Leveraged trading is one of the first types of stock market exchanges that many people encounter. It allows you to spend more money than you have, making it seem like an excellent way to beat the market. Unfortunately, leverage trading can put you in a world of debt if you’re not careful, but is it gambling?
Leverage or margin trading isn’t gambling because you’re taking a controlled risk. Gambling doesn’t have patterns, but the stock market does. However, many people get into debt with margin trading because they bet more than they can handle. Over 90% of traders lose money with this method.
Throughout this article, you’ll learn the following info about leverage trading compared to gambling:
- Countless similarities that make margin trading like gambling
- How you can try leverage trading without too much risk
- The risks and financial dangers of margin trading
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Is Margin Trading a Form of Gambling?
Margin trading might be tempting if you’re new to the stock market and don’t have a ton of money to invest. It uses unowned funds to give the chance of making a decent profit. Sadly, it’s very similar to gambling for various reasons. Let’s explore some of the similarities between margin trading and gambling below.
- Margin trading borrows money that you don’t have. According to Financial Spread Betting, margin is the only type of trading that directly invests unowned cash at such a high level. It’s almost worse than gambling because your limits are lifted, causing you to sink into debt.
- It can be addicting since there aren’t many limits. As you read above, without any caps, you can keep investing until you make a profit. Since you’re unlikely to win, you’ll dig a deeper hole with every bet. Much like gambling, margin trading buries people more than it works for them.
- Financial losses can wreak havoc on your life. Gambling is notorious for causing people to sell their homes, vehicles, and other investments. Similarly, margin trading can put you in financial ruin. You’ll have to get rid of your assets to pay for the debt and that of your failed investments.
- You have to pay debts that aren’t regained from profits. Traditional trading is simple. You invest in a share of a company and watch as the market lowers or rises. When it goes up, you make a profit; when it goes down, you lose money. Margin trading is worse because you have to pay for almost everything, including profits below the debt line.
- There’s a potential for significant gains. Like gambling, there’s a slim chance that you could hit the jackpot. The odds of you making a substantial income from margin trading are thin, though. 96% of traders lose money. Are you willing to risk the 4% to get something back possibly?
Looking at margin trading with both eyes makes it a bit less appetizing than market markers want it to be. They want you to invest, so you’ll be in debt to them. You’ll owe money, and they’ll move onto another client unless you happen to profit. To learn how you can reduce the risk, proceed to the next section.
How to Escape the Gamble During Leverage Trading?
Are you convinced that leverage or margin trading is right for you? If you’re adamant about trying this type of investing, then you’re in the right place.
Here’s a list of five ways that you can reduce the risk, cut back on the losses, and possibly profit from the experience:
- Don’t leverage too much of your finances. If you can control the number of assets or debt that you leverage, you’ll be in control. You can’t control the market, but you’ll be in charge of your maximum losses. There’s a reduced chance of burying yourself in additional debt.
- Consult an expert for priceless advice. Financial experts study everything about the market every day. Instead of guessing what should work, you should seek a professional’s help. They can give you tips to put yourself in the best possible position to keep your money in the green.
- Pay attention to the market’s patterns and headlines. Small headlines can make big waves. If the market is looking too good to be true, it probably is. Don’t invest during a downturn; wait until it settles, then invest your money to raise the share’s ceiling. Take note of the patterns and invest wisely.
- Don’t push your luck on a high close. When things are looking good, it’s time to put out your investment. Never assume that the stock market will rise indefinitely. There’s always something in the way or an economic disaster that could put you in debt. When it’s going in your favor, take the profit.
- Understand when a loss is a loss. If you’ve lost your money, it’s game over. Don’t keep leveraging more money. As you now know, the odds aren’t yours. It’s never fun to lose money or be in debt, but pushing too far will cause the hill to get steeper. This issue is one of the primary reasons that leverage trading is like gambling.
The primary difference between gambling and leverage trading is that you’re able to stop at different points of the transaction when you’re leveraging. Gambling goes until the end of the round, but leveraging debt can stop whenever you’d like it to. Take advantage of this fact to reduce losses and stay ahead of the market.
Why Is Leverage or Margin Trading So Risky?
You’ve read why nobody should rely on these types of trading, but it’s important that we dive into the details. There are many similarities between margin, leverage trading, and gambling. Below, we’ll cover three of the most significant risks of these stock market investments. When you’re finished reading, you can decide if it’s right for you.
- There’s no way to predict the market. Ethereum Worlds News explains that the stock market is exposed to extreme changes. Volatility is the name of the game. It’s impossible to know what will happen when the market starts to shift, which means you can lose money. Since leverage and margin trading use debt and unowned cash, you’re risking a lot more.
- You can quickly get in debt. Since you don’t have the money you’re using, you’re doubling the downsides of losing in the stock market. Leverage trading uses debt, which is already the wrong place to start. In most cases, leverage trading is done out of desperation. If you’re practicing the market, reach for mutual funds rather than leverage or margin trading.
- You’re using money that you don’t have. When you’re spending unowned cash, you’ll have a lot of stress on your shoulders. You might make risky decisions to get out of a hole. Since the odds are stacked against you, you’re almost guaranteed to make matters worse. If you’re inclined to try margin or leverage trading, start low and close when you’re on top of the market.
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Conclusion
Leverage and margin trading can be seen as gambling because they’re risky, and losses can be high. Thousands of traders fall into the trap of getting addicted to these trades. As long as you follow the previously mentioned precautions, you’ll be in luck.
Here’s a rundown of what the post should’ve taught you:
- Margin trading borrows money to get more, which is why it’s similar to gambling.
- Leverage trading uses debt in hopes of earning it back or profiting.
- Both trading types are riskier than traditional long-term investments.
- Educated leverage or margin trading can be beneficial.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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