At first glance, there are significant similarities between online gambling and financial trading, including the fact that these two entities belong to vast and incredibly lucrative markets.
For example, the iGaming market in the UK alone is worth a staggering £5.3 billion (as of March 2019), while this blog post claims that an estimated $4 trillion (£3.09 billion) is traded on the forex market each and every day.
The foreign exchange is just one of several financial markets in which individuals can trade, and with this in mind there remains an intrinsic link between iGaming and online trading in the digital age.
However, there are also important differences to consider here, particularly if you want to make the most of your capital and achieve viable profits. In this post, we’ll appraise these differences in further detail, while asking how you can prevent your trading activities from crossing the line into online gambling.
The Main Differences between Online Gambling and Trading
Before we discuss the core differences between gambling and trading, it’s important to recognise how the line between these two disciplines has become increasingly blurred during the digital age.
For example, the emergence of trading vehicles such as spread betting (which enables investors to speculate on the price movements of derivative assets such as currency without assuming ownership of the underlying asset), is directly linked to gambling and particularly online sports betting.
Whenever you trade currencies using spread betting, you’re also introducing the concept of financial leverage. This refers to the practice of opening a position using borrowed money, which enables you to trade at a far higher volume (and margin) for a considerably lower deposit.
While this enables you to pursue returns that are considerably higher than your initial investment, you can also incur significant losses that may be beyond what you can afford. This is arguably an evolved form of high stakes gaming, especially as you don’t assume ownership of a particular asset to provide a layer of security.
This also brings us onto one of the main differences between gambling and trading, however, as the latter are able to leverage vehicles such as spread betting to turn even depreciating market conditions to their advantage (by hedging against specific assets as their value declines).
At the same time, they can also use fundamental and technical analysis to inform their decisions in real-time, with a number of macroeconomic factors and trading signals providing a clear direction for traders to follow.
A recent example has been provided by the coronavirus, which has been declared a global epidemic and one that has the potential to slow economic growth and trigger a market clash. This enables traders to adopt a risk-averse approach as and when required, while it may also offer an opportunity to short specific assets that are likely to be the hardest hit.
Now, while gamblers can deploy betting and basic gameplay strategies to minimise risk and optimise their chances of winning specific games of chance, they cannot eradicate the so-called house edge or utilise data to identify trends or patterns in winning sequences.
As a result, gamblers are always bound by the restrictions of chance and opportunism, while traders can leverage skill, knowledge and real-time data to negate potentially debilitating market conditions and risks.
How to Prevent Your Trading Activities from Crossing the Line Into Gambling
Understanding these basic differences is crucial, as it enables you to recognise the boundaries that exist between disciplines such as gambling and trading.
This means that you can regulate your activity and online trading activity at all times, as you use the tools and the information at your disposal to maintain the optimal balance between risk and reward.
It’s also important to understand the psychology that underpins the mindsets of gamblers and traders, as while both may be driven by a desire to take risks, the latter temper this with critical thinking, logical decision making and an innate sense of caution that enables them to manage their risk and pursue incremental returns over time.
Conversely, gambling is governed primarily by chance and therefore appeals to those with a far greater appetite for risk, as these individuals must be prepared to absorb significant losses and manage their bankrolls carefully in the pursuit of random and infrequent wins.
For traders, another key consideration is to avoid emotive decision making, as this may cause you to chase losses and maintain unprofitable positions in response to negative trading outcomes.
This also forces traders to cross the line into gambling, at which point that have less control of their capital and ability to remain profitable.