Is Forex Trading Gambling?

#OPINIONLEADER#

After working in the Forex industry for some time now, I have been met with one common question countless times. “Isn’t Forex trading just like Forex gambling”? Before I completely negate that question and explain why they are totally different, let me first explain that there is something to that question.

Is Forex Trading Gambling?

It is true that there is some percentage of a gamble when opening up a Forex position. No expert, no matter how long they have been trading and analyzing the Forex market, can tell you in full certainty what the U.S. Dollar will do today. There are many tools that can be used in order to help you make a more educated decision, but do not be fooled by so called Forex experts when they tell you they have it figured out. In fact, it is simple math. If they have a 3 trillion dollar a day market figured out, why are they not billionaires? If they really knew the key to eliminating the Forex risk, they would not be wasting their time trying to convert you into a Forex trader. Even in their trading, there is a certain element of Forex gambling.

No one knows “The Forex Secret”. You know why? Because there is no such thing. You can familiarize yourself with all the technical indicators, study fundamental analysis from dusk till dawn, and there still is some sort of a risk when trading Forex. You are still going to be met with a certain factor of Forex gambling.

Nevertheless, a gambler, unless he is counting cards or employing some other trickery to try to place the odds in his or her favor, is accepting that the odds are either unknown or slightly in favor of the house. A Forex trader, on the other hand, is almost always trying to use some kind of strategy to put the odds in his or her favor. A Forex trader never knows whether the trade he or she is making right now is going to be a winner, however, but has some reason to expect that over time a large number of trades will be profitable overall. This is the crucial difference between Forex trading and gambling, except for those rare Forex traders who trade randomly just to amuse themselves, accepting they are gambling.

A very high percentage of Forex traders (about 72% of retail traders as reported by Forex brokers regulated in the European Union) end up losing more than they gain, not because they are gambling, but because they do not know enough about how to wait until the odds have moved in their favor before opening a trade. For this exact reason, it is crucial when first opening up a Forex trading account that you only use money that you can afford to lose. Call it vacation money, designate it for your Forex account, and face the fact that you might lose it.

If you are still reading, you know that while there is great risk in Forex, the possible reward is something you cannot ignore. 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 inaccurate. The following is a list of five attributes that differentiate the two industries.

Numbers

Before I get into morals, ethics, legal issues, and legitimacy, let us just focus on the reason anyone gambles or trades Forex: to make money. There is absolutely no comparing the amount of money traded daily in the Forex market to that of the gambling arena. In fact, I am not aware of any industry (ok maybe there are a few exceptions) that handles so much money on a daily basis. Depending on who you ask, there are anywhere between 2 and 5 trillion dollars traded daily in the Forex market. I could not find exact statistics about how much money passes through the casinos daily, but I am pretty sure the numbers do not compare.

Players

The Forex market is backed by the biggest and most important financial institutions on the globe. It is true that traders do not trade with the banks, but rather on the retail market, even so, the fact that the market is supported by such organization provides a much higher level of legitimacy than the gambling world. While gambling always faces challenges on the legal front, Forex is as legitimate as any other market, such as stocks or commodities. So, if you are interested in spending your hard-earned money and taking a risk, wouldn’t you be better off putting it where you know the law and morals are on your side?

Tools

While there is a risk factor involved in Forex trading, you are not totally in the dark when opening a position. There are various schools of thought that dedicate much time and resources trying to eliminate as much of that risk as possible. Whether you are a believer in technical analysis, and the famous saying “The trend is your friend” or you trade with your face glued to the Forex news since you think fundamental analysis is the way to go, Forex is not about luck. You can watch and analyze the Forex market for days before opening a trade, as well as keep a close eye on the currency you are looking to buy, and only then, based on your studies, make your move. I am pretty sure such tools do not exist in the gambling world, which leaves you in the hands of luck or fate. Either way I would not want to depend on chance with my hard-earned money. How about you?

Emotions

One of the main issues with gambling, as we all know, is that it causes addiction. If we think about this for a second, we will understand that the reason this is, is because people let their emotions get the best of them. People step into casinos with nothing but their desire to make money. When they do not fulfill this desire, they try again and it is not long before they have lost all their money, which usually leads them to gamble even more, and often more aggressively. This is of course a big problem. In forex trading, on the other hand, the first rule any trader knows is to leave their emotion out of the equation. Trade objectively and scientifically. Set your trading goals and stick to them. This of course prevents overcompensating with trades, when you have lost money, or letting your greed take over when you are profitable. However, the obvious question is “Is it really possible to leave your emotion out of the picture”? This leads me to my next point, use trading strategies

Strategies

It is true that a very high percentage of traders end up losing, and if you ask me why this is, I will tell you it is because they trade blindly and with no strategy. This is the biggest mistake a trader can make. Before you trade a penny, you need to make some serious decisions about your trading goals and limits. Once you have make those decisions, you must implement them using your trading platform. Use Stop Losses to prevent your emotion and your inner voice from telling you to stay in the trade because it has to go up eventually. Use Take Profits to prevent your natural human greed from telling you not to get out now since your currency will continue to increase in value. Stop your losses and take your profits based on trading strategies and not weak human emotions.

Do You Have a Gambling Problem?

To determine whether you are gambling in the Forex market, ask yourself the following questions:

- Do you have a trading strategy which you have reason to believe gives you an edge over the market?

- Do you ever risk more than 2% of your account on a single trade?

- Are you trading with money you can’t afford to lose?

- Are you just holding out for that next big trade?

If you answered yes to these questions it is a high probability you are gambling with your money in the Forex market, as compared to the professionals who approach their trading more cautiously, as they would running a business.

Gamblers do not see what they do as a business. Instead, they approach Forex with a dangerous zealousness. But here is exactly where Forex trading can differ from gambling. Traders can use a proven method such as Price Action trading to give themselves and edge over the market.

Most gamblers act on hope. Hope of the next win and hope that they can claw back the losses they have sustained. When Forex traders act on hope they get into very dangerous waters.

What You Can Do if You Are Trading Like a Gambler

Realizing that you are trading like a gambler is a painful realization, but one that can be overcome by beginning to treat your trading like you would a career or a business. All businesses have a sound business plan, and your trading should be no different. Your business plan should contain the following elements:

- Understanding of how much you will risk per trade

- Entry and exit rules

- Trade management rules

- Times you will scan the market

Being realistic about what can be achieved in your trading plan is essential. Forex trading can make you money consistently but if you are opening an account with $1,000 you are very unlikely to make $1million and quit your job in the near future.

Moreover, every business must keep a record of money made and lost. Your trading should also have such a book or trade journal. Your trade journal should track all things such as trades placed and the outcomes including profit/loss and how you managed the trade.

Start Acting Like a Professional Trader

Professional traders do not see the markets as a game or a place to take huge risks. Professional traders know that trading Forex is all about managing risk. Start getting into the right mindset and become a professional at managing your risk. Stop over leveraging your positions and taking risks that could cripple your account. Instead work out your money management techniques and how you can protect your downside whilst not capping the upside potential.

Final Thoughts

It is true that most retail Forex traders lose money over time. However, there is a significant minority that makes money over time. There are no gamblers that make money in the long run, with the exception of professional poker players. These are not really gamblers because they count cards and use money management strategies based on mathematical models, the same way professional Forex traders do. There are professional Forex traders who make money every year over years and years, but no professional slot machine players who can do the same.

The key to avoiding becoming a Forex gambler is to study various trading strategies, back test them over many years of historical price data and learn what works and what does not – and try to understand why.