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Gambling & the Stock Market
Are you investing, or gambling? It’s an age-old question. Gambling in Casinos and investing in the stock market have enough similarities that it keeps popping up. Especially when we look at the negative reputation and harsh regulation of gambling services, treating betting on market values differently seems unfair to many. Let’s look at both gambling and investing and find answers to what separates and connects them.
Gambling and the Stock Market: An unbreakable bond
Even if we’re not looking at the semantics, gambling and the stock market have always been intertwined. The gambling sector is well represented on the market. Just recently, online casino stocks are booming in response to the pandemic. This attracts investors and makes governments who outlawed the practice reevaluate its legality status, given how much revenue it could bring.
Similarly, we can see products strongly tied to the stock market, like cryptocurrency, influence the online casino industry. Entire blockchain casinos opened, with the defining feature that transactions can be made in the form of cryptocurrency. (For reviews of casinos that offer cryptocurrency transactions, visit the gambling community Casinomeister. Their in-depth reviews and insider info are great tools to find reputable services.)
For casinos, introducing cryptocurrency transactions is more than just offering a new way to pay. Given the greater anonymity, many people in countries or states where online gambling is illegal use bitcoin to hide their gambling activities more efficiently. This unique purpose, in turn, makes investing in cryptocurrency more enticing. Clearly, gambling and the stock market cannot be separated entirely.
Investing = Gambling? The Semantics
Let’s look at what defines the practices of investing and gambling on a semantic level to figure out how much they have in common:
- “Gambling” describes the action of betting something of value (usually money) on the possible result of an event with an uncertain outcome in hopes of receiving something of greater value (more money) in turn.
- Simplified, “Investing” describes buying an asset (most commonly a stock) for a set price and hoping the asset’s value will rise over time, so you can sell the asset and receive more money than you have spent on it originally. (Of course, there are countless different assets and investment strategies that are far more complicated than this transaction. But for now, let’s stick to this basic investment.)
Instead of this definition of investments, we could easily rephrase it to make it seem more akin to gambling:
- When we buy a stock on the stock market, we are betting our money on an uncertain event (whether the stock value will rise or fall) in hopes of receiving a bigger rate of return when we sell it.
Whether you consider investing and gambling as similar doesn’t usually depend on this definition as a whole, but one of its fragments. The key point to the discussion is the uncertainty with which the event is supposed to happen. Investors who want to separate their actions from gambling claim that investing in the stock market is far more predictable than gambling.
The Uncertainty of Gambling
Is the uncertainty a key element when we are talking about gambling? Considering that casinos would have no reason to offer their service when the players could just bet money on set outcomes, we should probably agree to that statement. However, saying the movement of stock values can be predicted more easily and gambling outcomes purely rely on luck is too simple. Just look at the many different games we use in gambling.
- A coin toss has two possible outcomes per throw and a complicated set of probabilities changing with each time the coin has been tossed. Even if the coin has landed on heads six times in a row, it might just be another heads next time, no matter how unlikely it seems. The game is luck based with a very small number of possible outcomes.
- When we look at a game like poker, the circumstance changes dramatically. There are many ways a poker game can play out, but luck just plays a small factor this time. How a poker game will end can be influenced greatly by the player’s skill, experience, and opponents.
The Predictability of Investing
Many people draw similarities between games like poker and investing exactly because of this connotation with skill. Their claim is that good investment decisions are something you can learn and get skilled in by observing market movements and using smart investment strategies. And they are not wrong. Many times, it is much easier to predict movement on the stock market than it would be to guess the result of a die roll.
However, you can never entirely rule out the luck factor typically tied to gambling. Since the stock market is very influenceable by things happening in the world, it is entirely possible for a stock to plummet or rise out of nowhere. What you can do, however, is systematically reduce the risk of investing.
Controlled Investment vs Controlled Gambling
Whether you invest or gamble, it is always in your best interest to reduce any risks as potently as possible. In online gambling you do this by choosing the games with the best probabilities, games you are skilled in and features that help prevent uncontrolled loss. Most online casinos have tools that help establish responsible gambling, like placing limits on the amount of money you can bet.
While investing is always a gamble too, you can reduce this element with smart and informed choices. For example: There are plenty of low-risk investments that are considered “safe bets”. Banks love to implement them in their depot offers. Usually, they pick non-volatile ETFs that have a predictable movement and a slow and steady rise in value. They might not make you rich overnight, but you will very rarely lose the invested money.
Conclusion
The definitions of gambling and investing overlap. Some consider gambling purely luck-based and uncertain, while investing is described as more predictable and skill based. However, you can find one or the other trait in either direction. Investing can be a gamble, when you look at the high frequency bets of day traders, or more controlled when you decide to trade in index funds.
The other way around, gambling can be purely luck based, like a pull on a slot machine, but there are games like poker that can be influenced by player skill and experience. What we can take away from this discussion, however, is that both investing and gambling can be handled in a smart way by reducing the risk of loss as much as possible.
