Australian (ASX) Stock Market Forum

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

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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.
 
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
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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.
 
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.
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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.
 
Mr Z said:
you trade to speculate on a capital gain.
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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.
 
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.
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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.
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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.
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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.
 
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 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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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.
 
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.
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:confused:
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?
 
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
 
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.

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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...
 
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 :banghead:.
 
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