Is gambling a form of investing? This article is going to investigate.
You may have heard people in the past talking about how gambling is similar to investing in the stock markets. This is true to some extent as both risk money in order to make more than they started with.
There is more to it though. Both investing and gambling require knowledge of what they’re either investing or playing, otherwise there is no way that they will profit.
It’s also important for both an investor and a gambler to pay attention to how much capital they are willing to risk. If it’s not managed properly, it becomes more likely they lose bigger than they should.
It can be seen already that investing and gambling are quite similar. But how and why are they considered different?
To get to the bottom of this, it’s important to first define the terms ‘investing’ and gambling.
What Is Investing?
Investing is committing funds to a certain asset with the expectation that it will grow in value to make a profit. The important word here is ‘expectation’. Investors make their money expecting, rather than hoping, that their assets will increase in value.
Investing requires an understanding of risk and return: investing in low-risk assets generally means that returns are expected to be low, while investing in assets at higher risk generally means that returns are expected to be high.
It always comes down to how much an investor is willing to risk in their asset. The standard amount is usually around 2% of their total capital per trade.
To gain an advantage and make money, traders study the markets and current affairs to get a better understanding of their movements. For example, they will look at their charts and look for patterns that have happened in the past and use their results to predict how the current asset price will move.
This process is known as technical analysis.
It’s also important to note that an investor’s returns can sometimes be affected by the commission they pay to a broker that buys or sells their assets on their behalf.
Finally, investors own a part of the company they are investing in.
What Is Gambling?
Gambling is the act of staking money on a contingency rather than an asset. It involves risking money on an event with the hope that it makes money.
Straight away, this definition shows a difference between gambling and investing. Traditionally, gambling has no certain outcome and relies a lot on chance.
But there are ways to reduce the risk, such as creating a data-driven strategy. Particularly in used in sports betting, this involves analyzing the results of previous games, creating a theory and then backtesting it to make a profit.
Like investors, gamblers should also keep an eye on how much capital they are willing to use per bet. For example, in card games like poker, pot odds are a great way to determine risk versus reward during a hand. When the odds are in the player’s favor, it’s more likely that they will call a bet.
For casino games, gamblers play against the casino itself, known as ‘the house’. In sports betting, while they are in theory betting against the house, it’s the other players that determine the odds of the event they are betting on. The more money that goes on one side of the betting line, the shorter the odds become.
Gamblers are commonly faced with situations where they do not expect to win. For example, in blackjack, when the dealer is dealt a ten and the player is dealt a six, the chances of winning are slim.
So, here are some key takeaways from these two definitions:
- Both investing and gambling risk money in an attempt to make a profit.
- Both investing and gambling use tactics to minimize risk.
- Both investing and gambling can use resources to improve accuracy.
- Investors have more resources available to mitigate losses.
- Gamblers play knowing that the odds are not in their favor.
This is an interesting topic.
Investors have multiple ways to prevent them from losing too much of their capital. One such method is by setting stop losses on asset investment. If the price drops below 5% of the purchase price, there is an opportunity to exit the trade and sell that asset to someone else, retaining 95% of the risk capital.
Now, in terms of gambling, some people will argue that there is no way to limit losses. An example they will use is taking part in an office sweepstake, where everyone pays a fee in exchange for drawing a random competitor. If the price is $10 and the team loses, the gambler is said to have lost everything.
However, this logic is often misguided.
In reality, professional gamblers employ a strategy called bankroll management. It involves only betting a certain amount of gambling capital per bet and ensures that even if bets lose, they don’t go broke.
Most bankroll management strategies can ensure that 100-200 bets can be made at their particular level. For example, if someone regularly stakes $10 per bet, they will have at least $1,000 in gambling capital.
If the gambler goes on a downswing and loses the majority of their bets over a certain period of time, then they decrease the amount they bet per event to ensure they can still make between 100-200 bets at that level. So, using the previous example, if someone betting $10 per event goes on a downswing and they lose $500, they would reduce their betting amount to $5 per bet.
