A common criticism of trading is that it is nothing more than gambling. That’s not entirely incorrect. Professional trading can be thought of as professional gambling.
Let’s illustrate with a simple game of coin tosses.
How much can a person expect to win consistently betting on one side of a coin in a series of several thousand of coin tosses? The answer is nothing. A fair coin in the long run has an expected return (mean) of zero. That’s not to say the player will be completely even after X thousand coin flips. It’s unlikely the player will be completely even at any given point in time. They can typically expect be up or down by some amount. The longer they play, the larger the potential deviation of the mean. Over many trials this player’s winnings should balance their losses.
If the coin were altered slightly to make it more likely to land heads up the player consistently betting on heads should accumulate winnings in the long run. Effective (profitable) trading is exactly like designing a game of chance that puts the odds of winning in the player’s favor. This is the direction we wish take our software platform. Solving hard problems with software, making hard things easy, is our passion.
Professional traders are essentially professional gamblers regardless of whether or not they consider what they do a “game of chance” or whether they explicitly calculate the odds. They execute the same simple strategies over and over.
The mechanics of trading and gambling are similar. Mathematically they are equivalent. The different is you are not setting any prices in a casino–you know you are going to lose in the long run. The price is set and favor the house. Casinos create the illusion that you can win something. The key here is “winning”. Traders generally don’t try to “win” anything. Traders and investors look to profit from value. “This company is selling for less than it is worth–I’m going to buy it and then sell it for a profit.” You bid help bid up the price of this stock (helping the company) and assume the risk that you I might be wrong about its value.
What do gamblers bid for in a casino? Nothing. It is entertainment (for some people). Trading is a serious business.