Forex Trading and Gambling: Five Reasons They Are Not the Same
By: Hillel Fuld
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.
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 US 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.
It is for this reason that a very high percentage of Forex traders end up losing more than they gain. 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 not accurate and 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’s just focus on the reason anyone gambles or trades Forex; 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.
Many other differences exist between the casino/gambling industry and the Forex market. These are just some examples. If you have more, or disagree with one of the above points, feel free to speak your mind in the comments.