Is forex gambling? It's a question that's been asked time and time again and one that doesn't have a straightforward answer.
Some argue that FX trading and gambling are two sides of the same coin, while others maintain that it's a legitimate form of investment that requires skill and strategy.
Forex trading is often compared to gambling due to its inherent risk and potential for losing money.
However, is it a game of chance or a strategic business venture?
Let's take a closer look.
Gambling vs Trading
To better answer the question: “Is forex trading gambling?”
Let's break down the meaning of “gamble”. Cambridge Dictionary defines “gamble” as “to do something that involves risks that might result in loss of money or failure, hoping to get money or achieve success.”
Forex traders know this all too well - there is always a risk, and at some point, you will lose money. It's the cost of doing business.
Based on that alone we can undoubtedly say that forex is like gambling.
Judging things in the same paradigm, even professional traders at the big banks are gambling whenever they sit down at their trading desks. The difference is that they understand the probabilities and have a better understanding of the market.
Now, let’s define forex trading.
Forex trading involves buying low and selling high different currency pairs to make a profit. Traders can make money by correctly predicting whether a currency will increase or decrease in value. While there is a level of risk involved, Forex trading is not purely based on luck or chance.
Like in gambling, there is a risk of losing money in forex trading, and some traders may rely on luck or blind chances to make quick profits. But unlike gambling, forex trading is not a luck-based activity.
Forex traders use strategies, rules, trading psychology, and probabilities to make informed decisions, rather than relying solely on luck. Large banks and financial institutions trade forex as a part of their regular business operations, and they do not treat it as a game of chance. Instead, they employ traders who use their knowledge and experience to make long-term profits.
So, is Forex gambling?
It ultimately depends on how you approach it. If you treat it like a game of chance and rely on luck, then yes, it can be seen as gambling. But if you approach it with a level head, educate yourself, and develop a solid trading strategy, then Forex can be a viable investment opportunity.
Risks and Rewards
In both forex trading and gambling, there are risks and rewards. Forex traders who use a sound trading strategy and follow the rules can make profits. On the other hand, gamblers who rely solely on luck or greed often end up losing money in the long run.
Forex traders also have more control over their trades than gamblers do over their bets. Forex traders can set stop-loss orders to limit their losses and take-profit orders to secure their profits.
With gamblers, the odds are always against them, and the house always wins in the long run. Whether you're playing a game of blackjack or betting on a sports team, there is always an element of chance involved.
French Roulette, for instance, has a payout ratio of 1:36 for correctly guessing the number. So, if we take into account the theory of probability, the player will always be at a disadvantage and will lose an average bet for every 37 rounds played.
Now…
If you were asked again: “Is forex trading just gambling?”
You’ll probably have a different answer knowing that at the end of the day, FX trading is all about probabilities.
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Thinking in Probabilities
Traders need to switch their gambler mindset and start thinking in probabilities. When it comes to successful forex trading, it all boils down to 3 principles:
Only place trades where the reward outweighs the potential loss – asymmetric risk-reward ratio.
Analyzing price action.
Finding areas of confluence
This can lead to a higher probability of success for each trade as the odds are stacked in your favor.
With Forex, you can review past price action before making a decision, something that's simply not possible in a casino. However, this advantage is worthless if you don't know how to use it.
Take a look at this example on the EURUSD chart - notice how six different factors were in our favor, leading to a successful trade:
Price action bearish outside bar on the daily chart
Breakout of key resistance level
Moving average crossover
20-day MA providing dynamic support
Bullish stochastic indicator
No immediate resistance to stopping the price
In a way, Forex trading can be compared to running a casino business. Just like how casino owners know they'll lose money on some customers but turn a profit at the end of the year, traders can use price action and confluence to stack the odds in their favor and achieve long-term profits.
So, while some may view trading as gambling, the truth is that it's a strategic business that requires skill and knowledge. By utilizing the right strategies and finding areas of confluence that work in your favor, you can stack the odds and trade like a successful casino owner.
Final Thoughts
Next time someone asks you: “Is forex gambling?” just say “Yes, forex is like gambling if you don’t know what you’re doing.” However, if you think in probabilities and know how to stack the odds in your favor, forex trading will no longer look like a gamble or a 50-50 chance of winning.
In trading, the resulting probability of success is ultimately influenced by the trader's abilities and skills, whereas in gambling, it's all down to pure luck. So, if you're looking to make money, forget about casinos and instead invest your time and energy into trading as the large banks do.
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