There are several fears dominant in the stock market. These fears forbid several persons to enter the stock market. One of these fears is that stock market is a gambling. There are several articles advocating that stock market is not a gambling. This article digs a bit deeper and answers the question “Is stock market really not a gambling”?
Stock market fear
Stock market provides a platform for the corporates to raise funds in primary market through IPO whereas the same stock market provides an opportunity to the market participants to earn in the secondary market. The stock exchange is the main component of the stock market eco-system. In India, BSE and NSE are the two leading stock exchanges. Of these two, NSE is more popular than BSE, among retail participants. Securities and Exchange Board of India (SEBI) with the help of its 20 SEBI departments regulates all the entities of Indian stock market including the stock exchanges and financial intermediaries. SEBI is one of the 4 financial regulators of India, which has executive, legislative and judicial powers.
There are several Stock market fears and myths which have evolved in tandem with the stock market itself. Most of them have been fertilized by the participants who got their hands burnt in the stock market. Of course, the persons who never traded even a single stock have traded these stock market myths religiously. These stock market fears have always acted as a crab and forbidden severals to enter the stock market. FundsBase is glad that it has busted these stock market fears and myths previously. However, I felt a huge desire to investigate more regarding one dominant stock market fear.
This dominant fear is “stock market is a gambling”
A gambling means no guarantee of returns. In worst case scenario, a loss may occur. Thus people shirk from gambling.
Is stock market really not a gambling?
To be precise, it is and it is not. If you come in stock market with a gambling mindset it is certainly a gambling place and if you see the stock market as an investment hub then it can open door of fortunes.
Types of market participants
To decode a gambling mindset, first, we need to understand the different psychologies of the stock market participants. There are typically three types of market participants viz.
A participant with this psychology has no logic to enter a trade. He doesn’t do any research and he makes the profit just by chance. He is usually a new entrant and depends completely on the tips of experts/broker. As soon as the prices move against his expectation he closes the trade. This behaviour attracts huge losses for him.
A trader is well informed about the stock market. He does his own research and investigations before entering a trade. When the market goes against his expectations he does not get panicked but at the same time, he is also not sure about the price movements. He gets sleepless nights worrying about his money but he doesn’t sell the stocks. He decides to hold until prices rise.
A participant with this psychology does proper in-depth research and if needed consults the more experienced persons. He actually perceives himself as the partial owner of the company. He usually doesn’t bother about the price movements of the stock he owns. In case the prices fall more, he finds it a good opportunity to increase his stake in the company. Thus he buys more stocks at the lower price. He finds the stock market as an investment tool just like FD and RD of a bank, thus he is assured of his returns over long term.
In which category do you see yourself? A speculator, a trader or an investor.
A speculator enters the market with a gambling mindset. So for him, it is a gambling place. After getting huge losses he acts as a catalyst to accelerate the stock market fear in the society.
A trader and an investor are not a gambler. They come to make money and do their research and have a proper logic to enter a trade. Remember, no one ever gets a 100% success rate in the stock market. So in case, they make a loss, they don’t blame the market. Profit and loss are a part of any business. They accept it and enter another trade.⇯
There are several myths and fears grown along since the inception of the stock market. One of the most dominant fears is “stock market is a gambling.
There are three types of participants in the stock market viz. speculator, trader and investor. A speculator enters the market with a gambling mindset whereas a trader and an investor don’t. They do their proper research.
Thus if you enter stock market as a gambler’s mindset, the stock market is certainly a gambling place for you, whereas if you do proper research and investigations before entering a trade, it is certainly not a gambling place.
To see if market is open today see Stock Market Holiday for year 2020