Difference between Gambling and Trading
Most people shy away from gambling without giving it the least bit of thought. The word after all carries with a fair bit of connotation, some of which aren't exactly savory. However, most people don’t seem to have a problem with trading at all, an activity that many people would say has a lot more in common with gambling than you would think. Do they in fact have something in common? This comparison article should tell all!
Risk Taking
Many people think that gambling involves nothing more than a big risk taken by someone who has little or no control over the various aspects of his or her life as well. While that is in fact true for some gamblers, many more are quite responsible people who risk only money they can afford to lose comfortably, and nothing more. This is in fact the essence of responsible gambling, and there are countless people who manage to take these calculated risks without affecting their lives adversely.
As with gambling, there are people who engage in trading recklessly as well, just as there are people who trade is a more responsible manner. This only goes to show that trading often involves just as much risk as gambling in the casinos and both activities require a careful and thorough assessment of these risks.
Risk Management
A risk management plan is not something that you would normally expect gamblers to have, but you would be surprised at how many actually implement this as a matter of course. Risk management in gambling may involve gambling only up to a certain amount as mentioned previously, or it may involve setting a "win limit" or a "lose limit", in which the gambler only plays until he or she has won or lost a specific and predetermined amount of money respectively. In this manner, the risk of losing money is reduced considerably.
Since most people who engage in trading are fully cognizant of the risks involved, almost everyone employs some type of risk management as well. This may involve investing only a certain amount of money–and with reasonably “safe” deals at that–or getting out of the running at the first sign of a downtrend. Whatever the method used, the end goal is the same as that of risk management in gambling, which is to reduce the risk of losses.
Strategies
Trading firms routinely implement different strategies in order to increase the potential for gains, while minimizing the risk of loss at the same time. These strategies may take the forms of formal and qualitative controls, each of which determine the actions of a trader. Of course these controls will affect how much a trader makes on his deals.
As for gamblers, most of pros simply use their personal judgment in a way that will net them the most possible rewards. Gamblers will also typically utilize strategies that consider the odds of the particular games that he or she plays.
Summary
Gambling
- Many gamblers actually what are considered “acceptable risks”
- Actions are often based on personal judgment
Trading
- Actions are often determined by controls set by trading firms
- Strategies employed maximize gains while reducing the risk of losses
