You may have come across the statement that stock trading is like gambling. More often than not, people equate the two activities. It’s not for nothing, though. Some similarities between playing casino games and the stock market inform these opinions.

For starters, both have negative connotations. When you say you put 50,000 NZD in stocks or 1,000 NZD in online gambling, the most typical reaction is that you are wasting money. The high-risk levels both ventures carry is another reason they draw comparisons.

Is stock trading and gambling the same, though? An in-depth understanding of the activities is necessary if you wish to engage in either. Listening to the notions held about the practices can be confusing.

Note: If you want to learn Candlesticks and Chart Trading from Scratch, here’s the best book available on Amazon! Get the book now!

Although the two are similar in some ways, they are different activities. Gambling involves wagering money on games, which could lead to wins. Stock trading is an investment approach that involves buying and selling financial instruments.

According to NZCasinoClub, whether considering spending time on low deposit casinos in New Zealand or trading platforms, you should know what each activity offers. The following comparative analysis should help.

The Similarities

Risk and reward are the main areas where gambling and stock trading resemble each other. In both instances, you risk money. The hope is that by spending money, you can earn it back.

When investing in stocks, you have no guarantees of making a profit. Unless you have inside information, which is legal, you can’t tell 100% how a particular financial market will close at the end of the day. The same goes for gambling. Even when playing games of skill, like blackjack, you have no assurances of the result.

So, you take a risk when putting funds in stocks or casino games. Therefore, you must decide how much you are comfortable losing.

In gambling and trading, risk and return vary on the games and instruments. For example, applying basic strategy in blackjack increases your odds by reducing the house edge.

A micro-cap on a small exchange comes with a different risk-return profile from a blue-chip stock on the NZX. Whichever activity you intend to pursue, you must define your risk tolerance. Additionally, you must find ways to minimise risk and boost profits.

The probability of winning and losing has a strong psychological effect on participants. Gamblers and traders live a rollercoaster of emotions as they wait for outcomes. Depending on how an activity goes, you can experience frustration, anger, desperation, joy and excitement. Emotions also lead to different biases in trading and gambling.

The gambler’s fallacy, for instance, is present in both fields. This cognitive bias occurs when you believe you are due for a win after a series of losses. In events with random outcomes, past performances don’t influence the future in any way. Other biases that happen in both activities include cost-sunk, confirmation and recency.

The Differences

Purpose is the chief difference between gambling and stock trading. Entertainment is the main reason people play casino games, or at least it should be. When you log into an online casino in New Zealand, your main goal should be fun. iGaming is a leisure activity and any profits generated from it are a bonus.

Trading stocks is about wealth creation. It drives corporate growth and fuels capital markets. Trading can result in job creation and economic progress. Gambling, on the other hand, can ruin individuals and communities economically. The risks of addiction, public health and crime are also high.

Before trading in stocks or playing real money casino games, consider the tax implications. If you earn returns from either activity, will you have to pay taxes? In New Zealand, you don’t need to declare gambling profits. However, income from trading is subject to taxation. Note that investment earnings don’t incur tax due to the absence of a capital gains tax. However, the difference between earnings from investments and trading is slight.

Regulation puts gambling and trading in different categories. The Department of Internal Affairs regulates gambling activities in the country. While it prohibits online gambling services from local operators, offshore casinos are legal for Kiwis.

So, you can play at a licensed gambling site without a problem. A big consequence of the lack of iGaming regulation is that players risk losing money to shady online casinos. The Financial Markets Authority is responsible for regulating financial derivatives.

Stock trading is not a licensed activity, which opens the door for participation from anyone interested. Online brokers need licensing to operate in New Zealand, which offers a degree of transparency for consumers. 

Time is another factor that separates gambling from stock trading. Playing casino games is short-lived. Your chance to make money lasts as long as the game. The minute a roulette round ends, so does your probability of making a profit. You can tell whether you lost or won when the game ends. Conversely, stock trading lasts significantly longer. Holding on to a company stock could mean higher returns in the long run in the form of dividends.

Stock trading and gambling have strong similarities that create a lot of misconceptions about the two activities. However, the ventures are distinct enough to appeal to people with different interests and personalities. Hence, understanding what each activity entails is essential if you are considering engaging in either.