Where is the line between gambling, speculation, calculated risk taking, trading, and investing?


There is only one side of the market and it is not the bull side or the bear side, but the right side. ~ Jesse Livermore

How we wish we were always on the right side, don’t we. Some may say, be with the smart money, don’t be with the dumb money, but who ever wants to be with dumb money?

I had an interesting conversation today with an old friend. We talked about a varied approach towards trading, and it was quite interesting to try to pin down what exactly was trading, and what defined it. “Calculated risk” may seem to be the best answer, but it is also too general and misleading, especially if your calculations are based on gut feel, and your risk is too high.

I have met with some whose background in investing is basically bets on soccer, using some method of calculating the odds, and using some formula to decide on how to size the bet. It sounded alot like a calculated risk, but no doubt, it was gambling.

Then there’s speculation. It sounds more benign than gambling, but essentially it is still betting on an unknown future, be it in stocks, forex, or the weather.

Now we come to the debate between trading and investing. And it came to my mind because of the conversation I had, because investing seemed like the “zero risk” approach, investing in products sold by the banks, with “full capital guaranteed” clauses, with decent returns of 3-5% a year.

But what the institutions do, are basically speculating and trading in a portfolio of equities, bonds, commodities, forex etc. How is it being sold as “risk free”?

I guess in essence, investing is widely accepted to mean putting capital into a product for capital appreciation, or for some interest return in some form, be it in rental or dividends, even swaps if you invest in forex.

Did I just say “invest in forex”? Some may call me out on saying that. But isn’t that what the institutions are doing, distributing your capital into currencies, and selling you an “investment product”?

What do I do? I trade forex, for a living. What does that mean? I have a set amount of capital, I allocate a percentage of capital into products known as exchange rates based on price movements, and make profits and losses whether I am on the right side, or the on the wrong side. And since I am doing it for a living, it means overall, my profits exceed my losses, and my capital is growing. For now.

I do not know the price of the USD/JPY tomorow, or later at night. But I can make an entry based on price patterns and other information that allow me to make a “calculated risk” on how much to “bet” and where to take profit, or to cut a loss.

Am I gambling?

To me, the line is very clear. And it lies not in definitions or words, or descriptions.

The line is drawn in the Mind.

I am a forex trader, running a business, making calculated risks on future, unknown prices, and allocating small amounts of capital for every position, with the aim, in Mind, to grow and compound the capital over time. I don’t aim to grow 100% in a week, but I do aim to beat the market by a fair margin, over the course of years.

So which category do I fit into?


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