# What's the difference between trading/investing and gambling?



## prawn_86 (17 February 2008)

A discussion with Miss Prawn last night over dinner bought up an interesting topic. She seems to have the opinion that investing and/or trading is pretty much gambling. After much discussion and many points raised I have to say she does have a fair argument.

The following are points I have raised followed by her responses:

1. She will concede that it is not the same as fixed odds gambling such as roulette, but she likens it more to Poker or betting on horses. 
This was the only concession I could get out of her 

2. Me: "Investing is making an informed educated decision in which you lower your odds of losing"
Her: 







> Poker players fold hands or only play strong hands. People how follow horses thoroughly can look at previous record/track conditions etc




3. You can walk away from the share market with you profits/losses at any time, not just when a race is over.


> Same with poker





Any other ideas/discussion out there? Or are we all just gamblers in disguise?


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## Sean K (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*

Life is a calculated risk. 

We 'gamble' every time we leave the house...

And while we're inside it....


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## prawn_86 (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



kennas said:


> Life is a calculated risk.
> 
> We 'gamble' every time we leave the house...
> 
> And while we're inside it....




Agreed.

But what is it that seperates us in the sharemarket, from those in a casino or on the track?


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## numbercruncher (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*

Biggest difference is, very rarely do you walk away from stocks as an investor with a 100pc loss on outlay (try telling that to geared people, shorters etc though ).

Where as a wager placed is either pay out or 100pc loss.


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## tech/a (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*

Trading profitably occurs when you trade with a positive expectancy.

You CAN limit risk and you CAN maximise gain.

A loss on the races guarentees 100% Loss.
With poker you dont know what the other players hold.
With trading you can see everyones hand.
You can limit loss.

Developing a trading methodology with a positive expectancy is of course the challenge.

*Most never do this and most believe that having a trading plan is all thats required.*
A trading plan which in the end returns nett losses isnt a positive expectancy method.

Your not necessarily lowering odds of loss more so increasing the opportunity of profit.You can be wrong 80% of the time and still spectacularly profitable.

Id enjoy a discussion over a Coffee with your better half.(You can come!).

If your wife is right God help all those who have 100s of 1000s tied up in Super.

Trading is a business and should be approached this way.
But your wife is correct in the majority of cases.

A look in the Alphabetical section of trade codes here on ASF will show you where many "Gamblers" reside!!


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## prawn_86 (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



tech/a said:


> Trading profitably occurs when you trade with a positive expectancy.
> 
> You CAN limit risk and you CAN maximise gain.
> 
> ...




Its Miss Prawn, not Mrs Prawn at the moment tech. 

But i'll get her to read this thread after i get a few more responses. But i think she will take some convincing. 

She can be almost as stubborn as me sometimes 

EDIT - she would also argue that people who play poker for a living have a positive expectancy. Even if its not as transperant as trading


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## Sean K (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



tech/a said:


> With trading you can see everyones hand.
> You can limit loss.



Trading price action, this may be the case, but 'investing' requires some judgement of the available facts, resulting in a calculated risk take. It's probably why some people prefer technical trading as opposed to investing.

Perhaps there's a greater 'gamble' with investing...


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## jman2007 (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



prawn_86 said:


> Agreed.
> 
> But what is it that seperates us in the sharemarket, from those in a casino or on the track?




Interesting analogy, albeit a very philiosophical one

There probably isn't that much that separates gamblers of any type.  Assessing the track conditions on race day is much like assessing the current market conditions, hard and fast, a bull....slow and soft, expect anything.

I guess the day traders are the guys at the poker table who are looking for the multibaggers...the straight flushes and full houses for the ko blow, but will quickly fold when the going gets tough.  The long term players will be happy with a few pairs every now and then, and despite suffering some short-term losses, will aim to gain over the long term through wisdom and experience.

Sounds a bit weird, I even surprise myself sometimes.

jman


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## Wysiwyg (17 February 2008)

Capital losses, depreciation and trading expenses are tax deductable.


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## GreatPig (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*

I'd say it's all a matter of degree, depending on exactly how you define gambling.

If you say a general definition of gambling is risking money on an event with an uncertain outcome, then a lot of things could be considered gambling, it's only the degree of risk that changes.

Risk varies with the degree of skill involved and the skill of the punter. Many casino games like roulette and the pokies have no element of skill in them, so player ability doesn't matter, but games like blackjack, poker, and horse racing do have a component of skill (for horse racing it might be better called knowledge than skill) and thus the ability of the player can have some effect.

Share investing or trading would fall into the latter category, with quite a high level of skill involved in trading in particular. The level of risk varies from trade to trade and method to method, with part of the skill being minimising the risk of each trade (or perhaps minimising the risk/return ratio).

But then, even something as simple as investing in a term deposit has some risk, and thus could be considered gambling to some extent (especially if it's in something like Bridgecorp). In that game though, the only real player skill is in assessing the risk/return ratio for the prevailing economic climate.

GP


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## tech/a (17 February 2008)

Well if the lady prawn considers and believes all things with positive expectancy can be classified as gambling then all business in whatever form would also fall into this catagory.

Do you classify a bookmaker as a gambler?
Or a casino.
Both can go broke!

When your doing your home budget are you gambling?
You can go broke due to outliers (un predictable events).
So to can any business,any investor,any property developer,any body.

I will hazzard a guess that lady prawn has a fear of risk and a cursory understanding of it.

Management of risk is instinctive in daily life and learned in the business world.
I'm afraid she cannot see the business side of trading---let alone understand it.


