I do think it breaks down in practice for the goal of deciding which given trade/bet is gambling.
I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even.
That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well.
I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers.
So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.
One side of a trade can be a gamble and the other a hedge. A single transaction doesn't need to be classified as a gamble or hedge - it can be both.
As for the market maker themselves - they are definitely not gambling. They are trying to make money while reducing risk to the extent possible. You don't walk into the risk management committee and get an excited response because you increased risk all else equal, right?
I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even.
That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well.
I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers.
So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.