
Hi everyone!
Today I want to talk about important point that 90% traders fail to recognize. What is the difference between trader, bettor and gambler?
Basically, trader historically has been someone who was trading in the pits (on the exchange), capturing bid/ask spread and executing orders of large institutional clients. So, trader was primarily a scalper - he was holding positions for seconds or minutes, but never had long term view. Such traders were called market makers - they were providing liquidity, no more than that.
Nowadays, If you scalp the market for profit, you can be called a trader, but it’s hard to call you market maker - it’s your broker who can be called a market maker.
Speculator is a little bit different concept. Speculator anticipates what market will do in nearest future rather than simply filling orders. To “speculate” means “to look forward” (from Greek). So, speculator has some directional bias, some idea or expectation about the future. Very important thing is that speculator would not trade if he has no idea about the force driving the market - he can’t just enter the position because his risk is limited to 2% of a capital. He has trading hypothesis and knows very accurately when this hypothesis is rejected. So, he has sort of a plan.
Today, speculator and trader are considered to be the same thing.
Who is gambler? It is someone who doesn’t have ANY idea of where market will go - he just enters the position, mostly for andrenaline rush or idea of capturing “quick money”.
It is considered that gamblers go to casino, and financial market is for “traders”. But there are situations when poker player can be called speculator with greater confidence than someone who pushes buttons in trading terminal.
You see - if you can count cards, if you are able to quickly estimate the odds of a poker (or any other) game, you manage your risks - so you have more features of a speculator than from a gambler.
Contrarily, if you have a trading account, but don’t manage risk (say, accept huge position size, don’t have proper analysis e t.c.), you act more like gambler than a trader.
As for the bettors, they make stakes on one of two outcomes - up and down. Their ego is on the line, they have to be right in greater cases than being wrong. Some technical analysts are bettors.
Don’t mix those concepts!
And of course, I encourage you to be speculators/traders, not gamblers. Or at least not to deceive yourself about what you are doing in reality.