And those both seem awfully similar to the stock market. If you're good at poker over the long-term, then you may be better off "gambling" than "investing." And hey, at least when you lose at poker, you may have still enjoyed it -- no one enjoys a stock market crash.

Oh, and don't get me started on naked futures/forward positions...

Poker's problems are entirely cosmetic. It uses the same chips and cards and is played in the same building as blackjack, so it's always going to be associated with other forms of house-edged gambling, even though it isn't.

There are other places, like you noted, where people can gather, put money into a zero-sum game, and it's completely legal.

There are also lots of nuances in many of these state laws, where poker actually is legal under the right circumstances (like no house rake). I guess the fees associated trading options aren't considered a rake, so that's cool with the government.

It is "house-edged" in the sense the game is slightly negative summed due to the rake.

Brokers take a transaction fee.

Actually in this regard you could argue poker is fairer due to its transparency. Poker has a fixed rake that everyone knows about and can see. Brokers can charge variable commissions and time their trades to their advantage, all while the investor has no visibility to his broker's actions.

You can use internet brokers and look at the limit order book yourself.

Okay, I'll bite. Why is having a naked futures contract in the S&P500 (which costs around $100,000 for the e-mini) any more risky than owning $100,000 of stocks?

[0] http://www.cmegroup.com/trading/equity-index/us-index/e-mini...

I'm not an expert (this is not my industry, so please correct me if I'm wrong) but I imagine it has to do something with the initial cost of entering the position.

With a futures position you may end up losing more than you put in (your initial margin) but assuming you went long a stock without using margin, the most you could lose would be your initial investment.

But perhaps it's not a fair comparison. I would say that buying 100K of stocks on margin is similar in risk to having a futures contract with a similar value, all other things equal.

Also, with forwards (not exchange traded) there would be counterparty risk if no clearing house was involved.

Also, if you are comfortable taking that amount of risk, you'd be better off to participate in the future market than buying large chunks of stocks on margin, at least you have extra liquidity.

Ah, good question. I should have been more clear. I meant futures/forwards on commodities and currencies, not stocks. Most investors don't use futures/forwards in the stock market unless they are hedging something. They just don't add value (if naked positions) compared to buying outright. Hopefully my comparison to poker is easier to see now.

I would claim it's actually less risky because it's more diversified if we are talking about volatility but owning 100k in stocks would also get you dividends that futures won't.

(Also you can get higher margins much more easier with futures than with stocks and high margin of course means more volatility (=risk) )

> I would claim it's actually less risky because it's more diversified

Yes, I agree (but then again, you could just replicate the index in your stock portfolio...)

> owning 100k in stocks would also get you dividends that futures won't.

Sure, and that's why the futures will generally appreciate faster than the stocks will - it makes up for the fact that you don't get dividends. Similarly, the fact that you only need to use a small part of your capital to hold futures means that you can earn interest on the rest, which provides a pull in the opposite direction, slowing down the rate of appreciation.

Well when you own $100,000 of stock, that's the most you can lose. But vary rarely will ever go down to $0.

With futures contracts and derivatives you can potentially lose infinity dollars.

That depends on the leverage you use. If you have 100k and use it to own one 100k contract, it cannot go below zero.

>no one enjoys a stock market crash.

>Oh, and don't get me started on naked futures/forward positions...

Some of the people that purchase these are plenty happy during a crash. What is it about time-based derivatives that you have a problem with in particular?

Even those who make money during a stock market crash (which is actually extremely rare and very difficult to do considering the cost of shorting a position or holding extremely costly derivatives, like CDOs) really shouldn't enjoy it.

And I don't have a problem with futures/forwards at all. I have a problem with people arguing there is less risk with naked futures/forwards (especially commodities/currencies) than there is playing poker; therefore poker, IMO, should be no less legal.

He probably meant losing money on the stock market, not necessarily a crash

The key word is "naked"