A Sports Bettor's Guide to the Stock Market

Thursday, June 11, 2020 9:21 AM | Bobby Raines

The combination of shuttered sports leagues, and $1,200 checks sent to most American adults has lead to jump in the number of people looking to the stock market to get their gambling fix.

This rise of zero-commission stock trading makes this much more attractive than it would have been even two years ago when it cost $10 or more to make a trade.

There are a lot of similarities between the stock market and sports betting. Both involve making predictions about the future. Both offer higher returns for placing riskier wagers. Both also provide a landscape for vast media companies to provide a steady stream of numbers and analysis of what those numbers mean.

Another similarity is that trends and hot streaks exist. Good companies, like good teams, tend to stay good for a while. This doesn't mean they win every time though. The New England Patriots have been the best team in football for most of the last 20 years, but they haven't won 20 Super Bowls, and never had an undefeated season. Apple (AAPL) has been one of the best stocks over the last 20 years, but hasn't been the top gainer every day, or even each year.

Similarly, bad stocks sometimes have good days. Look at the recent trend in rallies in bankrupt companies. It doesn't work in the long term, but New York-based teams that end with E-T-S still win some games.

There are some differences between sports and stocks though. Stock trading is currently legal in all 50 states for one. Sports gambling is becoming more and more acceptable but isn't legal coast-to-coast yet.

Gambling also exists entirely separately from sports (we hope anyway). The amount of money wagered on any particular outcome in sports is unlikely to have much effect on the actual sporting event, while big moves in stock prices can have either a positive or negative effect on the underlying business.

There are some other differences though that are important to understand if you want to make the transition from sports betting to playing the stock market.

The Game Never Ends

Financial markets are all interconnected both across asset classes and around the world. In sports, the outcome of a basketball game on Wednesday rarely has much effect on Thursday's baseball games, but stocks and other financial assets tend to be much more correlated, some positively and some negatively. A rise in oil prices can send transportation stocks lower, while boosting energy stocks. Markets are connected globally too, both in terms of assets and in the real world. The world's major stock markets tend to go up or down together on a given day, while world events including the weather can send the prices of certain stocks in the U.S. up and down.

The Betting Window is Only Open 6.5 Hours a Day

While things that can have an effect on stock prices happen 24 hours per day and seven days a week, the stock market is only open 6.5 hours a day, five days a week. Frequently big news happens when markets are closed, which can rapidly turn a winning bet into a loser with traders unable to close positions. In fact, a lot of news, such as corporate earnings are released outside of market hours. This prevents intra-day volatility, but can mean big overnight swings in the value of your stocks.

Bets are Rarely Zero Sum

Unlike sports, where you place a bet and then have to wait to see how the game turns out to find out if you won or lost, stock market outcomes are generally less binary. Stocks go to zero pretty rarely, so the 100% loss that is common in sports betting is much less likely in financial markets. This means you can see that a trade isn't working and close it for a small loss instead of having to suffer through a blowout.

You can make a lot of money in the stock market, but can also lose a lot of money. Investing, like gambling, requires sticking to a strategy, knowing the risks and deploying capital intelligently.

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