Overtrading can lead to significant financial losses. It is important to be selective and only trade when there are good opportunities.
- Trading too soon: New day traders often jump into trades too quickly without doing proper research and analysis. It is important to take the time to analyse the market and make informed decisions.
- Trading with no edge: Having an edge means having a statistical advantage over the market. It is important to have a strategy that gives you an edge and to stick to it.
- Averaging down: Averaging down is the practise of buying more shares of a stock as the price goes down, hoping to lower the average cost. However, this can lead to significant losses if the stock continues to decline.
- Failing to treat trading like a typical business: Trading is a business that requires constant learning, practise, and discipline. It is important to take it seriously and approach it like any other business.
- Putting hard-earned money in the stock market without testing out strategies: One of the biggest mistakes new day traders make is putting their hard-earned money in the stock market without testing out their strategies and learning
- Lack of discipline: Day trading requires discipline, patience, and emotional control. It is important to stick to your plan and not let emotions cloud your judgement.
- Not managing risk: Risk management is crucial in day trading. It is important to have a plan for managing risk and to stick to it
The Bottom Line
However, it is important to note that day trading can become addictive and lead to significant financial losses. Additionally, the success rate of day trading is low due to its risk and requiring considerable skill