There is this constant debate: is options trading gambling? I will shed light on this issue in this article. The development of the internet created several online money-producing opportunities. Financial brokers create online platforms, making it easy for traders to invest in various financial instruments or securities.
As a result, traders could now easily buy and sell Forex, Deriv, CFDs, and indices, among other assets, from their comfort zones. Then comes the introduction of options trading by brokers. Across the globe, this new type of financial instrument was accepted quickly by traders.
Still, some financial authorities barred options brokers from operating within their jurisdictions. Why? A lot of them said that it’s a form of gambling. But how true is this? Continue reading! In this post, I delved into the question, “Is options trading gambling?” Ready to uncover it? Let’s get started by exploring the overview of options trading vs gambling.
Overview Of Options
Options are tradable contracts used by investors to speculate whether an asset price will rise or fall at a particular date without purchasing the security in question. Options are a kind of derivative asset. That implies that their value is connected to the underlying asset value.
Hence, you’re not purchasing or claiming possession of the underlying security as an options trader. Instead, you predict whether the security’s price will increase or drop over a certain period. When trading options on any Option platform, your main goal is determining whether the underlying asset price will rise or fall within a specific period.
Overview Of Gambling
Gambling is taking a risky action to get the desired result. Also referred to as wagering or betting, it implies risking capital on the ground with an uncertain result and deeply entails chance. Like investors, gamblers must also judiciously weigh the money they want to invest “in play.”
Pot chances are one way of measuring your risk capital against your risk reward in some card games: the sum of capital to call a bet equated to what is in the pot already. If the chances are beneficial, the player will more likely “call” the gamble. Most expert gamblers are pretty skilful regarding risk management—gamblers study team history, player or a horse’s bloodlines, and past performance.
Looking for an edge, players usually look at the table for signals from the other players; good poker players can remember what their challengers gambled 20 hands back. Also, they research their rivals’ movements and gambling patterns to acquire beneficial information.
Is Options Trading Gambling?
Many argue that options trading is the same as gambling, which raises the question: “is options trading gambling?” in most trading seminars. The fact is, you need luck to make a winning trade. However, options trading is more than determining if to press the lower or higher button.
As an options trader, you need to use the expertise of other traders in other fiscal markets. You need to be proficient at technical analysis and price chart reading. Also, appropriate money management and emotional control are crucial to succeed in options trading.
In addition, unlike gambling, options trading has no ultimate loss or win. Businesses contest against others to invent their products and offer better services, hence causing their asset prices to increase. This, in turn, causes the establishment asset holders to make higher returns. Therefore, trading isn’t gambling.
Although some people will argue that options trading is susceptible to broker influences. The broker tries to change the prices for their benefit behind closed doors. This is highly doubtful because options and investment traders use the same price charts in other financial securities.
So, I would strongly oppose the common fallacy that options trading is gambling. If you know how to trade options correctly or follow signals and learn from a trader like myself, you will find that options trading is but a way to cut down your risk. The gamblers who partake in trading options make it a gambling activity. This takes us to how options trading is different from gambling.
Why Options Trading Is Not Gambling
When weighing options trading vs. gambling, the distinction is in ATTITUDE. Attitude directs decisions and movements. Anyone who enters options trading with the “get rich fast” attitude will soon see themselves “getting poorer fast.”
Entirely rejecting any resemblance of a trade management strategy, ultimately setting aside practical analysis in favor of a 50/50 “bet,” and completely taking sense out of the money positions that either earn reliably profitable or expire totally is a gambling attitude.
Genuine professional options trading uses practical money management techniques on all trading prospects, estimated against the possible risk of non-performance. This implies that a genuine options trader wouldn’t invest all his capital in one significant out-of-the-capital position.
A genuine professional options trader applies trade analysis techniques based on verified methodologies. They use this to put in their favor the chances or possibilities of performance and don’t treat all trades as a 50/50 gamble.
An actual options trading professional estimates the options leverage rate to be applied on every trade for his portfolio not to be over-leveraged. A genuine options trading expert does not hope to make it big on his subsequent trade, and he’s not planning for a series of small wins that ultimately adds up nor one huge home run.
Furthermore, a genuine expert options trader never lets one loss eliminate his portfolio. He treats the market with honor, knowing that irrespective of how much analysis he does, the market is likely to move against him.
In a nutshell, an options trading champion who remains for years in the game differs from a gambler – who hardly survives for over one month primarily in terms of mental behavior. The erroneous mental attitude changes options trading from the sensible and classy financial asset that it is to nothing more than lotto tickets.
Ending Thought On: Is Options Trading Gambling?
As discussed above, the answer to the question, “is options trading gambling,” depends on the person trading options and not on the trading options act itself. If the person places an option without a verified strategy or better knowledge of options, the options play is most possibly gambling.
Conversely, suppose somebody is performing an options trade with a confirmed and verified strategy or with some other successful technique they have researched and have succeeded with. They know how to manage risk appropriately. In that case, this individual is trading and not gambling.
In summary, gambling is when you enter into a trade and depend on HOPE for it to move in your favor. While trading is applying knowledge to enter into a trade with entry and exit rules rather than applying “hope” as your primary strategy.