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## julius (17 February 2008)

it's a blurry distinction but it might have something to do with expected value...

no matter how you play roulette it is always a bad bet, you are risking more than you stand to gain, and you can only expect to lose. same goes for pokies, lotteries, etc. therefore you are a risk taker ie. looking to lose money

trading/investing as well as poker, race bets, blackjack (depending on how you play them) can be a good bet, you expose yourself to risk, but you can expect to gain more than you lose. therefore you are risk adverse


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## prawn_86 (17 February 2008)

tech/a said:


> I will hazzard a guess that lady prawn has a fear of risk and a cursory understanding of it.
> 
> Management of risk is instinctive in daily life and learned in the business world.
> I'm afraid she cannot see the business side of trading---let alone understand it.




I would have to agree there tech.

But on a very definitive narrow view of the definition pretty much everything we do involving money is gambling of some form


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## GreatPig (17 February 2008)

prawn-86 said:
			
		

> pretty much everything we do involving money is gambling of some form



On the other hand, gambling is not limited to monetary activities. Russian roulette for example.

GP


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## Sean K (17 February 2008)

GreatPig said:


> On the other hand, gambling is not limited to monetary activities. Russian roulette for example.
> 
> GP



Yes, and living on the 16th floor of an apartment on the coast on Peru is playing with fire....


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## ROE (17 February 2008)

Uncle Ben and Uncle David in their Security analysis book stated

"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."


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## Temjin (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



prawn_86 said:


> EDIT - she would also argue that people who play poker for a living have a positive expectancy. Even if its not as transperant as trading




That would be true to professional poker players. There are techniques and tactics that would enable a player to gain "temporary" advantage over the house and/or other players. The professional player would then exploit this advantage and utilise money management (a.k.a position sizing) to limit his risk and win money over the long term. 

In fact, the theory for money management in trading has basically evolved from professional gambling.

It's a matter of exploiting temporary advantage and minimising risk of ruin to earn a profit over the long term.


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## julius (17 February 2008)

here's another take

_All investment is speculation. The only difference is that some people admit it and some people don't. 

It's like the difference between luncheon and lunch. You get the same liverwurst sandwich either way. The only difference is in the impression somebody wants to make._


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## Tysonboss1 (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



prawn_86 said:


> Agreed.
> 
> But what is it that seperates us in the sharemarket, from those in a casino or on the track?




when you gamble there is always a winner and a loser,... and nothing is really being produced or added to the economy, money is just changing hands if certain things do or don't happen.

when you invest you are putting your money into a company or some other asset that has a decent chance of genrating longterm income or growth,..

You can win in the game of investing without anybody losing,.... but you can also lose without anybody else winning.

say someone has a good idea of building a gas pipeline to transport gas from field to consumer,... investors will place there funds into the venture in the hope of building a succesfull pipeline that delivers an income stream,... offcoase things can go wrong but it is not like betting on a horse.

If i did have to compare investing in the sharemarket to gambling at the races I would say investing would be more like betting that the horse would finish the race not that it was going to come first,... Some stocks do fall over as do some horse's but at the same time as long as you hold it long enough most stocks will finish the race weather it be hard and fast in a boom or slow and steady with a growing dividend yeild.


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## prawn_86 (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



Tysonboss1 said:


> You can win in the game of investing without anybody losing,.... but you can also lose without anybody else winning.




This could probably be disputed also though Tyson.

Each time i buy a share that rises in value, someone has missed out on that potential rise. And if they sold at a loss (for whatever reason) then i have won from their loss.

But i do see the point you are making


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## tech/a (17 February 2008)

You know -----

I learnt in business that ones success can be greatly improved or severely deminished by having the wrong person in the wrong position.
My staff influence my income and hence my lifestyle just as I influence theirs.

Life without quantified risk is a life of mediocrity.

It would be in both your interests to understand risk and learn all you can about quantifying it.Will make for a happier marriage I assure you!


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## julius (17 February 2008)

tyson - beyond the IPO any form of trading is a zero sum game


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## sam76 (17 February 2008)

not sure if relevant


https://www.aussiestockforums.com/forums/showthread.php?t=663&highlight=trading+investing+gambling


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## Tysonboss1 (17 February 2008)

julius said:


> tyson - beyond the IPO any form of trading is a zero sum game





Investing and trading are not really the same thing,...

and investing is not a zero sum game,...


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## So_Cynical (17 February 2008)

what i like about being in the market is...that its like a race that never ends, u can 
take some or all of your money out when your in front, u can switch horses and 
take advantage of situations..like the recent interference in our market/race.

Like ive said before, the people who brought shares in HIH, 1Tel and Centro didn't 
think they were gambling, they thought they were investing...they were wrong.


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## nizar (17 February 2008)

*Re: What is the difference between trading/investing and gambling?*



kennas said:


> Trading price action, this may be the case, but 'investing' requires some judgement of the available facts, resulting in a calculated risk take. It's probably why some people prefer technical trading as opposed to investing.
> 
> *Perhaps there's a greater 'gamble' with investing...*




Tend to agree, Kennas.


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## cuttlefish (17 February 2008)

heed tech/a - whether fundamental or technical, adjust positions according to risk. gambling is taking a position (investor, fundamental, technical) where risk outweighs potential return.  Risk has a level of subjectivity but should constantly be reassessed. (fundamental and techinical)


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## Bill M (18 February 2008)

Tell Miss Prawn This:

Gambling, if I put 10K on Red and Black comes up I lose everything.

Investing, I did put 10K on CBA in 1996 and now it's worth 46K plus the dividends keep coming in.

Totally different, cheers.


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## theasxgorilla (18 February 2008)

*Re: What is the difference between trading/investing and gambling?*



prawn_86 said:


> Agreed.
> 
> But what is it that seperates us in the sharemarket, from those in a casino or on the track?




