There are many parallels between Futures trading and gambling or playing poker. The potential of financial loss is what brings the negative connotation of the day trading. The high wash-out rates for the rookies in the market makes things worse.
There is no doubt that there are indeed high risks involved in active trading. Without market experience and a proper plan in place, any new trader would be more likely to lose their investment and blame the game for being unfair. It all comes down to the question that is day trading really gambling?
What is Gambling?
Cambridge dictionary defines the term “gambling” as “the activity of betting money on games like horse racing, in the hope of making more money.” Meanwhile, the Oxford scholars prefer labeling gambling as “ playing games of chance for more; bet.”
The word gambling brings a negative feeling in most of us, while to some, it is more like a passion that pulls them towards it. These may have psychological aspects, but in reality, words like “hope” and “chance” used by the dictionaries in defining gambling draw our attention towards the final outcome of the ordeal, i.e., in most cases, an opinion that involves loss.
For more than centuries, empires and government structures have been built on risk-takers and people who “gambled” on themselves and their instincts. Now, it’s more looked at from a posh perspective. It is a game of chance; hence futures trading is often categorized in the same spectrum as roulette or poker. So, what is the difference between trading and gambling?
Futures Trading vs. Gambling
If you are an Ocean’s series fan, you might have come across a frequently used statement, “ The house always wins.” As dramatic and cool as this statement sounds, it is actually true. In gambling, the rules are already set based on the probability that least favors the gambler. Yes, many people do win and take enormous returns home, but it is consistency and regulations that set day tradings and gambling apart.
If you continuously keep gambling and betting, you will eventually go at a loss and maybe worse. That is how gambling is structured. In futures trading the individual sets the rules of the game and not the Casino or someone wearing a vest coat. The structure of futures is based on evaluating risk, identifying reward and developing a strategy on your own terms.
Once you enter the trading game, it is all about analysis and strategy. You may be looking at large returns on your initial investment by practicing trade efficiently within the structure of a convoluted and well-structured plan. But again, defining all the aspects of the day trading game is a little tricky. Here is how professionals and experienced traders define a successful futures trading plan:
Selecting the initial capital of investment on a trade-by-trade basis that does not affect you as much in the worst-case scenario. What further helps with risk is that the ability to cut losses at any point of time adds security and gives you another day to fight in the market.
The volatility of the trading game can be your best friend or your worst enemy. The rewards can be far more than the risks that you might have ever imagined. Once you set in a mindset of consistency and strategic planning on your investments, even though you have had losses, overtime, you can easily overcome them, unlike gambling.
One of the best things about the futures market is that it offers a wide range of products. These include stock indices, bonds, commodities, and currencies. More of these options opens more opportunities along the way. The market operates regularly for 23 hours a day for five days. So, trading opportunities might only be limited temporarily based on the market conditions but never in the long run.
Tackling the futures trading market in a systematic manner backed by market knowledge can eradicate a large probability of your loss. Over time the success rates inevitably become quantifiable, and you can learn to make money in the most influential markets of the world.
Although you hold the cards in futures trading and you make most of the rules for your trading, there is a governing body known as the Commodity Futures Trading Commission or CFTC that makes sure there is no fraud involved. In other words, CFTC is a federal agency created by Congress in 1974 to make sure that the futures market practices integrity and prevents abusive trading practices, frauds, and other regulating brokerage firms meddling with future trades.
Trading and gambling are, without a doubt, very similar. But, the structure behind gambling and futures cannot be distinct enough. Gambling has far worse reasoning and is often perceived well beyond the standard definition that was initially set. Gambling can have a psychological and selfish root cause behind it, while the rules and regulations are set to seem like they are in favor of the gambler; they are not.
But, the futures trading structure comes with a well structured strategic approach to investing and making profits. Both of them are equally risky, but when it comes to future trading vs. gambling, future trading wins. In other words, no, futures trading is not like gambling. Once you develop a better edge to the day trading market and have enough market experience to predict the downfalls, you can easily be profiting through the market.
Finally, continue to look at the big picture than short term wins. The market would be your playground once you progress on this path, and futures trading would be a much fun and profitable game. Do not get disheartened or intimidated by the market. Luck may be a minor part of it, but it all depends on how you use market knowledge and strategy at the end of the day.