Is Day Trading Investing or Gambling

Day trading is a type of investment whereby a trader opens and closes his investment positions within the same day. An investor who follows this rule is known as a day trader. However, this open the big debate on whether a day trader should be referred to as an investor or a gambler.

In fact the answer is both and is dependent on the day trader. Some day traders adopt a philosophy that is similar to gambling, while other day traders adopt sound proven theories as part of their day trading strategy, which can be classed as anything but gambling.

So, when does a day trader become a gambler? Generally, a gambler relies on gut instinct to make his bets. Similarly, a day trader will make his or her buy and sell decisions purely on gut instinct. This makes such a day trader’s trading strategy nothing more than gambling.

On the other hand, a day trader who is an investor will have a sound strategy that relies on a great deal more than gut instinct. A day trading investor will typically rely on technical analysis, with most of the day spent on analyzing charts with well know methods.

A day trader who is an investor will also follow the news stories to determine which positions to open and which positions to close. Quite possibly a day trading investor will be at his desk even before the stock markets open digesting the news of the morning. He or she will use this news as parts of the information to determine the trading strategy for the day.

A day trader who is an investor will choose his or her investment vehicles carefully. Company shares, share options, index futures and commodity futures are potential day trading investment vehicles. An investing day trader is likely to choose one or two of these investment instruments and specialize in them. A gambling day trader is likely to swap and change between these investments, once again based on his gut instinct.

Day trading is not all doom and gloom for the gambler. Unlike a betting shop or casino, the stock market offers better odds for the gambling day trader. Two main reasons are behind this. The first is a betting shop or casino requires a margin for its operations and profits. This has to be paid for by the gamblers bets. The stock market does not rely on such expenses or making profits. Finally, in the long term stock market value generally tends upwards. Betting simply does not offer this kind of a growth option.

So hopefully this helps solve the age old question of, is day trading gambling or investing. Overall it makes sense to treat day trading as an investment and dedicate some hard work and time towards it. However, if your psychology is of that of a gambler, then you are best to gamble on the stock market as it is likely to provide you with better odds.

It should however be noted that the stock market does not offer guaranteed returns and that your investments can go up as well as down. It is also possible that your return could be significantly less than the original investment.

You may also be Interested in .......

Advantages and Disadvantages of Day Trading

What is Spread Betting?

An Introduction to Forex Markets and Forex Trading.