Is Forex Gambling Reddit

If you try to trade Forex with no discernible plan and with no defined strategy, then the answer would have to be: no, trading Forex is basically no different than gambling. You can get lucky for a while, but long-term it’s an absolute certainty that you will lose your money. To answer the question, is Forex trading gambling, we have to break it down by the very definition of what it is to gamble. But before we do that, I want to share a brief outline of the way I used to think about trading and gambling. I remember when I first started trading Forex back in late 2007, a little more than 6 years ago. Forex trading is gambling if you do it in-correctly, but for those who know what they are doing it is not gambling. I read alot of post on forums etc, where people have lost money, its usually down to bad money management, which is probably the most important thing in trading, and then psychology, finally your entry criteria. No, it is NOT gambling when one treats the Forex market like any other business or profession where opportunities can be seized and risks can be mitigated. The difference between the Casino and the Forex market is that, most are games of chances with the former versus a contestof strategy for the later.

Everyone knows that financial trading comes with a high degree of risk, but often Forex trading is picked out as being more risky than other types of financial trading. In fact, if you take a browse around the internet you will find a number of people claiming that Forex trading is nothing more than gambling. In this article, we evaluate why some people think Forex is no more than a form of gambling and what are the reasons behind this.

Forex and Gambling

The Free Online Dictionary, gives three definitions for the term to gamble;

1a. To bet on an uncertain outcome, as of a contest.
1b. To play a game of chance for stakes.
2. To take a risk in the hope of gaining an advantage or a benefit.
3. To engage in reckless or hazardous behavior.

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As you can see the activity Forex trading has some overlap with the general conception of gambling. Traders open positions in the hopes of making a profit, but this also comes with the risk of the market moving against them. The direction of the Forex market can also be very hard to predict, with currency pairings often moving counter to general expectations. It could be also said that for the vast majority of retail FX traders, that Forex is both reckless and hazardous. As data seems to suggest that only around 20% of Forex traders actually turn a profit.

Still, many people would be very resistant to the idea that Forex was really just gambling. There seems to be good reasons to resist such a definition of Forex trading.

Firstly, there are a number of Forex traders who are able make consistent returns from trading the FX markets. While this group is relatively small estimated to be between 10-20% of the total FX trading population, this suggests that skilled traders may be able to turn a profit from FX trading. Gambling typically precludes gamblers from being winners in the long run, due to the fact that most games have a built in advantage for the house. For instance, the game of Roulette will see the player go bust eventually though this may take a considerable amount of time. With FX, there are numerous instances where traders have been able to remain consistently profitable over the long-run, which suggests for skilled traders FX is not akin to gambling.

Secondly, when traders enter into a position there are generally rational reasons for doing so. The trader may have used technical analysis or have fundamental reasons for entering into a position. This seems to be another way in which Forex trading differs from gambling. A person playing Roulette simply places bets on his gut feeling, and if we were to discover a FX trader doing the same thing we would likely say he was just gambling. The fact is that successful traders will have rational reasons for opening positions, which will often have some empirical basis.

Why is Forex Seen As Gambling?

If it’s possible to make a legitimate distinction between Forex and gambling, why are there so many people who insist that Forex is simply gambling in disguise? There seems to be a number of reasons why this idea of Forex as a type of gambling has become so common place.

Use of Leverage

Retail brokerages often offer clients huge amounts of leverage. With many brokerages offering leverage of up to 500:1, and in some cases unregulated brokerages have gone even further offering clients the chance to use 2000:1 leverage. Even 500:1 leverage increases risk massively for a trader. A trader making use of 500:1 to one leverage would see the whole value of his account blown by a 0.20% move against him. Of course a 0.20% move in his favour would see him double his money, but any trader using such leverage in the long run is likely to have his account completely wiped out eventually. Such leverage can make Forex trading no more than gambling.

Lack of Knowledge

Forex is often sold as an easy way to make money online, and you will even find some brokerages selling their services in such a way. This has attracted many people who do not have the skills or expertise to try their hands at Forex trading. In general, financial trading is very challenging and this is why those working at hedge funds or other investment vehicles tend to be paid so well. So it is unsurprising that the majority of retail traders with limited knowledge or experience tend to be unsuccessful at trading. So those newbie traders with no finance background or knowledge who simply start opening and closing positions with no real justification are essentially just gambling.

Conclusions

While the activity Forex and financial trading has some overlaps with the definition of gambling, there are also important differences. However, it would be fair to say that for both those using excessive amounts of leverage and those who are newbies lacking experience, it might be the case that Forex is simply just another form of gambling. The fact that there is a significant minority of successful traders who are able to turn a profit over the long run demonstrates the fact Forex is more than just simple gambling. Forex should be seen as being distinct from Binary Options which certainly can be considered gambling.

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A common question currency traders face is, “How is trading Forex any different than gambling?” After all, the premise is the same. You’re risking money on an unknown outcome with the hope of winning more money back.

What is gambling?

It’s a fair question, but first of all people have to define what they mean by gambling; if we assume that gambling is risking something in order to gain a reward, then people gamble everyday of their lives. If you eat at a restaurant on somebody else’s recommendation, you’re risking money on an unknown outcome based on what somebody else has told you. Every time you take the car out for a drive, you’re accepting that the benefit of the trip outweighs the risk of a car crash.

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People obviously tend to have a much more simplistic view, and what they really mean when they talk about gambling is the person who bets on horses or football matches and generally, consistently loses money. From here on we will use this fairly narrow definition of gambling.

Is Forex any different?

If you try to trade Forex with no discernible plan and with no defined strategy, then the answer would have to be: no, trading Forex is basically no different than gambling. You can get lucky for a while, but long-term it’s an absolute certainty that you will lose your money. The kinds of people that trade Forex that way aren’t treating it like a business, and it’s incredibly naive to think that you can make a living that way.

Trading Forex as a business

A professional trader can actually make money as consistently as somebody who earns a salary if they know what they’re doing, but there are a few requirements that a lot of wannabe traders haven’t yet undertaken in order to get to that stage of success.

You absolutely have to approach your trading as a professional business, work hard, put time in and be dedicated to it. You must keep detailed records of your trades at all times, you must be up and ready to start as if you had a boss to report too, and you must make sure you have a thoroughly tested trading strategy to follow in order to make your trading decisions.

Developing a trading plan

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A detailed trading plan is generally the difference between failure and consistent success for a trader. Your plan must include everything, from your strategy, to what time you start and finish each day. Every single move you make in the market should be planned beforehand and based on research and study, so you know every move you make is a logical one with a positive expectation.

The biggest barrier to long-term Forex trading success is the psychology of greed and fear that affects every single trader at some point. If you trade without a plan, you will without doubt end up making decisions based on emotion rather than logic, and there’s no way you can succeed that way. If you have a trading method to follow, then fighting the demons of fear and greed becomes infinitely easier and aids your trading journey immeasurably.

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Conclusion

Is trading Forex the same as gambling? It can be, but the choice is yours. If you’re willing to treat it like a business and put the work in, you can take the risks away and make money just as consistently as anyone else. It’s all up to you.