Most people tend to differentiate investing from gambling, believing that low risks and positive returns characterize investments and depend on skill and experience. In contrast, on the contrary, gambling presents high risks, negative expectations, the involvement of chance and luck, and the risk of pathological dependence and economic ruin.
Nothing could be further from the truth. There may be crucial speculative and trading skills and other significant benefits in Microgaming for players focussed on both games of luck and skill.
Examples of speculative activity (which economists will surely know, but addiction clinicians may never have heard of) are:
- “Daily or high-frequency trading,” where securities are bought and resold within the same day or at shorter intervals, with the idea of making a profit on minimal changes in their values;
- “Penny stocks” or “Lottery stocks,” shares of companies that have no known possessions, so much so that their value is very low, but which have a slight chance of revaluing even a lot if suddenly they get successes;
- “Shorting” that is to borrow securities and sell them immediately, hoping that their value will be reduced in such a way as to repurchase them for less money, and return them to those who have lent them, keeping the difference for themselves;
- “Derivatives,” i.e., betting contracts relating to the performance of the values of other securities, products or indices, in which the assets on which the performance is bet is often neither sold nor bought; or also “Options,” i.e., the right to buy or sell securities or commodities at a predetermined price by a specific future date; and “Futures” or “Forward contracts” where you bet by entering into a contract between buyer and seller for the purchase of an asset at a predetermined price at a certain future date.
Investments, on this basis, would consist in the purchase or financial commitment to acquire assets, based on the expectation of an increase in their value in the long term or of the gain they produce.
Gambling would consist of betting money or other material goods on the uncertain outcome of a given event, hoping to win more money or other material goods.
Speculation would consist of activities that, compared to trading, are characterized by shorter time horizons, greater risks, and a greater or lesser chance of winning or losing. They have a primary objective centred on profit in money deriving from price change rather than the intrinsic value of the assets taken into consideration.
Of course, lotteries, sports betting, card or casino games pertain to gambling. In contrast, the purchase of government securities, shares, bonds, commodities, currencies, real estate, derivatives, and objects of art and from collections pertain to investments and speculations.
Time horizon: Investments generally have months or years, while games of chance have their outcome in much shorter times, seconds (instant lotteries), minutes, or at most days.
Speculation tends to resemble gambling because it has short horizons, even of a few seconds, as in online trading. Still, it also reaches months or years when we consider the other tools presented above.
Risk Levels: Risk is defined here as the probability of losing your investment. The risk is almost always high in gambling (except betting on the strongest sports teams). In comparison, the investment risk tends to be lower. In speculation, the risk is almost always as high as in gambling.
The expectation of gain or loss: Investing is generally positive and correlated with the nation’s strength or company issuing the securities. On the contrary, all activities connoted as gambling imposes on the player a negative mathematical hope.
They are designed and organized so that, in the long run, the player loses a part of what he has (except some games that also contemplate partly skill, for which there is optimistic hope for the minority of more skilled and experienced players).
Speculation is similar to gambling, but with a varied picture, with greater positive hopes for Shorting, conflicting futures, and a tendency to lose for Daily Trading and Penny stocks, both tending to give worse results than the general trend of the markets.
Furthermore, loss expectations in gambling are mathematically predetermined. In some legislations, they must be explicitly declared by the managers, while in speculation, it is impossible to establish the extent of positive or negative hopes precisely.
Weight of skill over luck: chance and luck are historically considered the major element that differentiates between gambling activities like online roulette on the one hand and investments and speculations on the other.
Bets: understood as “putting money on the plate” or other material goods, certainly fall into the gamble and are equally certainly excluded from investments. Various forms of speculation are bets because they “put on the pot” a contract or an asset, hoping that it can be sold at a higher price to make a profit.
Well-defined events and outcomes: Gambling is based on meticulously defined events and outcomes (exit of a number, winning a tournament, etc.). Investments are not because they are not based on a particular event that must take place over some time precise and can also be without any time limit.
Putting all these data together, it stands to reason that gambling and investment are radically opposed to each other in all the dimensions taken into consideration. That speculation comes in between, resembling investments in activities and gambling in others.
From a motivational point of view, investors and even more speculators exercise their business, like gamblers, also for fun and for the resulting excitement (“sensation seeking”). As an example, a correlation was observed in a group of Finnish investors between the number of financial transactions carried out by the individual and the number of speeding fines.
