Forex Trading Like Gambling

The Forex market is one of the most liquid and largest markets in the world with volumes of over $6 trillion per day. But this leaves many people thinking? Isn’t it just like gambling? Well, today I’m going to help clear this up for you and help you understand the differences between Gambling and Forex trading – it’s a bit of a grey area.

Forex trading is generally not like gambling although sometimes, people can use Forex as a method of gambling by not using the proper risk management strategies and/or trading recklessly. In order to trade profitably, Forex traders must take adequate precautions and learn to trade the market before participating in it.

Unlike normal gambling addictions, a trader can break a cycle of gambling-like behavior if they will accept that they need to change their habits and then follow a predefined plan of action to start thinking and trading like a pro. Solutions for the gambling Forex trader. Gambling is a game of luck, Forex trading involves a thorough analysis. The currency of any country depends on many factors: macroeconomic indicators, the political situation etc. Traders use the economic calendar to keep abreast of all the significant upcoming events.

The similarities between trading and gambling Let’s look at some of the similarities between Forex trading and gambling. Most obviously, there is no guaranteed outcome as to what’s going to happen. In both cases participants put money into the marketplace, and then hope they’ll make money instead of losing. Forex Trading and Gambling are similar because you need money to start. You need capital to execute your first trade or to place your first bet and the reason why I have compared Forex as the world’s biggest casino is that the money that fluctuates in both industries is enormous. The potential for making money in Forex trading is as close to endless as any market on the globe. While the Forex gambling/Forex trading comparison is not totally baseless, it is also not accurate and the following is a list of five attributes that differentiate the two industries.

In order to better understand the differences between trading and gambling, we have to first look at what each term actually means.

What is gambling?

According to Wikipedia, “Gambling is the wagering of money on an event with an uncertain outcome“. Most people are pretty aware of what this means; it is essentially the act of risking your money knowing that you could lose it all.

What does Forex Trading involve?

IG, one of the world’s leading Forex brokers says that “Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another” but what does this actually mean? It means that when you trade Forex, you are thinking that the other currency will be worth more/less in the future.

So, what’s the difference between them?

Naturally, there are many ways in which the two are similar and different, and most of the answer lies within how you commit both acts (Forex Trading & Gambling).

Trading without knowledge is gambling

I know – it’s a pretty bold statement. But trading Forex without any prior knowledge may as well be classed as gambling. After all, you are looking to make money on the back of an uncertain event (remember the gambling definition above?) without any knowledge of how to prevent a total loss.

Gambling is riskier (untrue)

Many people assume that traditional gambling methods are more risk-averse, but in my opinion, the can be of equal risk. There is such a thing as betting safely, some people develop strategies and use something called bet insurance to make their bets less risky. On the contrary, some Forex traders are highly risk-averse by using high leverage and no risk management tactics.

Trading can be profitable, betting rarely is

It’s true, traders have more chance of being profitable than bettors due to the sheer nature of the industry. Arguably, there is more skill involved with trading and therefore, more room to improve. To add to this, it is important to note that with each trade, like gambling, there is a winner and loser – so in that respect, it can be seen in a similar light.

Tips to trade safely (and not gamble)

In order to ensure that you trade Forex safely, and not gamble with your money, here are a few tips to get you on the right tracks.

Use stop-losses

A Stop Loss order is a way of preventing further loss on a losing trade. These orders ensure that your capital is safe if a trade goes in the opposite direction to where you expected it to go.

Manage position sizes

Using all of your capital on one trade is a sure way to gamble on the Forex market. By doing this, you are risking all of your money on one trade which could lose out – it’s no different to putting it all on black down the casino. To start off with, try trading with 5% of your capital on any one trade, this is a good way of keeping risk down and trading professionally.

Do your research

This goes without saying – the most knowledgable earn the most Forex market. Try reading a Forex beginner’s guide to start with, and then expand your knowledge using YouTube and other similar online resources (I found this mix the perfect way to learn how to trade Forex profitably and safely). The learning doesn’t stop there though. After you’ve learned how to trade properly, you’ll still need to keep up to date with the latest economic news as this is the basis of most profitable Forex trades.

Conclusion

Trading Forex can be nothing like gambling, or it can be exactly the same – it all rests on exactly how you do them. There are traders who resemble gamblers, and there are gamblers who resemble traders. In order to trade Forex without gambling on the markets, make sure you get proper technical and fundamental analysis training as well as using risk management techniques when you get round to trading. Anyway, best of luck with your journey!

Why do you trade forex?

Let me guess…

Because you want to make a crapload of money and be able to buy anything you wish?

While this is a perfectly valid reason, it will most likely lead to excessive greed and ultimately lead to your trading account’s destruction.

You might as well take your money to Vegas instead, and gamble it away. Once your money is all gone, at least it was entertaining.

You have to remember that what differentiates trading from gambling is being able to bend the odds in your favor.

That is why, as a trader, your mindset should be akin to that of the CASINO and NOT the gambler, who merely focuses on one event (or trade) at a time.

Casinos are profitable year, after year, after year, despite having a business where the outcome of each card laid down, dice roll, or slot pull is unknown each and every time.

They understand the concept of probabilities and create games that put the odds in their favor–in other words, “the house advantage.”

While it is true that there will be some lucky ones that will win and walk away with millions of dollars, casinos know that if they get a large enough sample size, there will be more losing patrons than winners in the end.

Let’s take baccarat, a popular card game for high rollers, for example. The game is fairly simple. Cards are dealt to a “banker” and a “player,” and all you have to do is place a bet on either one.

Since you have equal access to both the banker and the player (you can even bet on a TIE if you want), it would seem like you essentially have a 50% chance of winning. But in reality, that’s not the case.

By tweaking the rules, like charging a very small commission or reducing the payout if the banker wins with a certain number, the odds are turned slightly in favor of the house.

Forex Trading Like Gambling Losses

It might be a very tiny advantage, anywhere from 1% to 5%, but it’s enough for the house to eventually come out on top when enough games are played.

To become consistently profitable, you have to trade like the HOUSE and play the advantage over a series of outcomes.

You can do this in a couple of ways:

First, you need to learn the market behaviors, patterns, and tendencies that could be recognized in the future and turned into trading opportunities.

This comes from reviewing price action against a framework (support and resistance, mechanical indicators, economic events, etc.), recording your observations, and then devising statistics to keep track of the different kinds of patterns or setups.

This is where keeping a trade journal becomes a necessity. Using the data from your journal, you can focus on the setups that have had higher probabilities of winning, rather than those setups that tend to lose.

Forex Trading Like Gambling Real Money

Secondly, you need solid risk management. You can tilt the odds of long-term success in your favor even more if you limit yourself to setting up or taking trades that have an attractive risk-management ratio (ie. average bigger wins than losses).

The better the reward-to-risk ratio, the less often you need to win a trade.

And lastly, you can look to other traders in addition to your own analysis. The web is loaded with free economic and technical analysis content. By getting a second opinion, you make sure that you don’t fall into the “confirmation bias” trap.

Is Forex Trading Like Gambling

Of course, these aren’t the only ways to tilt the odds in your favor. But you should always remember that you don’t have to predict exactly where the market will go; you just have to figure out where price will likely go and make the best of it if the trade goes your way.