| Know that day trading isn't investing. Day trading is | | | | Investing is putting your money at risk to make a |
| also not gambling. But the lines between trading, | | | | return. Investing is the basis of modern day |
| gambling and investing can be thin. You should | | | | capitalism. It is the way that businesses get started, |
| understand where the difference is. You will be in a | | | | roads get built and the economy grows. Investing is |
| better position to follow your trading strategy. You | | | | always focused on the long term. In investing, you |
| will also make more money. You should avoid the | | | | buy stocks of companies for three to five years at |
| trap of gambling. This way you will be in a better | | | | least that are good but have gone out of favor for |
| position to preserve your capital. | | | | the time being. |
| What is the difference between investing and | | | | What is trading? Trading is the act of buying and |
| gambling? It is the risk and return tradeoff. The odds | | | | selling securities. Investors also trade but they trade |
| are generally in your favor in investing. However, it | | | | only when they find a good opportunity. They |
| does not mean that you will make money. It only | | | | expect that by investing they will give them a good |
| means that there is a good chance you will make | | | | profit in a few years time. |
| money if you have done your research well. Some | | | | Traders look to take advantage of short term price |
| day traders end up gambling. | | | | discrepancies in the markets. Trading keeps markets |
| Investors, traders and gambler have one thing in | | | | efficient by creating short term supply and demand |
| common that you need to understand. They put | | | | that eliminates price discrepancies. Speculation is |
| some of their money on risk. They hope of getting a | | | | related to trading. |
| return if they are right. You should take trading as a | | | | A gambler puts the money on line in the hopes of |
| business. You should also know about the potential | | | | getting a profitable payoff if a random event occurs. |
| risk. You should also know about the sources of your | | | | The probability of that random event occurring is |
| potential return. This will make you better off in the | | | | usually very small. The odds are always against the |
| long run. | | | | gambler. They are in favor of the house. However, a |
| What is your reward? Your reward is that you get | | | | gambler always believes that the odds can be |
| fair compensation for the risk you took. What is your | | | | beaten. He wants to win big. |
| risk? Risk is that you won't get the expected return. | | | | Always remember, trading is not gambling. Traders |
| Risk is the probability of a loss. The riskier something | | | | who do not give attention to their strategy and its |
| is, the more chances of a loss. | | | | performance can cross over into gambling soon. They |
| The reason there is a balance between risk and | | | | view the blips on their computer screen as a game |
| reward is that financial markets like the stock | | | | that they can win. Soon they are trading as if they |
| markets and the currency markets are reasonably | | | | are in a casino with odds as bad as a slot machine. |
| efficient. This market efficiency means that prices of | | | | They start making trades based on emotions without |
| securities and currencies reflect all known information | | | | any regard to the risk and return. |
| about the companies and the economy. | | | | |