Aren't we more sophisticated, because we're gambling, sorry ,speculating in the financial markets and not in a casino or at the track?  Please break it to me gently if I've be lured into thinking falsely


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## theasxgorilla (18 February 2008)

ROE said:


> Uncle Ben and Uncle David in their Security analysis book stated
> 
> "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."




By that definition I reckon you'd be hard-pressed to put a cent of your capital near a share market at almost any time during the last 20 years.

ASX.G


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## kgee (7 October 2008)

I'm starting to think if you have money in the stockmarket now your taking a gamble


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## nioka (7 October 2008)

kgee said:


> I'm starting to think if you have money in the stockmarket now your taking a gamble




Life is a gamble. Investing done with an educated guess is less of a gamble than some things I can think of. The bigger the potential profit the bigger the risk. All you need to do is find a comfort zone in which to operate.


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## ROE (7 October 2008)

nioka said:


> Life is a gamble. Investing done with an educated guess is less of a gamble than some things I can think of. The bigger the potential profit the bigger the risk. All you need to do is find a comfort zone in which to operate.




That is a myth, you can take great risk without much return at all if you don't do your home work and understand what you get yourself into.

and it can go the other way, you can take minimum risk and still have great reward


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## xoa (7 October 2008)

When gamblers lose, they cop it on the chin.

When "traders" lose, they blame somebody else and demand government intervention.

That's the difference.


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## skyQuake (7 October 2008)

xoa said:


> When gamblers lose, they cop it on the chin.
> 
> When "traders" lose, they blame somebody else and demand government intervention.
> 
> That's the difference.




Ahahhahaha! Silly gamblers, they don't know about the free money safety net traders have


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## Wysiwyg (10 November 2009)

Bill M said:


> Investing, I did put 10K on CBA in 1996 and now it's worth 46K plus the dividends keep coming in.
> 
> Totally different, cheers.




I was just thinking about how speculative resource stocks are approached by people. There must be a high percentage of speculative resource stocks that will never make a profit and never pay a dividend yet all and sundry want a piece of them. 
There are blue chip stocks that turn a profit and pay a dividend BUT the higher risk taker in most of us will succumb to the lure of (possible) rapid and/or multiple price increases. The gambling stocks are also a self fulfilling prophecy in that the `value` is never quite clear so the prices swing wildly until some clarity is revealed in time. The price swings attract more and more gam I mean traders which creates the wider and wider swings.

The line between gambling (oops) trading and investing is very clear.


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## Mr J (10 November 2009)

Seems full-time/professional trading isn't the only can of worms open today. My view? Investing is trading, but trading is not necessarily investing, and both are gambling. I say this because I see investing as trading for the longterm in just one direction. Some people would suggest that they have different aims, but in the end both seek to profit by exploiting a change in price.

I say they're both gambling, because the proper definition of gambling is to place a stake on an uncertain outcome, which applies to almost all trading (and therefore investing). Unfortunately, "gambling" has a negative connotation thanks to most participants lacking skill, the house edge, and the general lack of understanding of probability and expectancy. Tell me, what's the difference between a professional blackjack player, a professional poker player, a professional sportsbettor and a trader?

I'm sure everyone has their own view, this is just mine.


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## prawn_86 (10 November 2009)

Mr J said:


> but in the end both seek to profit by exploiting a change in price.




What about those that gain positive cashflow through investing? That CF is either then used to pay off a margin loan, thereby expanding the capital base, or to reinvest also expaniding the capital base, and no change in price is needed (in theory).


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## Mr J (10 November 2009)

I was generalising and see your point.


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## Mofra (10 November 2009)

Mr J said:


> I say they're both gambling, because the proper definition of gambling is to place a stake on an uncertain outcome, which applies to almost all trading (and therefore investing). Unfortunately, "gambling" has a negative connotation thanks to most participants lacking skill, the house edge, and the general lack of understanding of probability and expectancy. Tell me, what's the difference between a professional blackjack player, a professional poker player, a professional sportsbettor and a trader?



It is an interesting point, however gambling is generally a paid risk with a capital return only outcome that will definately be known at a defined time (either the turn of a card, the drop of a ball or finish of a race). Obviously derivatove traders have a timeframe that is not entirely within their control, however most have the option of an early exit if they choose.

Trading and investing generally empower the trader/investor in that they own the dynamic of determining the exit point (whether that be a win or loss). In additon, most investors do (a prawn has alluded to) include some form of cashflow in their expectations of return, in many cases holding long term on a cashflow basis only. 

I guess in a nutshell trading & investing is a more dynamic activity that affords a person more control in the outcome - personally I don't gamble, so perhaps on some level I am a control freak.


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## ROE (10 November 2009)

prawn_86 said:


> A discussion with Miss Prawn last night over dinner bought up an interesting topic. She seems to have the opinion that investing and/or trading is pretty much gambling. After much discussion and many points raised I have to say she does have a fair argument.
> 
> Any other ideas/discussion out there? Or are we all just gamblers in disguise?




Maybe you should get her to read Uncle Ben Graham: the intelligent investor
Uncle Ben definition of investment.

"investment operation as one which on a thorough analysis of the facts promises safety of principal and a satisfactory return, anything else is speculation."

Everytime I buy and dont understand the business or bother reading many of its annual reports or work out how a company can survive a financial atomic blast I am speculating and put my capital at risk....

and If I lose money it's my fault and no one else for not following the principles.

So far following the principles safeguard my capital and provide me with adequate return


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## prawn_86 (10 November 2009)

ROE said:


> and If I lose money it's my fault and no one else for not following the principles.




