Anyone who has been in the market long enough, especially if they do any short term trading or, god forbid, trade commodities or futures, know that there is alot of ignorance about trading. Who has not heard that short term trading is akin to gambling? That the only way to make a small fortune in commodities is to start with a big one? All of my life I've heard people, most of whom have either no experience in the markets or one painful losing experience, talk of traders this way. This type of attitude is grounded in ignorance of what the terms Trading, Investing and Gambling actually mean.
Let's define the terms and then discuss what they mean. These are my definitions and I'll differentiate them as necessary from Webster's. First Investing: Investing is the placing of value in an asset in order to derive a benefit from the long term appreciation of the asset. This definition does not differ appreciably from the dictionary definition, but I infer a long-term time frome on it in order to differentiate it from Trading. Investing means putting money into something like a stock or real estate an letting time pass in order to gain long term appreciation (which hopefully out paces inflation). Second Trading: Trading means looking for a short-term advantage in the marketplace. Looking to take advantage of the difference between the current price of an asset and its true value in the hopes that the market comes into line with the asset's value and the trader profits from the price movement. An example of Trading would be selling one currency to buy another in order to take advantage of an interest rate differential or because technical analysis indicates that one currency will move favorably relative to another in the short term. Any use of technical analysis in order to gain short-term advantage in the market is Trading. I use the capital gains time frame to differentiate between trading and investing. If you hold an asset long enough to have its increase taxed as a capial gain, then you've invested. If not, then you've traded. The difference is a bit arbitrary, but there is a border there somewhere that is hard to define. Third Gambling: Gambling is the risk of value upon pure chance. Gambling implies no advantage. If you threw a dart at the Investor's Business Daily's stock tables and put your money on the company you hit, that would be gambling. If you randomly walked through a casino and put money into a slot machine, that would be gambling. But there are betting opportunities that are not gambles. Poker, some video poker, sports betting, horse racing, blackjack, (and some would argue craps with dice control, and roulette with wheel clocking) are all casino based Gambling games where the player can have an advantage. Where you have an advantage, I would argue you are not Gambling. Having the "best of it" is, over time, not risking money on pure chance and hence, by my definition, not Gambling.
The whole point of this post is that putting your money where you have an advantage, whether that is investing (which everone should do), trading (which everyone should learn to do), or playing games with the best of it (which few should attempt, but is fun), is something we should all strive for. Don't gamble with your money. Be smart and have the best of it whatever you do.
Let's define the terms and then discuss what they mean. These are my definitions and I'll differentiate them as necessary from Webster's. First Investing: Investing is the placing of value in an asset in order to derive a benefit from the long term appreciation of the asset. This definition does not differ appreciably from the dictionary definition, but I infer a long-term time frome on it in order to differentiate it from Trading. Investing means putting money into something like a stock or real estate an letting time pass in order to gain long term appreciation (which hopefully out paces inflation). Second Trading: Trading means looking for a short-term advantage in the marketplace. Looking to take advantage of the difference between the current price of an asset and its true value in the hopes that the market comes into line with the asset's value and the trader profits from the price movement. An example of Trading would be selling one currency to buy another in order to take advantage of an interest rate differential or because technical analysis indicates that one currency will move favorably relative to another in the short term. Any use of technical analysis in order to gain short-term advantage in the market is Trading. I use the capital gains time frame to differentiate between trading and investing. If you hold an asset long enough to have its increase taxed as a capial gain, then you've invested. If not, then you've traded. The difference is a bit arbitrary, but there is a border there somewhere that is hard to define. Third Gambling: Gambling is the risk of value upon pure chance. Gambling implies no advantage. If you threw a dart at the Investor's Business Daily's stock tables and put your money on the company you hit, that would be gambling. If you randomly walked through a casino and put money into a slot machine, that would be gambling. But there are betting opportunities that are not gambles. Poker, some video poker, sports betting, horse racing, blackjack, (and some would argue craps with dice control, and roulette with wheel clocking) are all casino based Gambling games where the player can have an advantage. Where you have an advantage, I would argue you are not Gambling. Having the "best of it" is, over time, not risking money on pure chance and hence, by my definition, not Gambling.
