Traders and Gamblers: Know the main differences!

4 Mar 2023

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We are gonna go through 6 crucial points and elaborate how traders are different from gamblers.

1) As a trader, one’s aim is to focus on the next 100 trades instead of the next 10. Long-term success, profitability, and consistency are two of the main things traders should target. However, a gambler’s wish and desire is to make quick money.

2) A successful trader/investor has a backtested trading plan that he sticks to and optimizes along the way, adapting to changing market conditions. On the other hand, gamblers like to trade based off what other people think and tweet, or by simply opening a random Buy/Sell position and hoping it plays out successfully.

3) Profitable traders always diversify their portfolio and risk no more than 1-2% per trade. On the contrary, gamblers go “full margin mode” on a single trade without setting a Stop Loss and end up blowing their accounts and blaming the markets.

4) Chasing markets and rushing the process is not what real traders do. Instead, they follow their plan and wait for the price to play out and match their entry criteria before executing. Nonetheless, gamblers like to overtrade, open positions based on nothing, make biased decisions.

5) When enduring a loss or two (or three), traders neither get emotional nor try to revenge the markets. They know that if they obey risk management principles and open high risk-to-reward positions, they will cover all their previous losses and get back to making profits. Gamblers, on the other hand, get angry and start attempting to revenge the market by making foolish decisions and entering many illogical trades.

6) Last but not least, if you want to be successful and profitable in this field, you have to treat trading as a business and take things seriously. Those that think markets are a playground or a casino machine will never succeed in this space.

Gambling vs Trading

Gambling involves staking on the occurrence of an event that has an uncertain outcome for winning. For an action to be considered as gambling, three prerequisites must be present; the stake, the risk involved and the prize to be obtained upon the occurrence of the event.

Gambling has existed since records began. Early gambling involved six-sided die in Mesopotamia in 3000 BC. Around the 9th century, playing cards made their entrance, giving birth to the modern card games we know today. Over the years, gambling has taken several shapes and forms such as sports betting, parimutuel betting, and the gamut of casino bets.

Trading on the other hand, involves the buying and selling of financial instruments like cryptocurrencies, stocks, bonds, derivatives amongst others. There are several types of trading such as high-frequency trading, day trading, etc. each of which has its pros and cons.

Historically, the trading of financial instruments began in the 17th century after merchants banded together to form joint-stock companies. In 1602, the Dutch East India Co. issued the first recorded paper shares, allowing for the trading of stocks. This revolutionary concept spread through the world, leading to the creation of exchanges such as the London Stock Exchange which was founded in 1773.

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5 Mar 2023

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5 Mar 2023

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5 Mar 2023

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5 Mar 2023

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