But there is still that risk that you are wrong, or something beyond your control/forecasts occurs, which could result in you losing money. Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'


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## ROE (10 November 2009)

prawn_86 said:


> But there is still that risk that you are wrong, or something beyond your control/forecasts occurs, which could result in you losing money. Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'




then most people dont understand investment 
There is nothing come close to risk free apart from buying government bonds.

so if you scare of risk buy government bonds, investment gives you the option to generate return far greater than bonds ...but investing without first work out safeguard your capital is gambling...

and the risk is no matter how hard you try, you could be wrong but that chance is pretty small if you follow the correct principles and the one you get it right far outstrip the one you got it wrong.

it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
who are more likely to get it wrong and who are likely to pass most of the test


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## prawn_86 (10 November 2009)

ROE said:


> it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
> who are more likely to get it wrong and who are likely to pass most of the test




I totally agree, but therefore does that element of risk make investing a 'gamble'? I guess in the strictest definition of the word it does...


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## Mr J (10 November 2009)

Mofra, consider that:

- Many sportsbettors don't have open positions during a game, but trade sportsbetting markets like a trader does financial markets.
- Betting allows the option to close before the event, and during the event if there is live betting. 
- If the position is left open, it's no different than setting a stop loss, target profit, and waiting until one is hit.
- Poker players can close their position at any time.
- Poker players can control their opponents, but few traders can say the same.



			
				Prawn86 said:
			
		

> Hence this element of risk (even when investing for cashflow), is always present, meaning there is some element of 'gambling'




It can be argued that we are all always gambling, but few of us are aware of it. We constantly weight up reward, risk and probability subconsciously. I think this kind of topic will always be a problem, as "gambling" carries a negative view, such as being wreckless or leaving things to chance, and people generally do not like loss of control.


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## lasty (10 November 2009)

The difference between trading and investing is  TIME.


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## Mofra (10 November 2009)

Mr J said:


> Mofra, consider that:
> 
> - Many sportsbettors don't have open positions during a game, but trade sportsbetting markets like a trader does financial markets.
> - Betting allows the option to close before the event, and during the event if there is live betting.
> ...



All valid points, however I think that in the circumstances you describe (that don't provide the bulk of gambling dollars in Australia at least) that is approaching professionalism within the gambling industry. Professional gamblers have a similar level of positive expectancy as traders, and conduct their affairs much like a business rather than a game of pure chance. 
The question under those circumstances would be - is this still gambling, or a profession in itself?


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## Mr J (10 November 2009)

> The question under those circumstances would be - is this still gambling, or a profession in itself?




I would say it is a profession, but is it still gambling? That would depend on one's definition of gambling, and it is just a word.



> Professional gamblers have a similar level of positive expectancy as traders




Actually, trading blows gambling out of the water. Decent capital requirements, high growth and great home run potential. In these ways, it is only bested by online poker, but that scales far, far worse for much lower limits (going from say 50k, 100k and 200k takes a great rise in skill, in trading we just scale).


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## condog (11 November 2009)

I think everyones definition are different...

To me because at heart Im a value investor, with a history of trading....

Investing is finding sound fundamental companies with good positive outlook to provide a targeted growth or return over a set period of time......for me it tends to be more for mid to long term....

Trading is looking to get into and out of a stock or position to turn a profit, again usually in a set period of time, usually with a predetermined figure , but not always...

Gambling is taking a position on any probability position where a total loss of capital is a reasonably probable outcome. For example I would regard anything with a 25% chance or greater of a total loss of capital as gambling.

Knowledge and experience  is a massive factor that allows some traders to trade where others carrying out the exact same position on the exact same stock at the exact same time are actually gambling. 

Come in spinners...


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## Bill M (11 November 2009)

Wysiwyg said:


> The line between gambling (oops) trading and investing is very clear.




By the way we just had the biggest financial crisis in our lifetimes and that 10K I put into CBA shares in 1996 is now worth 55k and the dividends keep rolling in.


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## Wysiwyg (11 November 2009)

Bill M said:


> By the way we just had the biggest financial crisis in our lifetimes and that 10K I put into CBA shares in 1996 is now worth 55k and the dividends keep rolling in.



My first parcel of 300 shares was CBA at around 11 bucks. Sold them soon after and never bought shares again 'till 2005. With DRP plus capital growth I would be sitting nice and if I had of been more knowledgeable I could have accumulated along the way. Could have, should have.


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## condog (12 November 2009)

ROE said:


> then most people dont understand investment



  Totally Agree


ROE said:


> There is nothing come close to risk free apart from buying government bonds.



 Totally Disagree
Inflation, govt corruption, financial mis-mangement - what do you think a Zimbabwee govt bond issued 10 years ago when the country was incrediblly prosperous is worth now???  


ROE said:


> but investing without first work out safeguard your capital is gambling...



 Agreed


ROE said:


> and the risk is no matter how hard you try, you could be wrong but that chance is pretty small if you follow the correct principles and the one you get it right far outstrip the one you got it wrong.



 True investing in sound fundamental stocks is significantly less risk in the long term then inflation , bank failure or govt mis-management for holding or spending your cash....One of the biggest risks to savers over investors, is themselves and there inability to refrain from spending their capital base....


ROE said:


> it's like you going into a maths exams, what are the chance that the guys that study it for weeks vs the guys that walk into the exam?
> who are more likely to get it wrong and who are likely to pass most of the test



 A great analogy....100% agree.....which is why Im primarily a value investor, investing on fundamentals, and only using technical for some finer detail...


