Whats the difference between margin trading and gambling
Margin trading allows an individual to borrow money from a broker in order to take much larger positions in financial assets and therefore multiply the size of their gains and losses. Now, in new paper “Margin Trading: Hedonic Returns and Real Losses” (available here: http://bit.ly/1Vi2BUf), researchers in the University of Leicester’s Department of Economics found that, despite the expected monetary losses, margin trading offers the same enjoyment associated with playing the lottery, holding lottery-type stocks, and gambling.
Dr Daniel Ladley, Mr Guanqing Liu and Dr James Rockey have analysed the behaviour of margin traders and have concluded that, like gambling, those doing it find it enjoyable even though, on average, they lose money.
Dr Daniel Ladley, both a Reader in Finance in the Department of Economics at the University of Leicester and Deputy Director of the Leicester Institute of Finance, said: “If this type of trading is to be seen as entertainment, there must be implications for future policy and regulation. In particular, a system which separates those trading for hedonic reasons and those trading for investment may have many advantages. Such a separation may limit any destabilising effects of margin trading on overall systemic stability.”