Stock markets – the similarities between investment, and online gamblingStock-Markets / Stock Market 2017 Jan 06, 2017 - 03:51 PM GMT
'Investing in the stock market is exactly the same as betting online'. This is a statement that you're likely to here when discussing investing with people who are not particularly savvy where the financial marketplace is concerned.
In many instances investing your money in something in which you have no control over the outcome could be considered gambling. So, how much truth is there in the theory that investing and gambling are essentially the same thing? And if investing is technically gambling, then is it closer to the luck of a casino, or a more methodical sportsbook approach?
What is the stock market?
The stock market is the market in which shares of publicly held companies are issued and traded. The stock market plays an important role in the global economy as it provides a simple platform that allows companies to create capital. This capital is generated by selling shares (part-ownership) of a business for cash.
The stock market gives investors the opportunity to turn a small amount of capital into a larger amount of wealth via investing. Trading on the stock market is often seen as a much less risky way of creating wealth as opposed to say, setting up your own business.
Online gambling in modern society
Online gambling is something that is now engrained, and accepted in modern society. Everywhere you look you'll see adverts and promotions for major bookmakers, all of which allow you to place bets online.
There are a multitude of platforms and markets when it comes to online gambling allowing you to bet on things such as sports, casino and bingo. The online gambling market is seemingly so popular as it's perceived as an easy way to make a quick win; even without extensive knowledge and research.
Similarities between investment and online gambling
Risk - Investing and gambling both involve a huge amount of risk and choice. First and foremost, both the gambler and the investor must decide how much they want, and can afford to risk. They then must make a choice on where they would like to risk their capital.
Gaining an edge - Both investors and gamblers are constantly looking for an edge in order to help enhance their performance and therefore maximise their profits. It's possible in both cases to gain an edge by studying the behaviour of the markets and analysing the possible factors that may affect outcomes.
The concept of time - Gambling is a time-bound event while an investment in a company can last several years. With gambling, once the event is over, your opportunity to generate profit from your bet has come and gone; you either have won or lost. With stock investing, on the other hand, time can be rewarding. Some companies pay dividends to their investors, meaning that they are rewarded for their risked capital.
Throwing it in the pot - With online gambling, once you place your stake, that's it; it's submitted and you will either win or lose that stake. When betting on sports, (or taking part in most other online gambling activity) there is no loss mitigation strategy. However, when it comes to investing on the stock market there is a variety of loss mitigation options. Setting stop losses on investments is commonly used to avoid undue risk.
Stop losses: If your stock drops 5% below the price it was purchased for, you have the opportunity to sell that stock and still retain 95% of your risk capital.
This is an paid advertorial. This is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any investing and trading activities.
© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.