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## Tysonboss1 (28 August 2010)

prawn_86 said:


> I totally agree, but therefore does that element of risk make investing a 'gamble'? I guess in the strictest definition of the word it does...




I don't believe it does.

Simply having a small degree of risk present does not mean that somthing is a "gamble" or that you are "gambling"

Ponder these two different situations, 

there are a group of six people, they have a six chamber revolver and the load 1 bullet into it and spin the chamber. each member of the group then takes a turn pointing it at their head and pulling the trigger. the guys are taking a risk and are gambling because one of them is sure to lose.

A different group of six men go to the sydney airport and all board separate planes and fly to brisbane. The men are subjecting them selves to an element of risk because sometimes planes crash and they could lose their life.

Some one could argue that the men who flew to brisbane on the plane were also "gambling" in a similar way as the guys playing russian roulette because both parties lives were at risk.

But I would argue that the only gamblers were the ones playing russian roulette because that system is guaranteed to produce a loser, where as the airline system does not guarantee anybody will lose.


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## Tysonboss1 (28 August 2010)

The sharemarket in general is not a system designed for gambling and those that use it to make "investments" are not gamblers.

However people do "gamble" using the share market and place "bets" based on the daily outcomes of the share market.

People that blindly buy shares hoping the price will go up tomorrow or next week or next month are gamblers because they are taking part in an activity that is pure speculation.

Traders that trade CFD's or options are also gambling, because they are betting on shorterm movements in the market which can not be known with 99% certainty.


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## So_Cynical (28 August 2010)

Tysonboss1 said:


> But I would argue that the only gamblers were the ones playing russian roulette because that system is guaranteed to produce a loser, where as the airline system does not guarantee anybody will lose.




The odds of death happening in the 2 scenarios are totally different and reflect reality...the chance of death for any one of the flyers on 1 single trip in Australia probably around 50000/1 (considering our air safety record) compared to the odds of the Russian roulette players not dying being about the opposite...probably 1/50000

Realistic understanding of the odds of success and failure is very important in assessing the odds of any investment being successful, time is the element the often separates investors from traders and gamblers.


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## mazzatelli (28 August 2010)

Tysonboss1 said:


> Traders that trade CFD's or options are also gambling, because they are betting on shorterm movements in the market which can not be known with 99% certainty.




Don't you sell calls over your holdings...gambler?


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## Tysonboss1 (28 August 2010)

mazzatelli said:


> Don't you sell calls over your holdings...gambler?




Yes I do sell covered calls,

 but all I am doing there is selling someone else (a gambler) the right to buy my shares from me at a later date for a price that I choose, from my side of things there is no gamble because either way I make money. and I am not "gambling" anything.

The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.


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## cutz (28 August 2010)

Tysonboss1 said:


> Yes I do sell covered calls,
> 
> but all I am doing there is selling someone else (a gambler) the right to buy my shares from me at a later date for a price that I choose, from my side of things there is no gamble because either way I make money. and I am not "gambling" anything.
> 
> The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.




Yes you are gambling,

With naked short puts.


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## skyQuake (28 August 2010)

Tysonboss1 said:


> Traders that trade CFD's or options are also gambling, because they are betting on shorterm movements in the market which can not be known with 99% certainty.




Would have thought short term price movements are easier to predict compared to say 3 months out.


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## Garpal Gumnut (28 August 2010)

With trading/investing one can smoke, inhale and make love while simultaneously losing or increasing one's dough and not get arrested.

gg


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## Tysonboss1 (28 August 2010)

cutz said:


> Yes you are gambling,
> 
> With naked short puts.




??? 

I don't really get what you mean, I don't buy shares with the intention of selling covered calls on them. I only buy shares in companies that I already want to invest in as a long hold, However if there is a market for me to also sell covered calls along the way at a price i would be happy to sell at then I would be crazy not to.


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## Tysonboss1 (28 August 2010)

skyQuake said:


> Would have thought short term price movements are easier to predict compared to say 3 months out.




when you make a guess that a certain share will be worth $X amount tommorrow or next week you are speculating, especially if you have done little or no analysis into what the company is.

there are even financel instruments out there such as CFD's and options where a trader or speculater can pay real cash and all they get in return for there money is a short term bet on the market. to me there is no difference between doing that and placing a bet with a book maker at the track.


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## mazzatelli (28 August 2010)

Tysonboss1 said:


> The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.






Tysonboss1 said:


> I only buy shares in companies that I already want to invest in as a long hold, However if there is a market for me to also sell covered calls along the way at a price i would be happy to sell at then I would be crazy not to.




The counterparty is more likely to be a market maker - who may have just locked in an arb, discount-arb etc &/or offsetting deltas and being neutral to direction.

You, on the other hand, are now short the synthetic put - and speculating that the stock will remain below your strike [gambling?] until expiration.

Despite your holdings get called away, you will make a profit - but wasn't the original purchase, in your words, a long term investment?


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## cutz (28 August 2010)

Tysonboss1 said:


> The guy on the other side of the transaction is making a shorterm bet that by the end of the month the price will be higher than what I have aggreed to sell at and he can make a profit on the difference. He is betting a couple of $1000 that the share price will be $X by X date, this is pure speculation and gambling.




More often than not the guy on the other side is a market maker buying a contract at below theoretical value.

Or the other side may be a trader taking a long volatility position, may be a trader closing out a short position, may be a trader wanting to adjust, ect. ect. ect.

What I'm getting at is just because you're selling covered calls, it doesn't mean you are not gambling but the other side is.


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## skyQuake (28 August 2010)

Tysonboss1 said:


> when you make a guess that a certain share will be worth $X amount tommorrow or next week you are speculating, especially if you have done little or no analysis into what the company is.




