The Difference Between Investing, Trading, and Gambling
Day trading can look similar to investing and gambling at first glance, but actually, it is totally different from one another. Day trading requires quick reaction. It also goes along with odds in your favor and not something that is against you. But these activities – investing, gambling, and trading – overlaps each other. Some traders were previously investors and even gamblers who play poker. Nonetheless, the skills they acquired from these activities help in the understanding of trading psychology.
Investing (Slow but Steady)
When you invest, you put your money at risk hoping to get higher returns at the end of each trade. This is considered as the ‘raw material of capitalism’. Investing is where businesses get started, explorations get funded and roads getting built. Investing is exhilarating stuff. It also needs your focus for a long period of time.
Investors can expect to see their payoffs after some time. Because of that, it requires intensive research and deeper knowledge before you commit your money. This system works just fine. Investors mostly invest in things that others currently find out of favor, because they believe that after some time, it will be recognized and the value will rise. Investing is a positive-sum game.
Trading (Works Fast)
Trading is when you buy and sell securities. Traders tend to take advantage of those short-term prices that appear in the financial market. Generally speaking, they don’t take a lot of risks on every trade they make and also get lower returns. Traders in the Forex trading act quickly and decide as swiftly as they can whenever the market calls for it. Despite knowing that some of their trades won’t really work out well, they are still willing to do it after measuring the proper risk-reward ratio.
Trading keeps the financial market efficient as they are capable of creating short-term trades, resulting in the elimination of the demand for smaller price discrepancies. Traders are also very prone to stress as they should act swiftly, here and now. They also don’t have a lot of time in exchange for the profit they are getting on each of their trades in Forex Trading.
Gambling (It is more of luck)
Gambling is a game of luck. A gambler put a certain amount of cash to be able to receive a specific payoff within a random event. Unfortunately, the house always has an upper hand against the gambler. But if you hit the jackpot, then you can earn really huge, just like the loss you can incur if the odds go against you. Gambling is a zero-sum game with the house as the biggest winner.
Some gamblers think that the odds of losing can be beaten. But this thinking is ultimately wrong. They usually get excited with the potential of winning huge and the glamour of playing in a casino that it becomes too late to realize that their money has been drained off. Gambling is not similar to trading and investing. But traders who refuse to pay attention to their trading strategies, their performance are likened to gambling.