So all in all, this is actually a similarity between the two ways to make money: both gambling and investing have ways to mitigate losses.
Edges And Value
It was established that both investing and gambling use methods to mitigate risk and maximize the chances of making a profit. However, in the case of gambling, the house always has an edge over the player.
On the other hand, investments tend to appreciate in value over time.
Now, this does not mean that gambling can not make a lot of money, nor does it mean that investing in assets always guarantees a positive return.
While the odds always favor the house, it’s important to seek value from bets to maximize returns.
The term value refers to getting the best odds and making the best play based on the information available. In sports betting, this could be in the form of a heavily underpriced underdog, while in poker, it refers to making a bet with the assumption you have the best hand.
Time is another difference between gambling and investing. Gambling is constrained by time. While online casinos can keep you gambling all day and night, no matter if it’s a hand of poker or a horse race, it comes to and at some point or another.
When the event finishes, the opportunity to profit further also comes to an end. Either the bets have won or they have lost.
On the other hand, investing in assets can be rewarded by time. When an investor enters a trade, it will go on for as long as that asset is real. For example, if the asset was stock in a company, the trade could, in theory, continue until the company is sold or goes bust.
One way is when investors are paid by companies that they have invested in with dividends. No matter what happens to the value of these shares, the company pays money to the investor in return for the investment.
While it’s great to make money from the appreciating price of the asset, it’s even better to be rewarded for simply investing in the first place.
Both gamblers and investors can improve the success of their trades by looking at past results and comparing them with current performances. Information is the most valuable tool for both investors and gamblers but there is a difference in terms of how much is available.
Investors can gather information from a variety of sources, such as company reports, financial institutions and, for stocks and shares in particular, even through researching the people running the companies before having to commit a dime to the investment.
The same goes for sports betting. Professionals can find data that affect the results, such as the weather from historical websites and sports news companies. Similar to investors, they can put all this information into a strategy before betting anything.
However, for some casino games, even if you do all the preparation in the world, there is no information about what happened at the table earlier in the day that can help to make a decision during play.
Now, to most people reading, their minds went straight to gambling addiction. Why? Because it’s assumed that there is no such thing as an investing addiction.
This isn’t strictly true.
Of course, compulsive gambling is a problem that must be addressed. Organizations like Gamblers Anonymous help people overcome their addictions. But there is no such thing as Investing Anonymous, while there are never any news reports detailing the effects of compulsive investing.
Addiction to investing does exist. It’s just seen as a financial problem, rather than an addiction.
People who invest online are prone to checking their investment portfolios on a very regular basis. They will also make multiple trades more often than they probably think. This can get very expensive: not only are they paying a lot in commission to brokers, but they are also investing a lot of energy.
There are also investors that risk capital more aggressively than they should. If the wording was changed to ‘gamblers betting more money than they should’, it clearly points to a problem.
Risk-Adverse Vs Risk-Seeking
Gamblers and investors rely on taking risks to make money. Granted, some investments like government bonds held to maturity don’t have much, if any risk attached, but then again, they are prone to the risk of inflation.
The difference lies in the individual’s willingness to find and accept risk. Investors don’t tend to take risks unless there is a large reward, whereas gamblers are forced to take risks with every bet.
There is a notion though that gamblers often take risks that they shouldn’t, while investors do not. Like many of the topics discussed, this is not necessarily true.
Here’s an example.
An opportunity arises where an individual is presented with the following opportunity: they can either take $100,000 right now or risk $1 million on a 50/50 chance.
The obvious, most common response is that taking the 50/50 means the individual is more of a gambler. After all, they are passing up the opportunity of $100,000 without having to risk a thing.
But looking at it objectively, the individual needs has odds of 10/1 to improve. To profitable make this investment, they need to be right 10% of the time. In a 50/50, they are right 50%, so they have 5x more equity needed.
Is this a gamble or a good investment opportunity? One could argue either way.
Of course, gamblers that think this way are different from those that are heading to Las Vegas for the weekend looking for a good time. Those that look to justify their bets before making them act more like an investor.
