Is Option Trading Gambling?

Option trading, the segment that can make you rich overnight but also wipe away all your capital in one go. Doesn’t it sound like gambling? So, will it be right to think ,”Is option trading gambling?”

Well! the answer depends on different parameters and situation.

Confused?

Let’s dive in a little deeper to understand the concept of options trading and what makes it similar and different from gambling.

Is Option Trading Gambling in India?

To start with, let’s first understand the meaning of options trading.

Options trading is the kind of derivatives where the buyer pays a premium to seller and get the right but not obligation to trade on the predefined price (strike price) and date i.e. expiry in the future.

Now when you enter into the trade and pay premium amount then you will consider important aspects like current performance of the market, and other parameters like volatility, future growth etc.

Here is a simple example to understand this.

Let’s suppose there are two friends Ramesh and Suresh studying in class 10th. Both study hard and give a tough competition to each other. But on what it is predicted that Ramesh will top the class.

Now, how you would be able to make such assumptions?

Of course it is not just a fluke. You might have considered their yearly performance their dedication in the present time, etc before making such prediction. Right?

Similarly options trading is based on facts and figure.

On the other hand, gambling is something that is totally based on luck. For example, Ramesh studied hard but got ill during the exams due to which he missed his exams.

Hence Suresh get the top in the exams.

So, unlike gambling options trading is something that purely depends on analysis and strategies. There are a few more differences between the two that is explained in detail.

Difference Between Option Trading and Gambling

As discussed trading depends upon facts and figures and some of the other key difference are:

 1. Options Trading Involves Proper Planning & Analysis

Options trading involves a lot of planning and practice. One has to do proper analysis of charts, trend, volatility and momentum before taking buy or sell decision. On the other hand, gambling is done randomly without any analysis or possible outcomes.

2. One Can Manage their Risk in Trading 

You can define your risk with right position sizing and use of stop loss. Hence you are putting in the capital but at the same time planning it to use it wisely in the market. On the other hand, there is no way of managing risk or limit your losses in gambling which makes options trading far much different from gambling.

3. Options Trading Offer Wide Time Range

Options trading positions can be taken for a day, week or months. Hence one has a better control on its outcomes. On the other hand, gambling gives instant results which increases the chances of loss in the market.

4. Options Trading is Regulated

Unlike gambling, options trading is done of the SEBI regulated platforms which make is safer and reliable way to make money. On the other hand, there is no such regulation in gambling which leads to exposure to scams and frauds.

5. One can Maximize Profit in Options through Education 

Like one has to learn and practice medical before becoming a doctor similarly to become a profitable options trader one is provided with knowledge and education. These days for example there are option trading classes that help an individual to trade wisely and build career in the stock market.

Gambling on the other hand does not require any expertise and is purely based on luck and chances.

Are you Trading or Gambling?

Even though options trading is different from gambling, still most of the people are not able to differentiate the same that leads to their heavy losses in the market.

You might be gambling unknowingly if you are practicing one or more of the following while doing options trading:

1. Trading under Pressure

Is trading your passion or you are doing just because people around you are doing it. Options trading is just like any other business you would be do. Like you cannot succeed in career and business by copying other similarly you cannot be a successful trader by doing it under pressure without any understanding.

2. Trading with Planning

As said, options trading is similar to business which requires proper planning. If you are just adding your money without any proper analysis than you are not trading but gambling with market index and stocks which does not give any assurance of profit or return.

3. Trading with Excitement

These days there are a lot of fake finfluencers who influence people by giving them wrong hope and dreams of becoming millionaire overnight. Now sometimes the wrong advice can lead to right trades and help you make profit but just like that excitement that profit is short lived and can wipe off your entire capital in the blink of an eye.

It is therefore recommended to stay alert and learn options trading before putting your hard-earned money in the market.

Conclusion

Is option trading gambling or can be your career depends upon how you take and practice it in the market. The experienced gambler can still lose money but the experienced and knowledgeable trader know when to exit and save his capital in the market.

If you want to begin your trading journey in the market then it is the time to focus on learning. You can begin with reading options trading books or can enroll in the stock market classes now.