When financial trading becomes problem gambling

Successful traders are ones who have the discipline to follow a successful formula and can avoid the temptation to chase their losses. They will be able to adhere to a winning strategy, in spite of short-term setbacks. They will achieve small gains, often in high-frequency trading, content with the knowledge that in the long term, their profit and loss account will demonstrate a positive return. They will only trade in the markets which they know most about.

Are you trading or gambling?

The traders with a problem are those who at some point in time will cross over an invisible line and enter the territory of problem gambling. These are the traders who will lose enthusiasm with the steady but safe winning formula trades.

When discipline is abandoned, traders will place more speculative bets in the hope that they have achieved perfect market timing. They will often change their stop-loss positions mid-session in order to stay in a trade, hoping that the market will swing back in their favour. What usually happens is that the movements in the markets continue to move against their positions, ensuring more losses.

Traders who continue to trade and seek to recover losing (mounting losses) are the ones who can end up losing more and more of their funds. They continue to pursue what is termed 'the big fish trade', whereby they seek to recover everything they have lost and more. This is when traders will abandon discipline, take ever greater risks and become increasingly desperate to balance their books. When this happens, there is a combination of exhilaration, periods of depression and increased anxiety.

They are accustomed to the adrenaline of living on the edge. They will feel guilt and remorse for having lost large sums of money following a few keyboard clicks, sums of money which other people might not earn in a whole month or year. This is the territory of problem gambling. Traders that are caught up in this intense cycle, hoping that the big win is just around the corner. This is why they will do anything to secure the liquidity to cover margin calls in order to keep on trading.

What are the impacts of trading gambling?

The consequences of this increasingly desperate behaviour can involve lying, cheating and stealing in order to stay in the game. It is also why they take out payday loans in spite of commanding a high salary. Eventually, of course, they fail to stay solvent which can cause more and more mayhem, not only to their trading account but also to their personal relationships and other commitments in their life.

Traders with addictive processes do not know the concept of ‘enough’. Even if the big win comes, they will usually continue trading, hoping to win even more.

Research findings from the field of neuroscience could help to explain this phenomenon. For example, due to advances in neuroimaging technologies, we are now aware that behavioural activities such as sex, gambling and shopping can co-opt the brain in a similar way to chemical addiction with the flow of neurotransmitters such as dopamine, which plays a critical role in the brain’s reward system.

It is also worth considering that the brain registers losses far more intensely than it feels gains. That might also explain the phenomenon of chasing losses. Being aware of the concept of loss aversion may actually help to prevent more reckless risk-taking.

How to stop

Stopping is one thing but staying stopped is quite another when the reward centres of your brain are looking for their ‘fix’. That is why it is important to initially seek a period of abstinence and then to review life choices with some clear thinking.

The key to identifying behavioural addiction before it gets to this desperate stage is to try and stop for a short period and see what happens. Do you become depressed and moody when not trading, or can you engage with other parts of your life without the preoccupation of the next movement in the financial markets?

Stopping can have complications, especially if trading is undertaken for a living whilst working for a corporation or for a trading house. This can be especially difficult when the trader believes that they do not possess any other noteworthy skill in the workplace.

Their skills in financial trading and the potential for huge monetary reward can blind them to their transferrable skills and qualities in the job market. This is when coaching can be useful to help devise a plan, refocus life direction and work towards new aims and objectives.

How can counselling help?

Psychotherapy can offer you the possibility of evaluating your life decisions and reflecting on past life choices. It will also give you the opportunity to slow down and look at why you seek the buzz in the first place. Acknowledging the problem can be the starting point in assessing which direction you would like your life to take in the future.

Treatment for problem gambling can involve attending meetings of Gamblers Anonymous (GA), which, like AA, practices the 12 steps of recovery. GA is a group-based support network which you might also find helpful. 

Active addiction can be seen as a loss of consciousness as there is an over-emphasis on self and solo pursuits. Consider how much your trading has impacted your social, work, and home life. Being preoccupied with financial markets is fine if it pays the bills and provided you can switch off at the end of the trading day.

However, it becomes a problem if you start to show a negative return, stop answering the phone when friends want to meet up, become increasingly moody and start to become more secretive. Setting out to achieve so-called material security, by achieving that elusive big win, is like climbing a ladder and getting to the top only to discover that the ladder was placed against the wrong wall. The addicted trader never knows when they have won enough.