Is financial spread betting gambling or investing?

[Tom]

Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.

Pretty plain and simple in my eyes.

 

[RichInSpirit]

Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.

Pretty plain and simple in my eyes.

Yes, I get the real share thing versus the CFD's, spreadbetting.
With real shares your money goes into the company, boosting the share price etc. and conversely when you sell the opposite happens.
But the transaction charges and stamp duty are a killer unless you are buying and selling thousands of shares at a time.
And the spread betting, CFD's (derivatives) offer a way around the charges for some of us small fry.
And sometimes the derivatives companies hedge in the real market if there are huge positions open, so the derivative position can have an influence on the real market.

 

[darag]

Interesting debating point whether s/t traders perform a social service. Personally I think they push the bounds of efficiency over the top to the point of instability.

The evidence (where this has been studied) contradicts this belief. Liquid markets are generally less volatile and short term traders are huge providers of market liquidity.

On a philosophical note ain't it marvellous that we have developed the most sophisticated technologies for communicating with each other, for travel and transport, for healthcare, for information systems etc. etc. and yet the cornerstone of our economic system is a delinquent and irrational casino known as the stockmarket. I 'm no pinkie but it is surely not beyond the wit of man (or woman) to devise a more sophisticated and robust allocation of our economic resources.

It's ludicrous to claim that the stock-market is the "cornerstone of our economic system". The amounts of money involved in stock trading is a minuscule fraction of the financial transactions which underpin our economic system. The prices of stocks as established on these secondary markets have some influence on the allocation of capital but compared to the influence of debt markets, banking, fiscal and monetary policies, property markets, etc. it is small.

You don't have to look far; the 15 year boom in Irish stock prices certainly had an effect on capital allocation but compared to economic effects of the property market bubble or government spending policy, it was barely significant.

 

[darag]

Hi, I am only new but this one caught my eye as I had a debate about it not too long ago. Essentially, spreadbetting and CFD's are betting and not investing. Think of it like this (or just look at the name in spreadbetting. There is a big hint there), investing occurs when you invest money in a business or asset class. Its real. It can be touched, its a part of something real. You buy a share in a business, you invest in that business. You put money on the chance that a stock price will go up or go down, but you dont actually invest in that company - this is betting. You may as well go to Paddy Power and ask him for odds.

Pretty plain and simple in my eyes.

If it were plain and simple, this debate wouldn't resurface every few months here. It's actually a very subtle issue.

For example, you are mistaken in your understanding of share investing. Nearly always, when you buy a share of a company, you are purchasing it from someone else who wants to sell the share. The company itself has no part of the transaction and doesn't benefit from you buying the share.

As far as the balance sheet of the company is concerned, it doesn't matter whether you buy its shares on the secondary markets or bet on the price going up with paddy power.