Could it be that a majority of traders are simply gamblers? Online traders will tell you that gambling represents something completely different. To determine the answer we must first take a closer look at the definition of gambling.

When we consider a "balanced" definition of gambling such as that tabled by the Ethical Investment Advisory Group of the Church of England (in contrast to purely legal definitions used to control the gaming industry) we are compelled to accept that for some participants online trading can, and does, fall into the category of gambling.
A recent study by the EIA Group defines gambling as, "...an activity that constitutes any behaviour involving betting or wagering one’s property or money, no matter how slight or significant, where the outcome is uncertain or depends upon chance. It can therefore be defined as a game of chance, with every transaction based on one party’s gain and another party’s losses."

On the other hand, direct investment in equities does not fit into the EIA Groups' definition of gambling because, "...Investing in the equity markets is not a game of chance, nor is it based on one party’s gain at another party’s loss. Buying shares is entering into the ownership of a company based on the principles of a free market, predicated on informed decisions and valuations."

The EIA Group concludes by saying that, "...speculative decisions, or “punting” on market movements for profits dependent on another’s loss may be more closely aligned to gambling which puts money at risk simply in the hope of getting lucky..." In other words you're in the Casino!

Where does that leave the 90% of losing traders? Are gamblers one and the same animal? While there is compelling evidence to support that view, we believe it is important to identify alternative criteria, if any, that explain why such a small percentage of online traders consistently win. We need to know more about the zero-sum game...

NEXT: Parallels between online trading and online poker.

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