Trading and Poker may sound different but they have a lot in common. This is the reason why the renowned stock traders ask their employees to play Indian poker. They suggest it not because it is fun, but they also recommend as it may help to hone trading skills. Many stock market mangers say that good investor are good players and vice versa.
Trading is also based on probability like a poker game. You have to do a though research about a firm, make the right decisions but still some events can happen and spoil your game. It doesn’t matter how smart investors you are; you cannot be fully sure of picking up the right stock. As an investor, you are like a poker player who has the best hand, but still not sure of winning the hand. It is because of a better hand is likely to lose if some cards drop down on the table later.
Bankroll and Money Management
Money management in trading and bankroll management in poker requires management skills. A smart investor diversifies his portfolio always instead of investing the money in one stock. If a stock has a high probability of generating revenue, it doesn’t pull the money into it. The same thing applies to Texas Holdem poker as well. If you have a hand with a 75 percent chance of winning, you don’t commit all your money by going all-in as you still have 25 percent of losing it.
Poker and trading have a similar psychological pattern. The investors and players make emotional decisions rather than rational ones. It puts them into higher risk. Like the players, many investors are also vulnerable to their own emotions. If their investment goes up they become overconfident and start risking huge money. It also happens to the players. If they start winning, they become bold and play aggressively or bet heavily with average cards as well.
Another similarity between trading and poker is they involve incomplete information. A player may have a strong hand but still not 100 percent sure of what cards opponents hold. It also applies to an investor who can predict a good return but may not be fully sure of it. So decisions in stock trading and poker are often based on incomplete information.
Risk Management Skills
Both of them require risk management skills. Whether its stock trading or a game of cards, the goal should be based on EV+ while trading or betting. You need to understand how much you have to bet or invest or how much you can afford to play or trade in a month or week. Decision making based on incomplete information of EV+ works, in the long run, to lose or win money while playing poker or investing in the stock market.
The traders or poker players can handle situations and play the same hand or trade the same amount of money in different ways to win higher returns. Often they are skilled individuals who make a good living from what they are doing.