What is the difference between stock trading and gambling in a casino?

April 20, 2014 at 5:50 pm

Answer by Dave Hughe:

All the talk about 50/50 odds in the stock market or any other financial market for that matter is simply NOT TRUE. Just the same as calling the stock market a zero-sum game.

The broker's commissions and other charges shift the odds against the trader. Yes, your chances of correctly guessing the direction of the price move are 50/50 but you have to pay commissions on the way in the trade and on the way out. These commissions will eat part of your profits when you win and add to your losses when you lose.

Therefore, if you will be right 50% of the time and your average win will equal your average loss, you will still lose money. How is that for a 50/50 chance?

As for the difference between gambling in a casino and trading, there is not much considering the fact that the odds are stack against you in both cases.

The difference lies in the approach. If you calculate your risks and shift the odds of winning in your favor, you can win on average in both endeavors.

There are people who consistently beat casinos and there are traders who consistently make profits in financial markets.

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