A question many are wondering nowadays: is day trading gambling? Well, as financial markets become more accessible through the rise of trading apps, available 24/7, the distinction between trading and gambling has become more blurred than ever before.
This is why it’s essential to make a distinction between those who view being a day trader as a serious profession and those who take on excessive risks on trading platforms. The latter is much more closer to being a gambler than the former.
Day trading is all about buying and selling financial instruments within a single day. We’re talking about stocks, cryptocurrencies, or any other type of financial security. Day traders seek to profit from small price movements and heavily rely on technical analysis while keeping a deep commitment to risk management rules.
Gamblers on the other hand bet on events with an uncertain outcome, where the odds are against them. We’re talking about casinos, lottery, horse racing, and sports betting.
Online gambling is among one of the fastest growing industries of the 2020s. They are closing deals with large entertainment companies and influencers worldwide for marketing purposes. Besides that, they’re already exercising influence on national regulations. Countries like Brazil and Mexico have loosened their gambling laws to encourage investment in this sector, despite the fact that many of their citizens lose money everyday on these platforms.
Day trading and gambling are similar in the sense that both comes with high risk and potential for either financial gains or financial losses. But traders who operate like business owners are factually managing risks and exercising financial literacy, while gamblers have no choice but to rely purely on luck.
But it takes a special set of skills and behaviors to take you into the group of top percentile day traders who are actually profitable. The vast majority of day traders tend to exhibit the same problematic risky behaviors you find among those involved in online gambling, treating the stock exchange as a play center.
The brain’s reaction to a profitable trade and a casino win is far more similar than you might have thought. Neuroscientists say that activities like day trading and gambling trigger the release of dopamine in the brain, the neurotransmitter responsible for making you feel good. Dopamine is behind the emotional highs and lows that keep you deeply engaged.
Research has shown that the uncertainty of a reward is even more addictive than the reward itself. Many day traders feel a wave of adrenaline rush when they see a stock price rising. This euphoric feeling can lead to a psychological bias called the illusion of control, where a person starts believing they’re really able to predict random volatility with absolute accuracy just with a quick look at chart patterns.The illusion of control is a cognitive bias shared by both traders and gamblers.
When trading is fueled by the need for dopamine instead of logical analysis, it starts to resemble gambling in several ways. And this is where the problem really starts. The fear of missing out and other biases push people toward impulsive decisions, while volatility leaves little room for mistakes.
Professional trading has a positive expected value, while gambling activities have several mechanisms to ensure the house always has the math on their side.
Professional traders operate based on mathematical probabilities. They employ technical analysis, chart pattern analysis, and use fundamental data to develop their trading thesis. They’re not entirely dependent on luck. They know it’s smart to act only when potential returns outweigh the risk of losing it all, and that’s why they’re dedicated on building trading systems that actually give them an edge.
Another fundamental factor is, of course, risk management. A gambler can’t stop a roulette wheel mid-spin to save their bet. A trader, on the other hand, can manage risk by using stop-losses and exit a losing position before it’s too late. The ability to limit the downside makes a lot of difference.
Besides that, with trading being a skill-based activity, traders can choose to operate and develop themselves on different timeframes and mindsets. Those engaged in swing trading will hold positions over days or weeks, diminishing the impact of extreme short-term risk. They will also have more time to rethink their trading strategies and adapt to changing conditions. This structure is much less similar to gambling than other forms of high-frequency operations, like scalping trading.
The difference between a professional trader and a gamble trader is defined by mindset and execution. Successful traders treat the market as a profession. They have a plan, they record every trade, and above all, they maintain emotional regulation.
On the other hand, a gambler in financial markets is always looking for the big wins, the jackpot. They more often than not exhibit overconfidence and take positions size way too large for their account. Many gamblers pretending to be traders totally ignore stop-losses. They live for the hope that a losing position will turn around, a behavior famously known as the sunk cost fallacy, which leads to even more loss of money.
A gambler thrives on the dopamine hits. They’re usually using their smartphone to impulsively trade from anywhere at anytime, while a professional treats the trading session with disciplined seriousness, following strict rules to survive in the long run.
Several factors can push traders toward compulsive and problematic behaviors like gambling. The COVID-19 pandemic played a massive role in this. Things really went south when lockdowns left people with free time, stimulus checks, and vast access to trading apps.
When analyzing what is behind problematic behaviors, we find a combination of the below:
If your trading is motivated by a desperate need for cash, you end up investing and gambling at the same time, which is a huge recipe for disaster.
Are you trading or gambling?
Only self-awareness can help you recognize when trading becomes a problem. If positive, you must act before it’s too late and you’re drowned in debt and psychologically scarred.
Problematic behavior manifests itself via:
If you notice you identify with the signs of gambling addition, don’t panic!
Immediate action is necessary, but you’re still able to lift yourself up.
The problem with daytrading is that it became a huge target for internet influencers and digital marketers. People are selling the dream that anyone can become a day trader from the comfort of their bedroom and become a millionaire in months. This is not the truth, most day traders lose money. It is an activity that involves high risk, both financially and psychologically.
Approaching day trading correctly requires years of study, an adequate amount of capital, and emotional intelligence. Safety in trading comes from education and risk control. If you cannot afford the risk of losing money, you should not be day trading. You will not become a millionaire overnight.
If day trading is or isn’t a form of gambling depends highly on who’s behind the screen. Financial markets are a neutral zone. They can be a source of success for the disciplined or a casino for the compulsive. While day trading like a gambler ruins lives, trading like a professional can build wealth. However, the path to becoming a professional is incredibly difficult, requiring you to fight your own human nature, master your emotions, and treat the markets with a lot of respect. Do not look for a big win or a lottery ticket, you will only hurt yourself.
Dedicate your time to education and continuous learning and stay vigilant regarding your mental state. Put risk management into your number one priority and never forget that the market doesn’t owe you anything. Stay disciplined, stay educated, and stay safe. Don’t be afraid to seek help if you believe you need it.
