You might not know what you’re doing if you buy something just to sell it later for a profit. In this article, we’ll talk about gambler, trader, and investor risk profiles to help you decide which actions are best for you.
Introduction: a gambler, a trader, or an investor
Gamblers are those who bet on their own luck. They don’t know what they’re doing. They’re usually not very successful. They’re just fun to watch. Traders understand what they’re doing and where they can make money. However, unlike investors, traders don’t care about long-term profits (or losses). When the game starts, traders are right there with the gamblers but eventually, they become more interested in making more money than having fun while playing the game.
As a result, their odds of success drop significantly over time when compared to that of successful investors who don’t stagger the returns the way traders do (to receive a higher profit on each transaction).
Let’s start with the most obvious group: investors.
Investors are people who purchase future goods or services in order to earn a profit when they’re used or consumed. An investor will purchase goods at a lower price than their market value and sell them later at that value – earning money on the difference between their investment amount and the final price they sold it at (the “profit”).
The investor will then take their profit and use it to purchase more goods. This process is known as reinvestment. This is the process of purchasing a capital asset in order to increase its value and sell it again at a higher price.
Investors usually trade their capital asset (their money) to make a profit (the difference between their purchase price and the final value). For instance, if an investor buys a stock at $10 and sells it at $12 – he will earn a $2 profit per share. Traders, on the other hand, will have a much greater percentage of success (because they can make more money per transaction).
For the traders, the only thing that matters is a risk. In order to make money, they need to take risks and have a high probability of winning (getting a profit). The bigger the amount they win, the more they’re willing to risk.
In general, “successful traders” go after big risks and make big profits. This is because they have a lower probability of failure compared to successful investors. They can even lose their money but win it back easily since they make it in smaller amounts than investors do (on each transaction). Investors are usually looking for longer-term results because they can’t afford to take bigger risks (or even larger losses) without any guarantee of greater profits in the near future.
A gambler is someone who bets on random factors such as sports games, roulette, and slot machines. The main difference between an investor and a gambler is that a gambler doesn’t need to know what he’s doing. He just needs to find luck, while the investor looks for something less fortuitous than luck and more predictable than pure chance. The most obvious difference between a trader and a gambler is that traders risk their money on something they can control (the odds) while gamblers just bet on random chances.
Different profiles of risk
- For an investor, the amount they invest (their risk profile) depends on how much they can afford to lose. Successful investors usually invest at the highest level of investment they can afford in order to make more profit (they desire less risk).
- For a trader, it’s all about their expected profit. Traders have to be very aware of the risks involved in their trades (the “risk profile”), in order to make sure that the odds are on their side.
- For a gambler, it’s all about probabilities. Gamblers usually don’t care about risk (they just want a good chance of winning), so they can easily gamble large amounts of money on bad odds.
Signs that you are a Gambler Investor/Gambler Trader
While it is true that trading/investing and gambling are different things, they do have some similarities. Some people can be classified in more than one category (like they might be gambling in stocks). Some traits of a gambler trader include:
- Making a big deal out of the wins, but ignoring the losses. Gamblers usually focus only on the “big deals” and only talk about the wins – while ignoring the losses (this can be applied to gamblers who trade stocks).
- Betting on the market without taking its current state into consideration. Traders focus on making money while ignoring the market’s current state (they’re not trying to deceive anyone).
- Playing with large amounts of money, growing bigger risks with each transaction. Gamblers usually bet the maximum amount they can afford to lose, investing in random chances (gambling).
- Getting tilt. Traders, on the other hand, are usually calm and don’t have a problem admitting their mistakes, because they know that the market will correct itself over time anyway.
- Believing in luck rather than calculation. When gamblers lose, they think it was just bad luck. When gamblers win, they think it was just good luck (most of the time). Like gamblers, traders and investors still believe in luck, but only for bad situations that can’t be controlled. Investors know that the market will correct itself and make them aware of their mistakes – so they can profit from them later on.
- Buying shares without doing any research. Investors know what to buy when to buy it, and what price is a good price to invest at (they’re also taking into consideration their risk profile).
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- Not knowing when to exit. Traders know that the market will correct itself in time, so they exit their trades when their profit target is reached.
- Raising your bet when you’re losing. When gamblers lose money, they usually just raise their bet (assuming that it was bad luck). If this happens to you, you are probably a gambler.
- Staying small for a long time because you hate “taking risks”. Investors know that their return is directly related to the amount of risk they take.
These four profiles (gamblers, traders, investors, and gambler-investors) are very different because their approach to risk is different. Gamblers usually just focus on the opportunity to make money, while traders and investors focus on making money with the market’s odds in favor of them.