You don't have to know what the company does to trade it profitably, a general idea will do.



> there are even financel instruments out there such as CFD's and options where a trader or speculater can pay real cash and all they get in return for there money is a short term bet on the market. to me there is no difference between doing that and placing a bet with a book maker at the track.




isnt that what trading is all about?


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## Tysonboss1 (28 August 2010)

mazzatelli said:


> You, on the other hand, are now short the synthetic put - and speculating that the stock will remain below your strike [gambling?] until expiration.
> 
> Despite your holdings get called away, you will make a profit - but wasn't the original purchase, in your words, a long term investment?




I wouldn't sell an option on a stock unless I was happy to sell at that price, So I am not gambling on the possibility of it staying below or going above a certain price to make a profit.

But I do get your point and it is inline with my other comments that when you buy an instrument where you are going to make a profit or a loss based on somthing happening inside a certain time frame or event you are gambling, 

it is different to taking a long postion in a company that you have done analysis on and decided that based on the earning power of it's assets the price you can buy it for will give you a satisfactory rate of return over time.


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## Mr Z (28 August 2010)

Gambling is binary, win/lose, make money/lose *ALL* your money (for that position anyway).

Trading or investing, in most circumstances, offers you the opportunity to control loss and to skew the odds of success very much more in your favor. The latter point is the most crucial and the key to success... control what you can i.e. losses.

Gambling does not offer that level of control, you could argue that over a range of bets you can manage your money when gambling but the fact remains that every new bet brings the same or similar level of risk. Where as when trading once you take the risk the amount you lose, if it goes against you, is generally up to you.

The way you trade determines if you are in fact a gambler, if you have risk control down pat then I would argue that you are not gambling... if not then you are.

 & JM Humble O!


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## Tysonboss1 (28 August 2010)

skyQuake said:


> You don't have to know what the company does to trade it profitably, a general idea will do.
> 
> 
> 
> isnt that what trading is all about?




Exactly, Trading = gambling, 

The words Trading and Investing are not interchangable (despite that fact that 90% of people on this forum seem to believe the words are interchangable)


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## Tysonboss1 (28 August 2010)

skyQuake said:


> You don't have to know what the company does to trade it profitably, a general idea will do.




I don't think you can make a true investment without knowing all the facts about a company.

I guess if the people that say investing is a gamble are talking about buying a stock without carrying out the proper research then yes it is a gamble.


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## Mr Z (28 August 2010)

Tysonboss1 said:


> Exactly, Trading = gambling




You cannot make a blanket statement, it entirely depends on the individual and the work that is put into a 'trade'. Conversely investing can be tantamount to gambling if it is handled badly.

Trading, investing, gambling are not equivalent OR exclusive terms!

The way YOU do it may or may not be gambling.


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## Mr Z (28 August 2010)

Tysonboss1 said:


> I don't think you can make a true investment without knowing all the facts about a company.




1. Knowing all the facts is undoable.

2. I will not trade a company unless I know a lot about them starting with the financials through to their prospects. 

3. Investing is done for income, if there is no income it is a trade or speculation for capital gain. That is the only difference between my trades and investments other than as a generalization trades tend to be of a shorter duration than investments... but not always!


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## trainspotter (28 August 2010)

Splitting hairs on terminology here ladies and gentlemens. 

RISK is the word we are looking for. I take a risk buying shares/property/people BUT it is a calculated risk.

Gambling is CHANCE ...... Yes you can play the odds and cover bets on the crap table or hedge on roulette. That's a given. Horses used to be my thing and working the odds to spread the bet so it did not matter who won or lost I still made a small return.

Buying stocks is not gambling at all. It is a calculated RISK.


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## So_Cynical (28 August 2010)

Mr Z said:


> 3. Investing is done for income, if there is no income it is a trade or speculation for capital gain. That is the only difference between my trades and investments other than as a generalization trades tend to be of a shorter duration than investments... but not always!




I trade for capital gain, establish free carry then and hold for income.



trainspotter said:


> Splitting hairs on terminology here ladies and gentlemens.
> 
> RISK is the word we are looking for. I take a risk buying shares/property/people BUT it is a calculated risk.
> 
> ...




Gambling can be calculated risk taking...every time i buy a stock, i know its a gamble as to Wether the SP goes up or down, im taking a calculated risk that i have brought at a point in time where the SP is more likely to rise than fall over my entry investment time frame.

And im right 2.44 times to 1


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## trainspotter (28 August 2010)

So_Cynical said:


> Gambling can be calculated risk taking...every time i buy a stock, i know its a gamble as to Wether the SP goes up or down, im taking a calculated risk that i have brought at a point in time where the SP is more likely to rise than fall over my entry investment time frame.
> 
> And im right 2.44 times to 1




Most people that invest or trade know what they are doing. You do not go to your broker and ask for $500 on stock XXX because you have a feeling in your water? Go to the TAB and ask for a $5 mystery bet instead.

You can cover the spread on gambling by playing odds (horses are good because you have stats to work with) but usually it is a game of chance.

But mostly on the choclolate wheel in the casinos you will lose. When you lose your money is gone. PERIOD. With shares you have half a chance of stop loss and selling before the blood runs in the street.

Well done on the 2.44 to 1 ratio So_Cynical. You must make some great calls. Far outstretch's my capacity.


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## Tysonboss1 (28 August 2010)

Mr Z said:


> 3. Investing is done for income, if there is no income it is a trade or speculation for capital gain.




You can make an investment in a company that is not providing income directly to you.

If a company is taking it's earnings and reinvesting it in a way that grows eps or buying back it's own stock you can hold this share as an investment with a fair degree of certainty that over time the market will put a higher value on the stock and you will get capital gains.


