Is the Stock Market Considered Gambling?
To an untrained eye, investing and trading in the stock market or forex may seem like a form of gambling. However, if you scratch the surface, you’ll notice that the market is very complex, which is why many people refrain from calling it pure gambling.
Although there are some similarities between the two disciplines, we can’t simply equate and treat them as though they are the same.
Simply put, investing in stock is similar to gambling in terms of making an educated guess while basing it on incomplete information.
In the end, a positive outcome will show a positive return on the initial investment.
On the other hand, we can’t say that investing bears any similarities to pure games of luck, such as slots, roulette or craps, because you don’t just put in money and pray for a good outcome — you put some serious thought into the entire process.
Although this interpretation of the stock market has been perpetuated for years, the truth bears a deeper meaning. In the following article, we’ll discuss the similarities and differences between gambling and the stock market and bust some common myths.
Similarities Between Investing and Gambling
One of the most considerable similarities between investing in the stock market and gambling is that investors and serious gamblers both do extensive research, follow odds, and look for ways to enhance their performance. Just like poker players study the opponent’s behavior in an attempt to gain the upper hand, stock investors study different market patterns using stock charts to predict the price.
Information on the company whose stocks you want to buy or sell is available on the internet, making it easy for you to inspect the market and calculate the odds and possible prices. All companies that sell their stocks on the stock market hand over their filings to the SEC (Security and Exchange Commission).
That way, investors can locate any necessary information, including the list of other companies that this firm has under its umbrella.
We can draw another comparison between the two sides — they involve risk. In both gambling and investing, you have to risk capital to increase its value. Of course, it’s important to know how much you can risk.
Whether you’re playing a game in a casino or buying stocks, there is a certain threshold you won’t pass. That’s why people always assess all possible outcomes and calculate risk tolerance. It’s best to know when to stop or sell the stocks because the wrong move can cost you much more than you’re prepared to lose.
Differences Between Investing and Gambling
Put plainly, gambling is a zero-sum game, meaning one can be either a winner or a loser — there’s no middle ground. In investing, on the other hand, there are different levels of winners and losers.
In some cases, we can see complete winners or losers, but investors usually buy and sell stocks. This puts them at an advantage and allows them to only partially win or lose and still save some capital. Investing produces wealth in long-term investments, while gambling can take it all away in a moment.
Another thing that separates investment from gambling is that investors can limit their losses. Whether you have a broker or you’re working with an online brokerage company, you can establish the so-called stop-loss trading order that would help you limit and control losses.
That way, if stocks significantly drop below the value, you can speed up the process and save a better portion of your investment.
What’s more, in gambling, you get limited information you can use to adjust the strategy or prediction. But, if you gamble on games based entirely on chance, any information you have will be useless because all outcomes are random. However, in investing, you can get all the data you need via online forums, company filings, and conference calls and use them to make an informed decision.
Common Stock Market Myths
If you don’t have a deep understanding of the stock market and investments, it’s easy to get caught up in common myths. Besides the one we’re trying to bust here about gambling, here are some of the most frequent myths you’ve probably already heard of:
- Only rich people can invest in the stock market — this is a false statement because, thanks to the Internet, the stock market has become widely accessible to everyone. You don’t have to be filthy rich to buy or sell stocks.
- Fallen angel stocks will eventually bounce back — thinking that stocks will go up after a long-term low is destructive. If you only focus on the price, you’ll end up on the losing side. Since there are many aspects to stock market investments, you need to do a deep dive and gather all the necessary information before making a decision.
- If stocks go up, they will also come down at some point — if you spend some time examining the stock market, you’ll notice that the laws of physics don’t apply here. Of course, stocks go through corrections, but there is no reason to think the value will drop if the company is successful.
- Knowing the basics is enough to start investing — of course, knowing something is better than nothing. However, in this case, you need to have a clear understanding of what you intend to do with your money. If you have trouble learning everything and getting the hang of how it works, you should hire an advisor. They are highly experienced people that can help you make the right decision.
Conclusion — Is Stock Market Gambling?
While we can’t deny that investing in the stock market and gambling have some similarities, however, as we’ve already said, the differences show us that we can’t draw a clear parallel between the two.
Of course, you will run into some people that firmly believe stock market investing is a form of gambling. But, we beg to differ. In reality, the stock market is a vast area that demands deep understanding, dedication, and making a calculated risk, if necessary.
But remember that you should never invest on a whim — you’d just be asking for trouble.