Many a times, day trading in stocks and currencies is likened with gambling. This is mostly because of the unpredictability of the market. As in gambling, outcome of any action in stock or currency markets is uncertain. If the players knew the outcome then every body could be rich overnight.
Secondly day trading is subject to huge losses and gains just like gambling.
Thirdly the usual traits of gambling like greed, fear, ignorance and hope are important elements of both the markets. In fact these four are the foremost emotions governing any sort of trading and gambling.
Many traders and gamblers trade by emotion.
Despite many resemblances between the two, there are important differences which make day trading in stocks and currencies unlike gambling.
A Trading Plan
In day trading, one can have a trading plan which is not true in case of gambling. This plan will identify the points of entry and exit, the selection of timings, the choice of currencies or stocks and the like. So it is trading by plan rather than by emotion.
There are several tools available to a day trader which are not relevant in gambling. A lot of research has gone in these and traders take advantage of them. Though not always helpful, these do make certain things clearer.
Most important tools in this are maps, charts, graphs, moving averages etc. One can also use techniques like stop loss and limited price trading.
Large Number of Players Involved
In stock markets there are a large number of players. None of them is in a position to influence the market. The market is news driven. In gambling it is all a matter of chance.
In day trading, the most important thing is market timing. This is unlike the case with gambling.
Legally gambling is prohibited in most of the places. There are severe restrictions on online gabling. On the other hand, day trading is totally legal both online and through a broker. While gambling is abhorred by the society at large, day trading is considered as a profession by many.
There are extensive rules and regulations governing day trading as prescribed by many trading exchanges. On the other hand there are no such rules governing gambling.
Thus there are many important differences between day trading and gambling. However, both are extremely risky and liable to huge losses. It is hard to make any predictions though in gambling it is totally irrelevant. Both are subject to high stakes.
The author has background in business, economics and finance. He is presently researching in finding ways to make money and working on the following website and blogs: