Ever since the pandemic struck, many individuals have decided to enter the stock market. This is principal because of the fact that markets reached all-time highs when the recovery started after the removal of lockdown conditions. Some people saw significant returns between Mar 2020- Dec 2021, which forced the new entrants to ask the question, “Is the stock market gambling?”
In this article, we will understand how the stock market differentiates from gambling. By the end of this article, you will be able to answer the most-asked question in today’s time: “Is the stock market gambling?” But before we jump in let’s take a look at what exactly investing includes.
Saving money means spending less than what you earn and setting aside the money for the future. This can be for several purposes like an emergency or for a specific goal such as vacation or a new home. In the long run, savings are likely to lose value over time when inflation is taken into consideration.
On the other hand, investing can be referred to as “using money to make more money.” As and when investments grow in value, growth can be compounded. In the long run, compounding benefits can result in significant gains. Here, time is an important ingredient. This helps in smoothing out market volatility.
Therefore, if you have long-term goals, investing is especially important.
Gambling And Investing – Two Poles Apart
Well-organized trading screens and rapid response times can be attractive at times and might encourage excessive risk-taking. It is very important to carefully research and thoroughly understand a company’s financials, competitive landscape, etc.
If these basic steps are being missed before entering the trade, you are just rolling the dice every time you engage in trading. Therefore, it is advisable to examine how that particular company fits into the overall portfolio.
Prudent investing has never been about quick trades, but it is about staying invested and having a long-term time horizon. The focus should never be on “winning” and “losing,” but on building a strong portfolio from the ground up and customizing it to the needs and goals.
Since markets fluctuate, investing also involves a certain element of risk. But experienced and disciplined investors are well-aware of the strategies which can help them mitigate risks through a combination of proper asset allocation, diversification, and patience.
When new investors or amateurs ask, “Is the stock market gambling,” experts tend to apply all their energy to make them understand the difference between the two.
Aspects Differentiating Trading From Pure Gambling
Following are some main aspects that differentiate trading from pure gambling.
1. Trading Focuses On Facts And Figures
As a trader in equities, individuals are exposed to fluctuations in the market. However, they do have a database of numbers and data points on the basis of which they can make decisions. Traders can study volume and price trends. They can also see how advances/declines are progressing.
The main advantage of trading on an exchange is the presence of a central body like a stock exchange, which makes the execution of trades transparent. However, gambling is a different ball game altogether.
2. Trading Can Be Initiated On Scientific Fundamentals And Charts
When individuals engage in gambling, they initiate their action, and then the entire focus is on the spinning wheel. There is no denying that expertise can help a little bit, but it is a game of chance. On the other hand, trading includes a body of knowledge and science.
Some individuals follow a fundamental approach where they look at and examine the data and news flows. They also tend to follow technical analysis and can use charts, trends, and patterns. On the contrary, gambling does not have access to these kinds of scientifically-proven methods.
3. Trading Gives Greater Control Over The Outcome
This one point captures the difference. In the casino, a gambler has limited control over the outcomes. They purely try to play by the odds. Chances of winning depend on the cycle of probability working in their favor. On the other hand, a trader has a lot more control over the outcomes.
Being disciplined is the best approach during market uncertainty. Traders can switch to other options when they think that trade will end up in losses. This wide choice makes trading different from gambling.
To Sum Up
There are people working in the stock market who want to see a quick profit, and they end up being sorely disappointed. True investors believe that building wealth through investing is not about hot stock tips or fast trades, but it is about taking the first step to investments early and participating in the markets consistently throughout the lifetime.
Therefore, it is of utmost importance to start on the right foot. True investing is not like gambling. It is much more than saving. Simply put, true investing is a serious business, and it can be immensely rewarding and can be a great pathway to reaching long-term goals.
Purchasing stocks without studying the businesses of the companies is like betting at poker without looking at the cards. The stock market is quite wide and external events affect the movement. On the other hand, gambling is a closed-space event as the external environment does not play any role.
By now, when someone asks, “Is the stock market gambling,” you will be in a better position to make them understand the difference between the two.
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