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Trading Stocks or Playing Slots: Is Investing Gambling?

by Chris Crawford

Whether up or down on a position, the rollercoaster thrill of losses and gains is a pulse that drives money like blood through the veins of traders and markets alike. The spike in adrenaline at market open, the thrill of seeing a portfolio beam green, market dashboards dancing with color, graphs, and numbers, all of it resembles the dazzling aesthetic of hitting it big in a casino.

Unfortunately, this image is a hyper-romanticized externalization of what goes into trading on the stock market. Financial success often depends on far more tedious routines than merely checking red and green trend charts and watching ticker prices rise and fall. Making smart investments requires reading spreadsheets, combing financial reports, researching profit histories, and rubbing eye strain from the bridge of your nose after gazing at charts on computer screens for hours on end.

Still, bets can be placed on just about anything, and buying and selling stocks is, in essence, putting money down on a hunch that in the future a stock will be worth more than you paid. So, the question begs to be answered: is trading stock really any different than gambling?

The short answer is, of course it is! But knowing where the line is drawn is the safest way to avoid crossing it

Separating Stocks from Slots

The stock market is volatile, and preparedness is the key to any kind of investing. Rash, uninformed decisions often lead to heavy losses. Savvy traders research their positions and diversify their portfolios with stocks, bonds, and cash to cover a wide variety of markets. Novice or more risk-inclined traders often pour everything into singular positions, investing by gut instincts, word of mouth speculation, community hype, and emotion.

It is here, in the dedicated due diligence of research and calculation, where the line is drawn dividing savvy investors and gambling-centric traders.The Long Game

The Long Game

Serious long-term investors build portfolios stacked to weather the daily and monthly fluctuations of the market knowing that their payoffs are designed to arrive years in the future. Market research and analysis is critical for this kind of strategy. Still, the world is a wild place, and anything can happen. Companies rise and fall with the years, so research, calculation, and a careful watch are critical. Otherwise, one is betting years of growth on a wild ho

The Short Game

Seasoned day traders rely on hard data, research, and cold calculation to lean the odds as far as possible in their favor when making investment choices. As a day trader, positions can be riskier and more delicate, requiring a tight hold over one’s emotions, and ridged adherence to investment strategies. While this might sound exciting, it’s more often tedious and grueling. Few are cut out to handle the stress and rigidity required to be a successful day trade

High-Risk Trading

Regardless of one’s iron will, high-volatility day trading, penny stocks, cryptocurrency, and foreign exchange investing are where trading most closely resembles gambling. This side of the stock market is steeped in risk and should be approached with extreme caution. Far more tales of financial ruin than life-changing success come from these markets.

Penny stocks are a clear example of how close the stock market can come to resembling gambling. Conducting insightful analysis on penny stock companies is difficult due to a lack of financial reports, trend data, and general company information. Because of this, the strategy involved in penny stocks is akin to buying a roll of scratch tickets and praying that the winnings cover the cost of the roll. Could you make millions? Perhaps, but the associated risk is far greater than nearly any other market you could invest in. For most, your money is more likely better spent at a blackjack table than on penny stocks.

A New Age of Investing

Despite the complexity, risk, and tremendous amount of work involved in smart investing, 2020 and 2021 have seen a flood of new retail investors joining the market. Robinhood, a popular retail trading app, reported over 600,000 new accounts opened on Jan 29th, 2021. This breaks the brokerage’s previous record of 140,000 accounts opened in the entire month of March, 2020. Other trading apps have reported similar waves of new accounts through the first quarter of 2021, and overall market activity has doubled from between 15% and 18% to over 30% from 2020.This incredible surge can be partially linked to widespread media and online coverage of the GameStop and meme stock craze. From this event, an entire subculture of wild speculation and gut-instinct crowd investing to the mainstream. New traders enticed by the memes, money, and media attention got a taste of the kind of thrill that comes with playing the market, and just like the rush of winning or losing in a casino, people are already seeking the next big play.

