Is spread betting gambling? Aren’t traders simply gambling with their money when the take a position in any market through financial spread betting? Some would say yes, but there is little doubt that successful traders approach this question in a completely different way and that is what makes them successful when others are not.
Let’s say you walk into a casino. You enter with a smile and, as is your routine, immediately put £5 on black. It’s just a thing you do. You win this time. Fantastic! Walking over to the slots you sit down and start pumping money into the machines. You don’t come ahead but hey, it’s rigged against you anyway.
That last bit about it being rigged, that’s exactly the point.
When you gamble, you put money up knowing full well you might (and probably will) lose it. You are risking money based on a small probability that you will succeed. There is a very small chance of hitting the jackpot on the slot machine but you are going to play anyway because it’s fun, and there is always the chance of winning.
Successful financial spread trading and investing is the exact opposite of this process.
Trading vs Gambling
Don’t get us wrong, some traders gamble exactly like this. So, is trading gambling? No, but it can be if you don’t follow a few simple steps to trade and invest sensibly. Beginner traders are notorious for being gamblers who will toss money around based on the flimsiest of information. Even still, at least they are probably acting on information they might have, such as the latest results, a news announcement or their technical analysis.
The key to investing – good investing – is to…umm…invest. By this we mean to take the time to do research, see where your money would best be put to use, and make smart decisions. Investors make rational decisions based on available knowledge. Gamblers simply hope that events will just happen to work in their favour – this time, even if it might be “against the odds”.
Investors have to watch their innate tendencies. As humans we are always looking for shortcuts, after all thinking is a bit of a bother. Whenever you get lazy you fall into the trap of crossing your fingers and hoping the gods of probability play to your favour. This is when trading IS gambling. If you are a gambler that is one thing, you play expecting to lose in the long run but to become a successful financial spread trader you have to approach things in a different way.
Is Trading Gambling?
As a successful spread trader your mindset must be the exact opposite: you play to win. At the end of the month, quarter, and year you want to have more money than when you started. The only way to do that is to make smart decisions consistently. The far better choice is to stay focused on finding and exploiting key information that you can make great decisions with. In other words, find an edge.
The game of poker is interesting to look at. Instead of playing against the house where the odds are stacked against you, in poker you play against other people who have the exact same luck as you (in aggregate). Games can be won and lost on luck but players who rise to the ranks of master win because of the strategy they use over long periods of time.
The masters know the game inside and out. They are intimately familiar with all the different tactics that players use, they know when to grow the pot, and when to fold. Over time they consistently make intelligent moves, don’t make foolish bets, and because of the even luck principles, end up winning far more than they lose.
Investing isn’t so different from a game of poker. Know your basics and advanced moves and pay attention to what’s going around you. What is your stock pick’s competition doing? Can they beat this? Are they entirely stagnant or evolving? There are loads of important questions a good financial spread trader must ask themselves. Technical analysts will consult their charts to forecast price movements.
So, Is Trading Gambling?
To excel at investing this is what you have to do. Beyond all else don’t ever let yourself get lazy. The only other thing that’s nearly as bad as being lazy is being overly emotional but that’s a topic for another time.
So if you are asking yourself, is trading gambling? Just remember, financial spread betting should not be the same as gambling but if you’re not careful it certainly can be. Always be careful to take steps to minimize risk when spread trading with a top broker.