The stock market is like a casino, as the saying goes. The rollercoaster rides on the markets are almost impossible to understand. It is pure luck and chance whether you get rich. You can lose everything, whether at roulette, blackjack, or on the stock exchange. Especially with leveraged derivatives, you can quickly lose everything if you are wrong. It is a risky path like the one with the rising football talents.

Young people are busy gambling thanks to inexpensive trading apps. Greed and the dream of making money quickly on their smartphones make them forget the risks. There is hardly any financial education, so the youth boom on the stock market will also produce many losers. Trading apps are not a computer game.

But is trading gambling? Are traders greedy speculators? Is the stock market a gambler's paradise? It's the other way around: traders and investors can learn a great deal if they trade from the perspective of a casino.

Playing fields for gamblers and gamblers?

Admittedly, there are similarities between gambling in a casino and short-term stock market trading. We use our own money to increase it. There is no guarantee. The outcome of every single trade and every single game is uncertain and unpredictable. If the bet works out and you are right, you can expect high profits. The higher the risk, the greater the potential profit. If you are wrong, you lose the entire stake. This thrill is part of gambling. The time horizon is very short, the quick profit and the adrenaline rush for a few hours are the drivers. Even very short-term oriented market players such as scalpers and day traders usually hold a large number of positions for a few hours or even just minutes.

In the casino, it's always about the next game. The result is clear when the dice are rolled. The game is over. A new game begins. Traders, on the other hand, trade on different time levels and manage the risk of their positions over time. The playing time may extend far beyond the day of the game. The holding period is individual and freely selectable. Rule-based trading has little to do with gambling.

The secret of casino success

A completely different approach is much more exciting: For traders, it is worth taking a look at the casino. More precisely, a look at the casino's cards. The decisive factor is the change of perspective from the player to the casino operator. Because at the end of the day, the bank always wins, as the saying goes.

Why is that the case? 

Quite simply, because the operators have an excellent command of mathematics and playing with probabilities. On the roulette table, for example, there are 36 alternating red and black number compartments on the rotating wheel, as well as another green compartment for the number zero. This zero gives the casino a banking advantage. It is by no means the case that the odds for the players are 50:50, regardless of whether they bet on red or black. If the roulette ball falls on the number zero, everyone inevitably loses, except, of course, those who have bet on zero. The player's chances of winning are 48.6%, while the casino's are 51.4%. The “house” has a small statistical advantage in its favor due to the green zero. In the USA, the bank advantage is even greater than in roulette in Europe, as there is also a double zero.

The law of large numbers

The more often the game is played, the closer the casino gets to the calculated expected value. This is where the law of large numbers comes into play. The statistical advantage becomes apparent at the end of the evening after hundreds of games. The casino wins. The players who are always staring at the next game and do not know the probability distribution are at a disadvantage. The law of large numbers applies to all games of chance, whether roulette, card games, or dice games.

What do traders learn from this? It's not the next trade that counts, but the sum of all trades at the end of the day. That is the perspective of the casino. A paradigm shift on the stock market? Successful traders know that the outcome of the next trade is neither predictable nor important. They concentrate on implementing a trading strategy with a positive expected value.

The games

In the card game blackjack, players also have this disadvantage because the rules of the game are designed in such a way that the “house” has a slight advantage. However, if you can remember which cards have already fallen, you can calculate your probability of winning. This has nothing to do with gambling, but with the cognitive ability to gain a small advantage, which comes into play after a sufficient number of games. However, casino operators do not like these memory skills at all and like to keep professional players out of the house.