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## So_Cynical (28 August 2010)

trainspotter said:


> Go to the TAB and ask for a $5 mystery bet instead.




I never did understand the thinking behind the mystery bet punter.:bonk:


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## Mr Z (29 August 2010)

TS is right and it is basically what I was saying. If you *can and do control the risk appropriately* it is no longer a gamble. I am no gambler but I understand that there are ways of controlling your risk in BlackJack by remembering or counting cards and working out odds. Do it and get caught and you will not be playing at that casino again! They hate you managing your risk because it turns the odds against them. As TS pointed out there are ways of managing your horse betting. I once new a pro better he consistently pulled down 50K a year when 20K was a good wage. He was methodical and controlled his risk. How he did it I didn't get and was not interested in, however I seem to remember that the ATO wanted to tax him under some rule or other because they classed him as 'professional'... anywhooo beside the point.

So yes I would say that is the point of difference, risk management, if you are managing risk effectively it is no gamble. Even if a trade goes against you it is a controlled situation... if not then its a gamble and that goes for most of life IMO.

As for investing or trading... You can argue that until  moos come home but for my purposes and the way I was taught it is an investment IF it produces an income stream, if not it is speculation on an outcome. The difference is that an investment, if wise, need never be sold to gain. On the other hand a speculation or trade must be sold to realize gain. If you don't draw that line then there is no difference between the two save semantics and is there any wonder there is confusion! I research my trades as much as my investments, in all other respects they can be completely interchangeable. Anyway, that is for you to decide what you call what, it will not change my outlook


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## mazzatelli (29 August 2010)

mazzatelli said:


> The counterparty is more likely to be a market maker - who may have just locked in an arb, discount-arb etc &/or offsetting deltas and being neutral to direction.






cutz said:


> More often than not the guy on the other side is a market maker buying a contract at below theoretical value.






Tysonboss1 said:


> it is different to taking a long postion in a company that you have done analysis on and decided that based on the earning power of it's assets the price you can buy it for will give you a satisfactory rate of return over time.




So are our option market makers gamblers?
They are neutral on direction, treat the underlying as random, don't take long term views of the spot they're trading etc but still churn out money on a consistent basis.

I asked this question of you about OTC derivatives, bond traders etc who  perform extensive analysis on vol, yield curves, effect of earnings/announcements on term structures, global macro models etc in another thread but never got a response.

All gamblers are they?


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## Tysonboss1 (29 August 2010)

mazzatelli said:


> So are our option market makers gamblers?
> They are neutral on direction, treat the underlying as random, don't take long term views of the spot they're trading etc but still churn out money on a consistent basis.
> 
> I asked this question of you about OTC derivatives, bond traders etc who  perform extensive analysis on vol, yield curves, effect of earnings/announcements on term structures, global macro models etc in another thread but never got a response.
> ...




If they are involved in arbitrage in it's true definition or acting as intermediaries in the transaction of others then I would not say they are gamblers, however they are not investors either. 

I would say that people involved in arbitrage and intermediary actions are performing a vital role in the economy and being paid for their work that they put in to find and piece together the transactions. this is being paid for labour, and it is different to earning a return as a passive investor.


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## Tysonboss1 (29 August 2010)

The Main man explains it all a little better than me, Watch the video on the below link and listen to Warren Buffett explain the difference between investing and speculative trading.

http://www.youtube.com/watch?v=LH03WyBpgjU&NR=1


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## Gringotts Bank (29 August 2010)

Why so many complicated answers here??

Short term trading and gambling have a similar success rate.  If you are very quick, very lucky, very clever or very intuitive, you can be in the 5% that make a lot of money doing this.  If you don't have any of these attributes, you have an extremely high probability of losing over the long term.

compared with....

Investing.  Easy.  Over any 10 year period throughout history, you *will *have made money if you buy a decent selection of managed funds and/or blue chips on the AUS market.  So the risk, historically speaking is *extremely *low and the return almost guaranteed.  Most country's exchanges would offer the same low risk and reasonable return of approx 10%pa.  (Maybe not Japan...not sure) .  Basic stuff.


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## Mr Z (30 August 2010)

Tysonboss1 said:


> The Main man explains it all a little better than me, Watch the video on the below link and listen to Warren Buffett explain the difference between investing and speculative trading.
> 
> http://www.youtube.com/watch?v=LH03WyBpgjU&NR=1




Absolutely and what is the first things he says.... I am not looking at the price everyday I am looking at the return... or the income! 

You invest for income... you trade to speculate on a capital gain. One you buy to keep (until a better prospect has come up in terms of value! nothing is for ever!) the other you buy to sell. Invest v trade! Simple really in my book.


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## Tysonboss1 (30 August 2010)

Mr Z said:


> Absolutely and what is the first things he says.... I am not looking at the price everyday I am looking at the return... or the income!
> 
> You invest for income... you trade to speculate on a capital gain. One you buy to keep (until a better prospect has come up in terms of value! nothing is for ever!) the other you buy to sell. Invest v trade! Simple really in my book.




The return is not just the income that gets paid to the investor as dividends. it is the total cash flow or company profit that he measures. because the companies total casflow is a more important figure than it's dividend yield.

Any cash that is retained by the company will be used to clear debt, buy back shares or make further investments all of which will increase company earnings which will lead to a higher share price longterm.


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## Tysonboss1 (30 August 2010)

Mr Z said:


> you trade to speculate on a capital gain.




you can invest for capital gains with out it being speculation. a companies earning power can be measured and an assesment can be made as to what they are doing with these earnings and whether that will lead to value being built up inside the company.

