Explain to a 5 year old, how is trading different from gambling?

Discussion in 'Trading' started by Debaser82, Jun 5, 2011.

  1. Both deal with odds and probabilities, don't they?
     
  2. There are few forms of gambling that offer a positive expectancy attainable through skill and diligence. Poker is probably a notable exception.

    Speculation and investing do through market inefficiencies and risk premia respectively.
     
  3. Dad is gambling your inheritance ,school fees and your share on the casino.Now look him in the eye and say it.

    If Dad loses it's his hard earned cash.
     
  4. gamblers deal with probabilities and odds to make decisions and try to grind out profit without thought to what they are using as a vehicle.

    traders use probabilities and odds to enhance investment decisions that would already be profitable by mitigating risk and creating efficiency and enhance risk payoff ratios
     
  5. yg10

    yg10

    Insuring companies also deal with odds and probabilities
     
  6. the odds and probabilities are that my house will go up in value
     
  7. I agree with this. There are mathematical proofs that certain gambling games will never results in positive expectancy, but there are trading methods which can show positive expectancy over hundreds or thousands of trades.

    The main problem with the OP's question, of course, is that you actually can't explain that to a 5 year old.

    It has pretty much been shown, to the limits of being able to be proven, that successful trading actually is a skill.

    http://michaelcovel.com/pdfs/UntanglingSkillandLuck.pdf

    Again, though, these are not analyses that can easily be explained to 5-year olds. In fact, it appears that many reasonably intelligent adults are incapable of following the mathematics and statistics behind the conclusions.
     
  8. The casino offer you drinks and food, the market dosen't.
    Both have a negative expectancy (comish and spread in trading, rake or negative odds in a casino). Both are not a zero sum game.
     
  9. Not necessarily, Dumb Mother...but there is a reasonably good chance (probability) your Dumb Son/Daughter will see an increase in house value after they have inherited it...:D

    In the meantime, organise your will...


    NiN
     
  10. Casino cheats are thrown out, sometimes jailed. Market cheats are rewarded, given incentive and financed with tax payer dollars to run the scam all over again. Casino's have government oversight, rules and regulations. Current market conditions offer little of that, except for the retail trader. Lot's of rules and reg's for the little guy. Pretty much a free for all for the big boys.
    So it pretty much depends on who is doing the trading. If you're one of the chosen few the fix is in and you'll make money no matter what. Any potential losses will be socialized among the masses and you'll be financed to gamble some more. At the end of the day the only people "trading" are retail. GS doesn't trade anything. They front OPM for a guaranteed return, one way or the other.
     
    #10     Jun 5, 2011