fbpx

Trading versus gambling: what’s the difference?

It’s not uncommon to hear people think of trading crypto, or the stock market, as a form of gambling. For some traders, this is indeed the case, but it doesn’t have to be like that.

First of all, let’s first agree on what gambling is. Simply put, gambling is placing a bet with an expected negative outcome. Let’s say, if you buy a lottery ticket, you know the odds are against you, but you’re hoping to be lucky and beat those odds. Of course, you may indeed get lucky and make a significant profit, but as we’ve explained before in one of our research articles, if you place such a bet often, you will eventually be led to ruin. 

The house always wins. Actually, this is not true. The house usually wins – it has a statistical advantage over its guests, and although sometimes you may hit the jackpot, in the long run, the house wins most games. 

When you trade, you don’t want to place your bet on something that you don’t believe will lead to a good outcome for you. In fact, the whole point of opening a position is because you are expecting the market to move in your favour. 

But then, not everyone trades as consciously as they should be. For example, if you buy stocks just because everyone else is talking about it and urging you to do so, and you don’t do your due diligence, you’re really just gambling – i.e. hoping for the best. One important element here is ‘hype’, but equally important (in the negative sense) is misinformation. Both such elements can foster a mindset that’s more akin to participating in the lottery, rather than designing a calculated trading plan. 

Another point worth making is that while beginner traders may start of as gamblers – taking a lot of risk, trading with maximum leverage, making decisions based on a ‘feeling’ – but over time, if they investigate the asset class, learn how to read price charts, and practice using technical indicators, they can change the nature of their participation in the market. 

It’s all about developing discipline and committing to a strategy. Learning how to use technical indicators such as Fibonacci retracement levels, trend lines, or Bollinger Bands, all of this can help to gain a statistical advantage over the market. 

Your goal is of course to make money, but success really comes from accepting losses as well. If the market moves against your expectation, set a limit – if you lose more than a certain percentage, then sell, even if your gut tells you the price may rebound. 

If a trend begins to develop upwards, buy, increase your position, even if your gut tells you to quickly cash in your profits. This is common sense. Yes, sell high, buy low, but in terms of movement: the price goes down, get rid of it, the price goes up, get in on the action. At the same time, however, you don’t want to be greedy. Be content with small profits, and tolerant of small losses. 

Or, you choose a different approach. The point is, unlike gambling where winning is random, with trading it’s a process with ups and downs, wins and setbacks, and, most importantly, you get the chance to improve your skills. Whereas in gambling, we tend to blame the hands we were dealt when we lose, traders will feel responsible, and while gambling is largely intuitive – when playing Roulette, for example – trading shouldn’t be. 

To help our users become a better traders, we’ve created the Crypto Trading Dojo, where you can learn all about different strategies that can help beat the market. To make it extra easy, we also have dedicated tutorial videos to show you how to work your way up to a trade. 

Trade with AAX 

AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance. 

Open an account with AAX, or download the app, and experience the next generation crypto exchange.

Choose a language