Advantage Gambling

Average Guy, (42, 2 kids, and a mortgage), asks

I'd love your opinion on the perceived difference between trading and gambling. I feel there is none, but many traders are offended by this stance.

As I was writing the previous post, I was aware that I was alternating between the terms "sports investing", "betting" and "gambling", the last two of which always make me feel a little uncomfortable when used to describe my own "activities". Actually all three terms do. "Sports investing" sounds ridiculously pompous, although I have been accused of pomposity before - I mean how often have you come across the word 'pomposity' in a blog!

Here are some definitions of terms we use.

Investing: To commit (money or capital) in order to gain a financial return

Gambling: To bet on an uncertain outcome, as of a contest

Bet: An agreement usually between two parties that the one who has made an incorrect prediction about an uncertain outcome will forfeit something stipulated to the other; a wager.

Wager: Something staked on an uncertain outcome

Punt: A gamble or bet, especially against the bank, as in roulette, or on horses

Arbitrage: The purchase of currencies, securities, or commodities in one market for immediate resale in others in order to profit from unequal prices

For most of us, every entry into a market, financial or sports, is a bet / gamble - i.e. the outcome is uncertain. To me, the first entry into a market is a bet, while any subsequent off-setting transactions could be described as trades or arbs. These individual activities are, by definition, gambling, but traders don't like the term because it has negative connotations. Tell someone you are a 'professional gambler' and compare the reaction to if you announced that you are a stockbroker.

The problem is that there is no single word that means "gambling when the odds offer value" although the term "advantage gambling" is sometimes used. Advantage gambling "refers to a practice of using legal ways to gain a mathematical advantage while gambling". The all important edge in other words. We are all engaged in betting. Each transaction is a gamble, and only time can determine whether you are a gambler or an advantage gambler. Do you have an edge? Dr J, whose thread I posted up a few days ago is clearly an advantage gambler, and an inspiration to anyone who doubts that serious and steady profits can be made from the exchanges. Even in as bent a 'sport' as horse-racing, if you can find value and be disciplined, you can make money. You don't make profits for seven consecutive years by chance, being profitable just about every month in that time.

I suspect that many people call themselves traders who clearly aren't. Laying 0-0 pre-game is not a trade, it is a gamble, and as O'Dwyer is finding out, betting with no edge may give you short-term success, but it will not last.