SERVING THE QUANTITATIVE FINANCE COMMUNITY

Alkmene
Posts: 301
Joined: January 18th, 2007, 10:19 pm

### Gambling and trading, what is the difference?

I would like to hear someone with experience on an arb desk to comment ...

MustafaCrap
Posts: 5
Joined: January 29th, 2011, 9:12 pm

### Gambling and trading, what is the difference?

QuoteOriginally posted by: KackToodlesanother difference is that it is possible to "win" in trading if you have superior information or forecasting ability, whileyou cannot win in gambling over the long run (e.g. 25 years). do you know anybody as rich as warren buffett who madehis billions by pure gambling??Well there are a few actually. Bill Benter for one has made hundreds of millions and if the markets had greater liquidity he would have made a lot more. A friend of mine, Alan Woods, who died a couple of years ago, also made hundreds of millions of dollars from gambling.'Pure gambling' is an emotive term creating a general feeling that its based on a random decision. But the reality is something quite different. Gambling doesn't mean playing with a longterm negative expectation as hundreds of card counters will testify.

Caesaria
Posts: 190
Joined: November 25th, 2010, 2:54 pm

### Gambling and trading, what is the difference?

well i think prop trading and gambling should be compared, and not trading in general. Index arb, market making is very diff from gambling , i.e. very different risk profile. And i dont know what percentage of all trading jobs are prop trading.
Last edited by Caesaria on February 21st, 2011, 11:00 pm, edited 1 time in total.

Posts: 1
Joined: April 26th, 2011, 4:26 am

### Gambling and trading, what is the difference?

Hi Forum,I'm a graduating PhD student looking into quant finance. Popping the cherry with this post, since its something I actually know about I've played poker and blackjack for the last 5 years.In Blackjack you can gain up to approximately a 5% edge per bet depending on the count. Exploiting that edge requires lots of time at the tables, good risk management (Kellys criterion), and a bankroll. A bankroll of less than $100,000 and your expected win rate is approx.$50 per hour. I've personally broken even over a couple of years.In Poker, a great player can gain up to approximately a 15% edge, with the edge decreasing as you move up in stakes and players get better. I think a *very* few number of professional poker players make more than \$200,000 a year which seems commonplace in finance. I've made a few thousands over the last two years, ~10% return on capital investment. Nevermind the money I could have made working at starbucks instead of those countless hours at the tables.My intuition says that the rules and structure of gambling games are restrictive enough as to negate the abilities of a person with superior intellect. I think that the market and finance offer more opportunities to be creative in collecting, analyzing, and acting on information in order to get a decent edge, and at much higher stakes. Comparing the market to poker, its like everyone, beginners (fish) and experts (sharks), are always playing at the same poker table. So you can take advantage of beginners in larger volume, whereas to get high-stakes action in poker you are going to have to sit at the tables only with pros. Maybe a similar phenomenon occurs in the market when you are forced to deal in volume.Cheers!

prfj
Posts: 19
Joined: December 11th, 2011, 10:36 am

### Gambling and trading, what is the difference?

QuoteOriginally posted by: exotiqNot sure if I agree there. In Vegas, there is also plenty of betting on horseraces, professional sports, where the "odds" are not known exactly by any mortal (except the boxer who accepted a bribe to throw the match), and even slot machines are not transparent in their odds to the gambler. Even the guy who sits at all the baseball games and takes exact hit statistics faces quite a bit of model risk, similar to those faced by the managers in Michael Lewis's Moneyball.How can we answer the difference between someone who bets on the snowfall in Central park on http://www.tradesports.com versus a trader of weather futures? It seems that the underlying and the openness of its probabilities is not enough to differentiate the two activities...Is there any known case of a boxing match in which the two opponents both unknowingly from each other bet against themselves? Must have been funny

neuroguy
Posts: 408
Joined: February 22nd, 2011, 4:07 pm

### Gambling and trading, what is the difference?

What in the world is certain?Not much.An example I often use is that getting in to your car and driving to work is - in a sense - a gamble. You are gambling that you wont be involved in an accident and will reap the payoff of a fast warm and convenient trip to your destination. The reason most people dont see it as a gamble is that, generally speaking, the odds in this example are stacked in your favour.So gambling is associated with adverse odds. In trading the odds can be adverse and also unquantifiable. But if handled intelligently there is the potential to tip them in your favour. So if you handle risk and uncertainty very well and only play when you believe you have an edge then you can argue that you are not gambling. Contrast this with a casino, where most of the games (excepting those with an element of skill) are specifically and scientifically engineered to have a risk/psychological profile that has sufficient volatility/complexity that it feels exciting, but that will ultimately (in the limit) leave you poorer with certainty. In this case the odds are deterministically adverse, ergo one cannot argue that this is anything but gambling.
Last edited by neuroguy on January 18th, 2013, 11:00 pm, edited 1 time in total.

QMichael
Posts: 1
Joined: July 8th, 2016, 2:41 pm

### Gambling and trading, what is the difference?

I think the delineation you're looking for is found in the well-known Benjamin Graham delineation of Investment vs Speculation.

Cuchulainn
Posts: 62418
Joined: July 16th, 2004, 7:38 am
Location: Amsterdam
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### Gambling and trading, what is the difference?

It's called gambling when it's your own money.
Last edited by Cuchulainn on June 13th, 2016, 10:00 pm, edited 1 time in total.

Ethan6
Posts: 5
Joined: August 18th, 2017, 1:00 pm

### Re: Gambling and trading, what is the difference?

It's called gambling when it's your own money.
You're right