Gambling is defined as staking something on a contingency—an even with a random outcome, often with a negative expected return. However, when trading is considered, gambling takes on a much more complex dynamic than the definition presents. Many traders are gambling without even knowing it—trading in a way, or for a reason that is completely dichotomous with success in the markets.
In this article, we will look at the hidden ways in which gambling creeps into trading practices, as well as the stimulus that may drive an individual to trade (and possibly gamble) in the first place.
Hidden Gambling Tendencies
It is highly likely that anyone who believes they do not have a proclivity for wagering will be reticent to concede to such tendencies if it transpires that they are in fact following through on gambling inclinations. Yet recognizing the fundamental motives behind our decisions can assist us in altering how we come to conclusions later on.
Prior to commencing to trade, a tendency that is plainly perceptible in many individuals can be observed. This very motivation continues to impact dealers as they acquire expertise and become typical market participants.
Some people might not have any penchant for trading or investing in the financial markets at all, yet social pressure compels them to do so anyway. This event is exceedingly common when there are considerable masses of people discussing investing in the markets (generally during the concluding stages of a bullish market). People experience tension to comply with their social circle. As such, they invest without any qualms so as not to defy or misconstrue other’s convictions or feel abandoned.
Executing certain trades to conform to social compulsions is not gambling in and of itself if people truly know what they are doing. Nevertheless, taking part in a financial transaction without a well-founded comprehension of investing is tantamount to wagering. Those who lack the data to exert dominance over the profitability of their decisions are definitively gambling.
There are numerous variables that affect the market, and misinformation among investors or traders creates a situation akin to gambling. Gambling will continue to take place with each transaction that occurs until knowledge is developed that allows individuals to outsmart the odds of loss. Contributing Gambling Factors
When someone begins trading in financial markets, there is an initial learning curve which can superficially appear to be gambling. The amount of proficiency an individual has with the stock markets will decide whether they become a successful trader or remain a continuous gambler in the financial markets. A few traits (among many) that are frequently disregarded but add to gambling propensities amongst dealers comprise.
Contributing Gambling Factors
Once someone is involved in the financial markets, there is a learning curve, which based on the social proofing discussion above may seem like it is gambling. This may or may not be true based on the individual. How the person approaches the market will determine whether they become a successful trader or remain a perpetual gambler in the financial markets.
The following two traits (among many) are easily overlooked but contribute to gambling tendencies in traders.
Gambling (Trading) for Excitement
Even a losing trade can stir emotions and a sense of power or satisfaction, especially when related to social proofing. If everyone in a person’s social circle is losing money in the markets, losing money on a trade will allow that person to enter the conversation with their own story.
When a person trades for excitement or social proofing reasons, it is likely they are trading in a gambling style, rather than in a methodical and tested way. Trading the markets is exciting—it links the person into a global network of traders and investors with different ideas, backgrounds, and beliefs. Yet getting caught up in the “idea” of trading, the excitement, or emotional highs and lows, is likely to detract from acting in a systematic and methodical way.