Many people love gambling and consider it a risky activity, and in fact, it is, especially if we are gambling more than what we can afford to lose. At the same time, how would you feel if we told you that day trading is actually riskier than playing the roulette It’s all about the odds, and that’s what we are about to see.
Thinking about investing, we need to make a deep analysis of the companies we are planning to invest in, and make our move at the right time, what just means buying and selling the shares when the time is right.
Sounds simple buy and sell, and come out ahead right Wrong. There are monthly expenses that might devour our margins, but also if something goes wrong we lose our investment capital, and that’s game over for us. I suppose we all had this same feeling at the casino when we run out of money.
Let’s compare the roulette to day trading to analyze how risky both activities are. Most people have heard about martingales, a system used in the roulette. Using this system allows us to bet a certain amount of money in black or red, for example. If we lose, we have to double our bet for the next round.
If I have $100,000 to play, but I have expenses of $4,000, I need to get that value for the expenses upfront in order to start playing. If I lose, I am down those expenses, and my next bet will be $8,000. Depending on my wins or losses I can get to a point where I can no longer double my next bet.
When talking about odds on the roulette, they are slightly under 50 percent in the US because of the two green spaces, where the casinos make most of their money.
Summing this up, we need to win at least one time before we lose four times if we want to make money playing with martingales. Considering each bet gives us an odd of 47% to win, we don’t have great odds, but they are better than day trading.
Day trading numbers
Profit from trading stocks can be made in a number of ways, and day trading short-term. It’s basically a short term holding of stocks, and people make some money by selling them when they go up. There is big pressure in the buying and selling process.
Let’s get the same scenario where we have $100,000 to invest and the same level of expenses, all we need to do is to get a 4% return on our investment to maintain our level of investment and expenses. The issue is that the market in the recent years hasn’t allowed traders to reach that value, but just around 2.5%.
With these numbers, just our expenses would keep us at a loss, and we still have the work to continuously analyze the market to make the best choices, and even the best research might not give the best results, as indicates the 92% of day traders that fail in the long run.
Looking at this scenario betting it all on black seems a much better choice, at least the odds are better, as all we need is to win once before we lose those four times.
Making money at the stock market might be harder after all than making money at the casino, and even harder if we are talking about day trading. Day trading is not that different than gambling at the end of the day, just the odds aren’t as good.