Online forums like the subreddit r/WallStreetBets offer fuel and fervor for those just getting into investing and seeking a community in which they can wallow in triumphs and defeats. While these groups can sometimes offer valuable lessons, they also often espouse wild speculations and flawed strategies celebrating their gut instinct over diligent research (note that there are many investment communities dedicated to providing interesting and serious insights on investing, and online platforms should not be dismissed entirely, though always regarded with caution and a critical eye).

Are these platforms, and the waves of new investors they bring, a boon or bane on the market? Time will tell, but it is impossible to ignore the red flag of so many novice retail traders jumping into investing with little understanding of the risk and being ill-equipped to handle the temptation and addiction that goes along with gaining and losing money on the stock market.Trading Lingo on Twitter and Reddit

Diamond Hands💎🙌 – Refers to when a trader is prepared to hold a stock or security for a long time, believing in the future success of the trade through thick and thin.

To the Moon 🚀🌙– References the belief that a stock will make dramatic gains in value

Tendies – Gains or earnings on a position or security.

Bullish – Expecting the price of a stock to rise. Can refer to a person or a stock.

Bearish – Expecting the price of a stock to fall. Can refer to a person or stock.

GUH – the sound of the soul leaving the body after a major loss on an investment. This term refers to a now infamous moment when a specific investor lost $45,000 on a live stream two minutes into market open. It has become a term used to signify taking a potentially life-damaging loss.

Know When to Walk Away

Learning the lessons of patience, research, and focus over feelings and gut reactions isn’t easy. All too often, traders learn these lessons the hard way. David, a day trader who’s spent the last eleven years primarily trading crypto and foreign exchange markets (forex), recounts his initial experience with trading trends and speculations:

It was the “play money” that some apps and web services give you that really got me into it [trading]. I started with $20,000 of that fake money they give you, investing in currencies mostly. It turned out I was making good decisions, investing in the right areas. I mostly worked in European currencies at the time. I decided to put a chunk of real money into the market – a good portion of my savings – and mirror what I had done with the fake stuff. For about 3 months, I was making good money. Things were great. I felt like I’d figured out ‘the game.’ Like I could count cards on a blackjack table. Then suddenly, overnight, the euro took a major hit, and many other European currencies did along with it, and the market didn’t recover for a long time. I lost a lot and learned a tough and expensive lesson. I had all my eggs in one basket. I didn’t diversify, did minimal research, and was working off gut instincts – I was also investing in an extremely volatile market and thinking I had figured out a winning strategy. I got cocky and stopped playing by my own rules, something I’ve vowed to never do again.

Whether you’re investing or gambling, there will always be risk involved. The amount of risk is, to an extent, in the hands of the investor. But when it comes down to it, the stock market is truly at the whim of the world. Natural disasters, technological breakthroughs, declarations of war, corporate corruption, celebrity big mouths, and a host of other circumstances can send the market or specific stocks soaring or plummeting. The risk is there, and it always will be. Just like in gambling, no stock is a sure thing – but you can and should use fundamentals to give yourself an edge. As they say on r/WallStreetBets, “do your due diligence, and keep diamond hands to the moon.

A Note on Cryptocurrency

Cryptocurrency is more nuanced than investing in penny stocks but bares a similar amount of risk. Like all currency exchange, the value of crypto is built on shared trust. Currencies have value because we know we can purchase goods or services with them… but do we impart that same trust-based value on virtual currencies? Herein lies the risk involved with investing in crypto.

Virtual currency prices fluctuate even more than traditional stocks. It’s not uncommon for a coin to drop thousands or even tens-of-thousands of dollars over a celebrity’s tweet. While coins like Ethereum and Bitcoin have become established virtual currencies with significant value, any coin can rise or fall off the map with little to no indication. Between January and February of 2021, Bitcoin has gone from $38K down to $32K, up to $57K, then down again to $48K… all within 30 days.

Instability, decentralization, and unproven rate of return are all reasons to treat investments into crypto with the utmost care and caution. You can read more about the system cryptocurrency is based on, blockchain, check out our article The Blockchain Business.

Contact Data

Name: Chris Jones

Organization: UrbanLink Media

Phone: 1-855-730-5465

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