It may take time for the share market to regonise that value, but if it is truely there it will be recognised eventually, But anyone that says it will be regonised by 3pm or next tuesday or next month is just guessing thats where the speculation of trading comes in.


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## mazzatelli (30 August 2010)

Tysonboss1 said:


> Traders that trade CFD's or options are also gambling, because they are  betting on short-term movements in the market which can not be known with  99% certainty.






Tysonboss1 said:


> The guy on the other side of the transaction is making a short-term bet   that by the end of the month the price will be higher than what I have   agreed to sell at and he can make a profit on the difference. He is   betting a couple of $1000 that the share price will be $X by X date,   this is pure speculation and gambling.






Tysonboss1 said:


> If they are involved in arbitrage in it's true definition or acting as intermediaries in the transaction of others then I would not say they are gamblers, however they are not investors either.
> 
> I would say that people involved in arbitrage and intermediary actions are performing a vital role in the economy and being paid for their work that they put in to find and piece together the transactions. this is being paid for labour, and it is different to earning a return as a passive investor.




My point of contention with you is not investing v trading v gambling - it is w.r.t to your blanket statement about option markets being full of gamblers, taking directional trades.

You're original statement was that the counter-party buying the calls you're selling is speculating - when in the majority of cases it is an intermediary who is both market making and prop trading - to which you have agreed are not gamblers. 
If anything they are maintaining their book so it fits leptokurtosis - short atm premium, long otm dgamma.

The other point, is due to additional modalities and non linear parameters in options, people don't trade/invest these like they do the spot [short term movements in the market as you allude to] - so its not designed for investments. They are utilized for gamma/vega exposure and insurance, requiring completely different analysis and skilled operation - far from gambling.

There are so called exotic instruments that resemble binary spec bets - barriers, binaries of Euro and American variants etc but because of the "gambling" nature of these and lack of adequate knowledge, they are generally kept from the retail public.

In the majority of cases, there is a lack of understanding on how options, its market and participants operate - so it is like placing a bet with a bookie for those who use them.


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## Tysonboss1 (31 August 2010)

The below link offers an explaination of the difference between gambling and investing. 


http://www.youtube.com/watch?v=nlG0VPVwTfI&p=D53CF2B5077C3BF3&playnext=1&index=4


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## Tysonboss1 (31 August 2010)

mazzatelli said:


> My point of contention with you is not investing v trading v gambling - it is w.r.t to your blanket statement about option markets being full of gamblers, taking directional trades.
> 
> You're original statement was that the counter-party buying the calls you're selling is speculating - when in the majority of cases it is an intermediary who is both market making and prop trading - to which you have agreed are not gamblers.
> If anything they are maintaining their book so it fits leptokurtosis - short atm premium, long otm dgamma.
> ...




The intermediary/ market maker that buys my option my not be involved in a pursuit that can be called gambling directly, But they would only be buying my option if they have sold a simliar product to some other third party, in this case the third party is the gambler.


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## mazzatelli (31 August 2010)

Tysonboss1 said:


> The intermediary/ market maker that buys my option my not be involved in a pursuit that can be called gambling directly, But they would only be buying my option if they have sold a similar product to some other third party, in this case the third party is the gambler.





omg...there is a reason why dealers have to dynamically hedge and raise premiums - since there may be cases where there is *no* third party [gambler?] to dump their risk on.

So back to square one, MM's are gamblers? Similar to what someone posted earlier on this thread - is the casino a gambler?


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## IFocus (31 August 2010)

Trading, Investing or gambling isn't the issue its whether you are a punter (certain net loser)or measured professional (possible net loser)that counts. 

Don't discount pure dumb  luck either


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## So_Cynical (31 August 2010)

Surprising how many posters seem to think that the certainty of loss (the odds) somehow determines what's gambling and what's not...if a day trader gets stopped out of a 5K trade and loses 200 bucks, somehow its not gambling because his losses are measured and controlled...in fact expected (that's why there's a stop!)

Isn't it the same as a punter walking into a casino with a 200 dollar limit and sticking to it...the losses are controlled and expected, that's why there's a limit and that's why he left his ATM cards at home....same 200 bucks lost.

-----------

The first trend follower i ever saw was a guy we called the '500 guy' there was a $500 dollar limit at my local illegal casino and every 2nd or 3rd time i went there (once a week - Friday nites ) there he was standing well back from the two up table waiting for a run to come.

There would usually be 4 or 5 runs a nite where consecutive heads or tails were thrown...the 500 dollar guy would just wait till the 4th or 5th head/tail, then wade thru the crowd and throw down his 500 (this was in like 1978 when 500 bucks was alot of money) this guy always won.

Had 1 or 2 bets collected his money and left...


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## TabJockey (16 September 2010)

The way the tote works on the horses, is that say all up there is 1M in the Win bet pool of a certain race, that means the total win bets placed on any horse in that race is 1M. The TAB takes 15% (usually, sometimes up to 50%) of that pool. So gamblers as a whole pay 1M but only receive 850K back. Almost all gambling systems cream money off the top somehow, in roullette its 0, blackjack the house advantages, bookies/sportsbet incorporate that fee into thier fixed prices.

So the longer you gamble on the horses, the closer you get to a statistical 15% loss. You might start out winning allot of bets but in the long run it evens out to 15%. I think of that 15% as the price you pay for the entertainment of the punt.

If you had a prospective investment that had a brokerage fee of 15%, 25% of a 400% return and a 75% chance of a complete capital loss, would you take this investment?

This is what gamblers do in my TAB with every bet. But hey they have fun...sometimes, im sure its worth the 15% fee .


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