Speculation vs. Gambling
Even relatively sophisticated investors and investment advisors keep referring to commodities futures trading as a closr relative of Gambling. However Gambling and speculation are distinctly different economic activities
Gambling involves the creation of a risk for the sole purpose of it being taken. The dice game creates risks which would not otherwise be present. Gambling involves sterile transfers of money between individuals. In the strict economic sense, it absorbs time and resources, yet creates no new value.
Speculation, deals in risks that are already necessarily present in the process of producing and marketing goods. As crops are grown and marketed, there are obviously risks of price change that must be taken by someone (Owners of the commodity or someone else)
The futures market enables you, by selling a futures contract, to shift at least part of this risk to a speculator who is willing to assume it in hopes of profiting from a change in that future price. The point is, the risk was there. It had to be borne by someone whether the futures market existed or not. The futures market served an economic function by facilitating the transfer of the risk from someone who didn’t want it to someone who did
Anyone who approaches futures trading without a knowledge and understanding of commodities and their markets is doing just gambling.
Even relatively sophisticated investors and investment advisors keep referring to commodities futures trading as a closr relative of Gambling. However Gambling and speculation are distinctly different economic activities
Gambling involves the creation of a risk for the sole purpose of it being taken. The dice game creates risks which would not otherwise be present. Gambling involves sterile transfers of money between individuals. In the strict economic sense, it absorbs time and resources, yet creates no new value.
Speculation, deals in risks that are already necessarily present in the process of producing and marketing goods. As crops are grown and marketed, there are obviously risks of price change that must be taken by someone (Owners of the commodity or someone else)
The futures market enables you, by selling a futures contract, to shift at least part of this risk to a speculator who is willing to assume it in hopes of profiting from a change in that future price. The point is, the risk was there. It had to be borne by someone whether the futures market existed or not. The futures market served an economic function by facilitating the transfer of the risk from someone who didn’t want it to someone who did
Anyone who approaches futures trading without a knowledge and understanding of commodities and their markets is doing just gambling.
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