Investing in the stock market and gambling at a casino are often compared and deemed to be very similar ventures. Both the difference between investment and gambling involve risk and choice in hopes of future profit. Investors and gamblers have to decide how much they are wanting to risk.
Some traders typically risk between 2% and 5% of their capital base. Long-term investors often spread their money across different investments in order to try and minimize potential losses as a form of risk-management.
Risk-management in gambling is also proficiently sought after by professional gamblers. They look at whether odds are in their favor before they make a bet. A key comparable principle in both gambling and financial investing is to minimize risk while maximizing profits.
Difference Between Investment and Gambling
However, there is a huge difference between investing and gambling when it comes to stopping losses. In gambling, particularly in sports gambling, there are no loss-mitigation strategies due to the activity being so speculative.
Stock investors however can set up stop losses on a stock investment which is the simplest way to avoid unnecessary risk. If stock drops 10% below its purchase price there is an opportunity to sell that stock to someone else and still retain 90% of the risk capital.
However, if you put a bet on that states that Tottenham Hotspur Football Club will come first in the Premier League, you cannot get any money back if they come second. You will lose everything you’ve put on, which isn’t the case when it comes to stock investment. Gambling is mainly to do with pure chance, and there are a lot more loss-mitigation strategies when it comes to financial investments.