Gambling and investing are more alike than most people think. They both require careful management of capital, using resources to make their trades and plays more accurate, while also having the ability to give an individual financial freedom.
But of course, they are different. Investors are not limited by time and gamblers do not always have the luxury of using past information to help them make informed decisions.
One thing is certain though: whether it’s via investing or gambling, it’s important to understand the purpose of each trade and bet. Otherwise, it really does become a game of chance.
What are the similarities and difference between investing and gambling? ›
Investing and gambling both involve risking capital in the hopes of making a profit. In both gambling and investing, a key principle is to minimize risk while maximizing reward. Gamblers have fewer ways to mitigate losses than investors do. Investors have more sources of relevant information than gamblers do.What are the similarities between gambling and investing? ›
There are some similarities between investing and gambling: both offer a chance at profit, both can expose you to losses, and both carry elements of risk.What is the difference between gambling and investing? ›
One of the key differences between investing and gambling is diversification. Investing provides you with the opportunity to spread your risk across all asset classes, whereas gamblers throw their capital into a single pot with no loss mitigation strategy.How to differentiate between gambling speculation and investment? ›
A standard dictionary defines speculation as a risky type of investment, where investing means to put money to use, by purchase or expenditure, in something offering profitable returns, especially interest or income. The same dictionary defines gambling as follows: To play at any game of chance for stakes.What are some similarities and differences between saving and investing? ›
- Saving — putting money aside gradually, typically into a bank account. ...
- Investing — using some of your money with the aim of helping to make it grow by buying assets that might increase in value, such as stocks, property or shares in a mutual fund.
Financing is the act of obtaining money through borrowing, earnings or investment from outside sources. Investing is the act of obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities.How is gaming and gambling similar? ›
The main difference between the terms is that for gaming the outcome is achieved by skill, not chance, whereas for gambling, the opposite is true. Many gaming activities now include gambling features and vice versa. These activities are referred to as gambling-like gaming and gaming-like gambling.What is the difference between and in gambling? ›
The “+” and “-” are put in front of odds or lines, indicating the favorites and underdogs. The favorites will be marked with a minus sign, whereas underdogs get the plus sign. This is the case for all types of bets, including moneylines and point spreads.What is the difference between gambling and game? ›
Gambling and gaming are two different things. Gaming is when you participate in legal, state sanctioned wagering. Gambling is when you place bets or wager at locations or online platforms that are not permitted in the State, which remains a criminal activity.What does the Bible say about gambling? ›
The Bible warns us against the compulsion to strike it rich. As 1 Timothy 6:9-10 says, “Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil.
When investing becomes gambling? ›
Key Takeaways. There are two common traits in those who exhibit gambling tendencies when trading. If a person trades for excitement or social proofing reasons, rather than in a methodical way, they are likely trading in a gambling style. If a person trades only to win, they are likely gambling.What is the definition of an investment? ›
Investment definition is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation. Investment meaning is primarily to obtain an additional source of income or gain profit from the investment over a specific period of time.What is the key difference between investment and speculation? ›
The key difference between investment and speculation is that investment is made in the long term, while speculation aims for the short term.What is the difference between gambling and investing Islam? ›
Muslim jurists allow purchase and sale of stocks but not the derivatives market which are premised on making money solely based on speculation which sometimes itself can affect the markets. Since gambling is either making or losing money also purely on the bases of speculation , it is deemed impermissible.What is the difference between investment and speculation key differences? ›
Critical Differences Between Investment and Speculation. An investment involves an asset with the hope of securing returns over the principal amount in the future. On the other hand, speculation involves conducting a risky financial transaction to make large-scale gains from a single transaction.What are 2 similarities between saving and investing? ›
Essentially, both savings and investments hold a monetary value that exists within financial instruments. Both use specialised accounts with a financial institution to accumulate money. And both require financial planning that involves analysing your financial goals.What are the benefits of investing? ›
Why is investing important? Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.What is the difference between investing and saving activities? ›
Save: This is a short-term goal; many savings products have low risks and can give you easy access to the money. Build wealth over your lifetime. Invest: This is a long-term goal for which the money won't be needed soon; taking some risk may mean a higher return.What are 3 differences between saving and investing? ›
Saving money means storing it safely so that it is available when we need it and it has a low risk of losing value. Investment comes with risk, but also the potential for higher returns. Investing typically often comes with a longer-term horizon, such as for children's college funds or one's retirement.What are the similarities and differences between real and financial assets? ›
The similarities between real and financial assets are that their valuation depends on their cash flow generation potential. The difference between them is that real assets are less liquid than financial assets since real assets are difficult to trade, and they don't have a competitive and efficient exchange.
