Why stock trading is not gambling?

Gambling is defined as wagering on a game of chance, in which no skill is involved. Finding and trading winning stocks takes skill, and there are systematic ways to beat the market, so this is not gambling.
Many people think that playing poker is gambling, but it is also a game of skill, not blind chance. A skilled poker player can consistently win when playing lesser-skilled players. Poker, it has been said, is as much a game of skill as contract bridge. It's interesting that many top-notch stock traders are also skilled in poker.

Stock trading is high stakes sophisticated gambling. However, it is not plain gambling and is legal because it is investing which privides capital for companies and fuels economic growth. Without stock trading our economy would be terrible.

First definations:

Trading- (especially day trading) - is the attempt to capture small moves in the price of a security over a short period of time.

Investing- Putting your capital (money) at risk over the long term by participating in the success of a business (equity mostly common stock investments), or loaning of funds to a business or government entity to obtain higher rates of interest (bond and many many other types of "fixed income" investments)

The biggest reason stock investing is risk taking and not gambling is that it is not a zero sum game.

You and 4 friends sit down and play poker all night. In total you each bring $200.00 ($1,000.00 in total). At the end of the night if you add up everyones money its still a $1,000.00 regardless of who wins or loses.

When you invest, you invest in a business (actual most times you buy the ownership off of someone, who bought it off someone, and on and on back to someone who initially invested in the business.) The capital raised by selling stock provides the company the means to perform its business. That business then makes something, or mines something, or grows something, or provides a service etc. etc. The receiver of that gains a benefit (even if it is fleeting, like the electricity to power your computer while you read this.) and pays that company in return. Net balance, the company gained $X and the customer received $X worth of goods and services. Now the company tries to provide the $X worth of goods and services at a lower cost than $X.

The difference is profit, that profit can be used to:

a) expand the business allowing it to serve more customers b) be paid to the stockholders as a dividend
c) buy back some of the stock (leaving the remaining stockholders owning that must of a greater percent of the business.)

If the business goes well the stockholders get a benefit through either the business they own expanding, paying dividends, or buying stock leaving you owning a greater share.

Employees (part of the cost function) gain a benefit in exchanging their time, labor & effort for money and services.

Customers get a benefit in having the goods they desire provided or the services they require offered to them.

All this ends up in that with stock investing you are not participating in a zero sum game. While there may be periods where the overall market value declines, or a particular investment doesn't work out. In general most Mangers are trying to make their businesses growth, or be more profitable. Employees in general add to the net wealth of the global economy. Therefore the net value of all securites tend to increase over time.

That's why INVESTING is risk taking (since the particular business to invest in may not do well) but it is not gambling.

In stock trading there are two main concepts why is it not considered as gambling. First, there are seller of stocks (Corporations who owns stocks) and second, there are buyers of stocks (other corporations and investors). When selling a certain stock at a lower price, this will result to a loss. But if you sell it the other way around (selling it at a higher price), this will result to a gain. Losing and gaining doesnâ€™t implicate its gambling. Itâ€™s just a decrease in capital or an increase of capital due to stock trading. In gambling there is no valuable thing to buy (which you can keep) but plainly waiting a chance or probability of winning or losing. Stock trading relies more on financial condition and financial performance of a certain corporation of which a stock of a company is valued. In gambling, you only rely on skills of a player or the outcome of a certain event. Therefore, stock trading is not gambling.

The difference is when you buy a stock, you are buying a piece of a business that has some value. You are trying to make good buys by picking up bargains or selling where the price is too high.

Gambling: The house is always going to win over the participant in the long run.

Stock Investing: The participant will usually come out ahead in the long run.

The only ones really gambling with stocks are day-traders, penny stock investors, and those who have no idea what they are investing in to begin with.

It is gambling in the long run as the ability of the trader in reality don't matter so much:
If you invest in a well diversified portfolio or if invest during all your life-time period you'll have on average a positive return (about 5% per year less fees).
For instance you can earn more money by assuming a highly risky position but remember you can lose as quickly as you win.

If you have some insider information maybe It's not gambling as you always win but i would call it insider trading.

Day trading, arguably is like gambling. You play the odds. You look at technical analysis of stocks and attempt to predict what the immediate future of the stock holds. It's a skills game, but I would say it really is gambling.

But then again isn't all life gambling? I get in my car and drive down the street, I'm gambling that a semi truck isn't going to crash into me.

Investing is different from trading in that it looks at the long term future of a company. You use due diligence, looking at a companies financial numbers, products and growth opportunites. You're investing in a company and not just technical data when you purchase stocks to hold, but hey, like driving a car everything is somewhat of a gamble.

In gambling, you lose in the long run. In investing, you win in the long run. Big difference!

It's not gambling as the investors ability to make a profit is not based on random odds.

Because Wal-Mart ALWAYS makes money.

You don't really think you are actually going to lose your money if you invest in Wal-Mart (The largest company in the World by Sales) do you?

Here is a graph since 1975

Back then the stock was worth less than $1.00 USD
Today it's worth $40.00

It's not exctly rocket science.

How many Wal-Mart stores existed in 1975?
How many Wal-Mart stores will exist in 2075?

Right now Wal-Mart operates only in 15 countries.

In the future they will operate in 150 countries.

If you need a more detailed answer then you can open a brokerage account at Zecco and I will buy and sell a few shares for you for FREE and I will make at least $1,000.00 USD for you and you will understand the Stock Market is not a Casino.

I am a Portfolio Manager.

It is gambling.

and we need it because it generates revenue.

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