While it might not seem all that obvious at first, there are quite a few telling parallels between poker and stocks. Both require an in-depth knowledge of the game (yes, we’re calling trading a game) and its rules and strategies along with the ability to make decisions based not only on what you hold but what is happening around you. And this is why poker players would make excellent traders.
But before we dig deeper, let’s dispel a myth about both poker and trading.Those who are unfamiliar with both often assume that the two are games of chance with players and traders betting big to score big and all that nonsense. Well, this couldn’t be further from the truth. The poker player and stock trader that loses everything is simply so inexperienced that they haven’t spread their bets or known when it was time to call it a day.
Poker players that succeed are the ones that play the smart game. They pay attention to their opponents, take advantage of the information that they have at hand and base many of their bets on probability. Sound familiar? But if you’re unconvinced, take a look at these guys.
- David Einhorn is the founder of Greenlight Capital and has won over $5 million in World Series of Poker events.
- Andy Frankenberger is a former BNP Paribas and JP Morgan trader who has won a total of more than $2.5 million playing poker.
- Bill Chen won more than $1.6million playing poker and now works at Susquehanna International Group as the head of their Statistical Arbitrage Department.
And these are just a few of the many players and traders that have swapped chips for stocks or vice versa.
What Is It That Makes Them So Successful At Both Games?
Now while most of us already know how to play poker, there's a big difference between the casual player and those guys that spend their time at the felt for a living. Professional poker players, like traders, are men and women like no others and those from both walks of life share a significant number of characteristics.
Namely, both share mathematical mind that can make calculations on the fly without a second thought. And in both games where hesitation can result in failure, this is a huge advantage. They are also both competitive by nature and strive to be the best at anything they take on. Ask any poker player how they feel about finishing second and they’ll tell you how they messed it up. Traders are similar in that they look to achieve the best results possible and will not rest until they achieve their goals.
Poker players are also rational thinkers and base most of their decisions on probability. They try their best to keep their emotions under lock and key while they are at the table and as you can imagine, this is a hugely positive character trait for anyone involved in trading stocks. They are also keenly aware of their surroundings and the study behavior patterns of their opponents; something that traders do with the market.
But one of the most significant reasons that a successful poker player will make a good trader is that they never chase losses. This is one of the most common pitfalls in both poker and trading, and it’s how many green players and traders lose their money.
Now we’re not suggesting that any average person down at the local poker club could manage a hedge fund. But those players who have made it to the top of their game certainly have the skill set to do something significant on the trading floor. Could they become millionaires? Perhaps they could. But in all honesty, poker is a way of life, and we just can’t see many of the top poker pros giving up the circuit to trade stocks; although they could do worse than following in the footsteps of the guys above.
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