What are the similarities and differences between stocks and bonds investments? ›
What Are the Similarities Between Bonds and Stocks? Bonds and stocks are both financial securities with respective risks and rewards. Stocks are usually a riskier investment than bonds, because of the numerous factors that can cause their prices to fluctuate, but they can generate higher return rates.What is the difference between casino and gambling? ›
Although people can gamble in a casino, there are many differences between a casino and a gamble. Gambling is betting on something. On the other hand, a casino is a place where people can play several games, gamble on games, and get entertainment through other facilities offered by the casino.Why is gambling so common? ›
For entertainment reasons – because they like the feeling, to get that rush or “high”, or because it makes them feel good. For coping reasons – for someone to forget their worries, because they feel more self-confident, or because it helps when they are feeling nervous or depressed.What is gambling related to? ›
People who gamble compulsively often have substance misuse problems, personality disorders, depression or anxiety. Compulsive gambling may also be associated with bipolar disorder, obsessive-compulsive disorder (OCD) or attention-deficit/hyperactivity disorder (ADHD). Age.Do slot machines count as gambling? ›
Slot machines are the most popular gambling method in casinos and constitute about 70% of the average U.S. casino's income. Digital technology has resulted in variations in the original slot machine concept.What are 5 different types of gambling? ›
Gambling comes in many different forms. Commercial gambling includes lotteries, instant lotteries, number games (such as Lotto and Keno), sports betting, horse betting, poker and other card games, casino table games (such as roulette and craps), bingo, and electronic gaming machines (EGMs).What are the 3 types of gambling? ›
Although sports betting and casinos are the main forms of gambling there are many other categories of gambling such as, playing the lottery, bingo or scratch card games.What is the difference between games and gaming? ›
Gaming, a common phrase in the digital entertainment industry, refers to the running or playing of video games on game consoles such as Personal Computers (online gaming), PlayStation, or Xbox.Why is it called gaming and not gambling? ›
The word gaming originated in the 15th century to refer to gambling in dice or card games. Gaming was used to refer to gambling until the late 1900s, where it was applied to playing recreational board games and pen-and-paper role-playing games.What is the difference between playing and gaming? ›
Playing is free to try, safe to err, no rules of engagement, no necessary equipment, riches. Gaming is costly, requires resources; there are rules, structures, clear definitions of success, even engagement depends on chosen strategy.
What is the spiritual meaning of gambling? ›
Gambling is motivated by a desire to get something for nothing. This desire is spiritually destructive. It leads participants away from the Savior's teachings of love and service and toward the selfishness of the adversary. It undermines the virtues of work and thrift and the desire to give honest effort in all we do.Is gambling good or bad for you? ›
Gambling can cause low self-esteem, stress, anxiety and depression if gambling becomes a problem. Gambling can become an addiction, just like drugs or alcohol, if you use it compulsively or feel out of control. Gambling can affect the part of our brain that releases dopamine.Is gambling morally right or wrong? ›
The Catechism of the Catholic Church reads: “Games of chance (card games, etc.) or wagers … become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others.”Why investing is not gambling? ›
As competent financial advisors will tell you, markets fluctuate and there will be times when your portfolio will decline in value. Over the long term, however, the chances are high that it will increase. This is why a diversified portfolio, left alone, is investing and not gambling.Is investing against the Bible? ›
The Bible doesn't specifically state that we should invest, but also does not forbid it. Investing is mentioned in Proverbs 31:16 and used in Jesus's parables (ex. Parable of the Ten Minas found in Luke 19:11-27), implying that it is expected and normal.Is investing a game of luck or skill? ›
Investing involves both luck and skill and when you are on a roll, unfortunately most believe success to be a function of your skill.What are the 4 types of investments? ›
- Mutual fund Investment. ...
