Posted on: February 15, 2021, 08:48h.
Last updated on: February 15, 2021, 08:48h.
The head of the New York Stock Exchange (NYSE) is rejecting recent comparisons of the stock market to casino gambling.
January’s volatility surrounding such stocks as GameStop and AMC Entertainment led to some politicians lambasting how markets operate. They argue that stock trading has essentially been billionaire hedge fund owners’ personal casinos.
“Investors big and small are treating the stock market like a casino,” argued Sen. Elizabeth Warren (D-Ma.). Her comments came after a forum on Reddit titled “wallstreetbets” successfully manipulated the stock prices of GameStop and AMC.
Rep. Alexandria Ocasio-Cortez (D-NY) took pleasure in what was seemingly a large group of small fish taking on Wall Street’s powerful sharks. The Reddit investors purchased large volumes of GameStop and AMC shares to target hedge funds that heavily shorted the stocks.
“Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino,” declared Ocasio-Cortez.
Market Leader Dismisses Assertions
In an interview with “Axios on HBO” that aired Sunday night, New York Stock Exchange President Stacey Cunningham dismissed the links of stock trading to gambling.
“The markets are not a casino. They are highly regulated and they’re highly overseen,” Cunningham stated.
We are running a market that provides opportunities for investors to come in, invest in the companies they believe in, they believe that are going to grow, and then share in that wealth creation,” she added.
Cunningham has warned state lawmakers in New York that if the financial transaction tax that’s been proposed in Albany — the tax money set aside to better level the investor field — she would consider relocating the NYSE to another state. She does, however, support stock market regulators taking a “fresh look” at short selling, especially surrounding hedge funds that take large positions in betting against a company’s success.
Differences Outweigh Similarities
There are many similarities between a casino and a stock market. Like the NYSE, a commercial casino in Las Vegas is highly regulated. Legal gambling is one of the most controlled and scrutinized industries in the country.
People who gamble, and also those who purchase stocks, are additionally doing so in the hopes of making their money grow. Each involves elements of risk, and skilled gamblers and investors study odds and a company’s financials to look for an edge.
But that’s really where the similarities end, says one expert.
“Equating the stock market to gambling is a myth that people on the internet and television pundits have perpetuated for years. And, it’s simply not true,” says Hank Coleman, founder of Money Q&A, an online finance advice website.
Coleman points to the fact that buying a stock is ownership. He also says gambling, unlike investing, is a “zero-sum game” where there is always a winner and loser. In investing, Coleman argues, there can be varying degrees of winners and losers, including in the same stock.
Coleman also explains that value is never created in gambling. Instead, it’s simply money that is transferred between gamblers, or casino and gambler.