The debate over whether “trading” is a fancy name for “gambling” is not just a play on words, but has real-world implications. If trading is really a form of gambling (as some have claimed since the financial crisis), then it would be better to let the regulators of the gambling industry manage the stock market instead of the SEC, and all investment managers should be taxed on gambling profits, not capital gains. However, in the context of rapid technological development, the scope and scale of traders’ and gamblers’ participation in the subject matter is partially overlapping, is there more interoperability and learning between the two?
Poker Betting – Turning gambling into investment
Gambling and investing do not seem to be completely divisible in practice.
At the public and legal level, there is a clear line between investment and legal gambling. Stocks and bonds, bank deposits and real estate are considered regular investments. Poker, blackjack, lotto and horse racing are considered popular gambling games. Trading in gold, commodities, financial futures, stocks and index options with margin attributes, on the other hand, is somewhat between investment and gambling because of its highly speculative nature, although it is ultimately considered by most people to be within the realm of investment.
Whether investing, trading or gambling, people make decisions with a degree of uncertainty about the outcome. The outcome or simultaneously depends on the behavior of others. The performance of a particular stock, for example, is often influenced more by the market as a whole than by its own fundamentals themselves.
Therefore, there are two key factors to consider regarding whether a particular stock is investable: the general uncertainty of the economy and the market acceptance and competitiveness of the company’s product.
A similar situation occurs in the act of betting, for example, on the U.S. Super Bowl. The final betting outcome includes not only the usual uncertainty influences, but also the variation in odds resulting from competition among the game’s participants.
So what exactly is the difference between investing and gambling? In the act of investing, someone buys an underlying, which could be a stock, a platinum bar or a beach house, pays a fee, a commission and perhaps holds it for a long time, in which nothing prevents all involved from making a profit. In fact, the nature of investing is such that everyone can make a profit by buying an asset, and it is usually expected that the vast majority of people will eventually reap the profits.
In leveraged trading (which some consider to be a form of specialized gambling), trading performance is based more on discovering margins and developing reliable betting criteria and risk management. This involves a mechanism for traders to establish hedges for combinations of long and short risk scenarios if they are to be consistently profitable and virtually risk-free over time. This is the basis of the strategies of some successful hedge funds and bank trading departments.
Poker Betting – Finding the right strategy in an unfavorable environment
Traders and gamblers are particularly cautious about adopting doubling up strategies: doubling up, pyramiding up, etc. Although such systems allow you to make small profits most of the time, if you lose money, the losses will be huge and will lead to a long-term overall loss. Although such a system allows you to make small profits most of the time, if you lose money, the losses will be huge and will lead to an overall loss in the long term.
In an unfavorable game, if you want to maximize your chances of reaching your goal before your equity drops to a level, then the best strategy would be to play with a bold play. With bold play, you don’t let the casino beat you by constantly grinding away at your small profits, preferring to reach your goal as quickly as possible by placing a bet.
Take roulette, for example, which is a bad game for gamblers, where the long-term marginal profit margin for gamblers is -2/38, or -2.56%. Suppose you place a random bet on a number and win to reach the target or reach the maximum single bet profit. If you have $10 and the target is $1,000, the best strategy is to bet $10 on a number. If you lose, you quit. If you win, you will have $360 (odds 1:35), then continue betting $19 on a number to reach a fortune of $1006 if you win, or $341 if you lose. The Bold play strategy always gives you the maximum possibility to reach your goal.
On the other hand, in the case of roulette, where the casino has a marginal profit and your goal is to reach a higher goal with a higher success rate before your fortune drops to a level, then the timid play is the best option for the casino. In timid play mode, you bet small amounts each time to ensure that you are not hurt by random small losses. In some cases, you will win, but this is exactly what the casino wants to achieve. With such a small marginal profit, for them to make huge and consistent gains over time, they need to spread the bets out tremendously to ensure a smaller percentage of bets per participant.
In a busy casino, such a goal is easy to achieve. This simple example appears in many financial disasters.
The key point is that if you want to have a chance of success, you have to build strategies that will increase the average return on each $1 bet to more than $1 when you bet on the game. We call this “turning a gamble into an investment”.
The basic goal is to turn a gamble into an investment by building a good strategy to make smarter bets. The strategy is built following a conventional gaming environment and yield system. This often involves the definition of perfection, anomalies and partially predictable prices in the securities market. In a gambling environment, no player can always make a profit, so the potential profit will depend on how good the system is, how well it works, the number of people using it or other profitable systems, and the use of risk control systems.
There is no gambling game that will give players super average returns, and baccarat is a good example of this. However, there are strategies to outperform the market in almost all financial markets.
The analysis of market conditions is based on 2 aspects, when to bet and how much to bet, this is called strategy building and money management and they are equally important. While the strategy building aspect is easily understood, money management (risk control) is more subtle and is often the error term that leads to financial disasters.