People often think that investing in shares listed on stock exchange is similar to gambling in a casino. Is it true or just a myth? Here are some resemblances and differentiations between the two.

Similarities of Investing & Gambling – Risk Management

Both the terms the investing and the gambling entail the threat of loss and the options to select. Both the gambler and the investor are supposed to determine the quantum of exposure to threat of loss. It is commonly known as risk management strategy. The day traders often seek risk of around 3-6% of their entire invested amount. The investors with long-term amount commitments often listen about building diversified portfolios. The diversification of portfolio is considered to control the overall risk of loss.

On the other hand the gamblers are also supposed to deeply analyze risk of loss of their amount they put “in play”. The ways to compare risk and reward for the amount are often know as pot odds. The pot odds determine the amount to call a bet versus the amount previously in pot. When the odds are encouraging, the gambler may call the bet. The experienced gamblers are expert in risk managing the risk.

So, in investing and in gambling, the common thing is risk management. The gambler and the investor both are supposed to minimize the risk of loss of their original amount.

Difference of Investing & Gambling – Risk Mitigation

Generally betting on sports activities is considered a major gambling activity. Betting over various sports activities like football is considered a tradition in USA. Considering one’s betting style, it looks unavoidable to control the risk of loss. For example if some one bet $15 for NFL pool and does not win, his or her entire money is lost. Therefore in gambling in sports or some other activity the risk of loss is unavoidable.

On the other hand, the investors have a range of choices to limit their risk of loss. One can use stop-loss to limit the risk of loss. In case the prices of stocks you invested in plunge by 10%, you can sell them off and still you can save 90% of your invested capital.  While in gambling you cannot recover your amount even partially in case you lose the bet. This is a major point of difference between investing and gambling. Gambling is purely a speculative game.

The Time Notion – Another Difference

The notion of time is another point of difference between the two. One can wait for the time to make his or her loss good, in the case of investment. Even in case of investing, the more you wait the higher you get. While in gambling once the event you have betted on has passed, the decision of making or losing your money is done.

Similarities – Trend Analysis

Studying the trend assists investors in decision making. Analyzing the previous price fluctuations with visual graphical aids helps them to make to sensible judgment. Likewise in gambling, the efficient gamblers keep deep watch on the moves of their rivals. They analyze their chances to win the bet and try to keep themselves in cool area. Therefore studying the past trend is common in both.

The Availability of Information – Difference

The worth of information in gambling and investing is of core importance. All the studies and analysis are carried on based on the available information in stock investing. The information about stocks is easily available from big brokerage houses, investment bankers and the companies itself. The information about past experiences is not maintained in case of gambling.

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