- Stocks. ...
- Bonds. ...
- Exchange Traded Funds (ETFs) ...
- Fixed deposits. ...
- Retirement planning. ...
- Cash and cash equivalents. ...
- Real estate Investment.
Defining 3 Types of Investments: Ownership, Lending, and Cash.What does investment mean for dummies? ›
When you invest, you are becoming an owner of a company. When you buy a share of stock, you are owning a tiny little piece of that company. If the company does well, you are typically rewarded with the price of the stock going up, and if it does badly, the price can go down.What is investment risk? ›
What Is Risk? When you invest, you make choices about what to do with your financial assets. Risk is any uncertainty with respect to your investments that has the potential to negatively impact your financial welfare. For example, your investment value might rise or fall because of market conditions (market risk).
What are the elements of investment? ›
The elements are: 1. Return 2. Risk and Return 3. Time.What are the characteristics of investment? ›
The features of economic and financial investments can be summarized as return, risk, safety, and liquidity. All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return.Is investing technically gambling? ›
According to the dictionary definition, investing is gambling. Both investing and gambling carry the risk of losing money in the hopes of a future prize for a specified stake. While the dictionary definition doesn't tell the whole story, speculating (not investing) should be viewed as gambling.What are the stages of investment? ›
The investment phases typically include the planning phase, the accumulation phase, the distribution phase, and the legacy phase. Most of the cash inflows into the investment pool happen during the accumulation phase.What are the factors that influence investment? ›
- 1 . Income per Capita. The first factor affecting investment is national income per capita. ...
- 2 . Trends. ...
- 3 . Political and Security. ...
- 4 . Industrial and Economic Situation. ...
- 5 . Condition of Available Facilities and Infrastructure.
Gambling is a time-bound event, while an investment in a company can last several years. With gambling, once the game or race or hand is over, your opportunity to profit from your wager has come and gone. You either have won or lost your capital. Stock investing, on the other hand, can be time-rewarding.Are there any similarities between investment and speculation? ›
Speculating and investing both entail risk. In both practices, traders and investors aim to profit from their positions. The degree of risk that each practice entails is the primary difference between investing vs speculating.What are the similarities between investment and speculation? ›
Both, investors and speculators are market participants. Investment and speculation aim at a gain. However, both differ significantly regarding risk appetite, expected returns, decision basis, types of funds used, etc.What are the similarities and differences of entrepreneurs and gamblers? ›
And one of the stark differences between a gambler and an entrepreneur is his approach towards taking risk and handling its consequences. For e.g. a gambler bets randomly for instant gratification but an entrepreneur is in for the long haul and takes calculated risks.What are the differences and similarities of an entrepreneur and entrepreneurship? ›
An entrepreneur typically initiates and operates a new business. Simultaneously, they're accountable for any associated risks. Entrepreneurship is the procedure of starting a new business that prepares someone for both risks and opportunities. An entrepreneur coordinates the essential requirements of an organization.
What are the differences and similarities between entrepreneur and business? ›
A businessman follows an established path engraved by someone with an unoriginal idea, but an entrepreneur believes and thinks about making his/her own path with new ideas. A businessman runs an undertaking or a business, whereas an entrepreneur runs a startup with an original, innovative product/idea.What is the difference between gambling and non gambling? ›
An important distinction between betting and gambling is that in gambling, the stakes or wager is placed on an event without any clue of the outcome; whereas, in betting the stakes are placed on an event, the outcome of which is based on the performance of the players, influenced by their skill.