Yes, trading is gambling. I trade and yet I am not a gambler!!
The title of this post seems quite contradictory, doesn’t it? Glad you asked, let me explain.
In the context of gambling you may have come across the phrase, “The house always wins”? I’ll use an example why that happens.
Consider you go to a casino and play at a roulette table. The rules are simple. There’s 18 red and 18 black numbers and two green numbers. You must bet on the ball landing on either a red or a black number.
If the ball lands on the colour you chose, you win double your money, if the ball lands on any other colour you lose and the casino keeps your money. That simple.
Now I have a question for you, since there are an equal number of red and black numbers, your chances of winning are 50% right?
Wrong!
The trick lies in the two additional green slots in addition to the black and red. If the ball lands on the green, the casino wins.
Suppose you had bet on Red.
Now then, out of 38 (18 red+18 black+2 green) numbers you can win in 18 places (the red numbers) while the casino can win in 20 places, 18 black plus 2 green.
If we convert it into percentages, you have a 48% chance of winning while the casino has a 52% chance of winning. The casino has a 4% greater chance of winning than you!
Small difference you say? Yes, 4% although small once, repeated multiple times makes a significant difference!!
If you played 1,000 times, the casino would most likely win 520 times and you just 480 times.
This is how casinos make their money. A small 4% margin repeated again and again and again and they make their millions. The reason the house always wins is because they ensure their chances of winning always exceed yours.
But wait, what does any of this have to do with trading?
Well my fellow trader, the stock markets are a huge legal casino where the knowledgeable traders are not the gamblers, they are what make the casino. An informed trader makes trades where his chances of winning are always more.
This being my first post, I’d like to introduce myself to you now, I am Lloyd Lazaro. A Chartered Accountant and presently pursuing the CFA charter. I first ventured in the Indian Stock markets in 2010 and over the years I have had many friends approach me and ask me to teach them how do we actually trade and what is it all about.
I start this blog today so we can be more than just gamblers in the market and instead be more like the casino, ensuring that we always make more than we lose.
This blog is my attempt to share in the simplest way in laymans language useful trading knowledge, articles, videos, help clear misconceptions and even share my strategies with you. You can expect an update here twice a week and sometimes even more frequently. I will try and keep things as practical as possible and avoid boring theory as much as possible.
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(I came across the casino example on a youtube video and you can watch the original video here.)