Is forex trading just like gambling you ask? Gambling, by definition is to “Take risky action to gain the desired result, often for financial reward”. Gambling is meant to be fun, but for certain people is a dangerous addiction that can have devastating effects on livelihoods and family life.
Forex trading most certainly is not the same as gambling but it has the potential to cause certain addictive behaviours in people if it is not respected. This can be said for many things in life however and we cannot make assumptions.
Forex Trading and Gambling are for most a hobby
Many people enjoy gambling as a hobby and do so sensibly, win or lose. More people who are looking at trading forex as a hobby will take a lot of pleasure out of their trades and will have no compulsions at all. We always need to be careful not to pigeon hole people based on their activities alone without knowing the intricacies of how they are acting in detail.
When fun moves into addiction territory, there is an uncontrollable desire to fulfil this false adrenaline rush. Gambling can be particularly addictive, as gamblers seem to want to replace what they have lost in one bet with a larger bet thinking they are able to win back all their losses. This way of betting is erratic and uncalculated which can result in serious financial losses.
If any of this sounds familiar to you, and you are struggling with gambling addiction yourself, please seek support with resources as suggested here.
Why is Forex Trading sometimes associated with gambling?
Forex trading can sometimes be misconstrued as gambling to the layperson because they have heard stories about losses. Bad news always travels faster than good news, so it is quite possible that unsuccessful Forex traders have painted a sad picture of what Forex Trading actually is.
In reality, when done correctly, Forex trading, like any other trading, can be fruitful. Large rewards are on offer for those who trade well. There is also the other side of the trade where the trader can bear large risks. With every trade made there is a possibility of losing money even with the most researched and calculated Forex trade. No trader can explicitly predict the market and 100% guarantee a profit with any single trade thus resulting in potential losses. Forex traders are advised to use available risk capital to trade with; funds that are not needed for everyday life and survival.
Forex and gambling are usually always open
Forex markets are open 24 hours a day, 5 days a week and trades can be made at any of these times or sessions. For information on the specific daily trading sessions please see here. Forex trading can be seen as addictive since traders may feel the need to watch their chosen market all throughout the day and night and not pay attention to their normal day to day activities. This is harmful to the traders health and sanity, much like gambling.
In order to combat these erratic behaviours, there are many ways that you as a Forex trader can fight the urge to trade all hours of the day and night but the most effective would be to create a plan and to stick to it. This plan would include how many trades per day maximum you will be making and what hours of the day for you are trading hours. You can also close off any trades before you shut down your platform to ensure there are no open positions for you to be fretting about.
How to differentiate between Gambling and Trading?
One of the key differences between Forex Trading and Gambling would be the fact that you are not making your bets (trades) on humans and living things with trading.
Gambling on sports, such as horse racing, or other sporting activities carry many different variables that can seriously affect the outcome of your bet, for the most part, negatively. For example, a horse or jockey may become ill, and may not be performing to their optimum standards, another horse may fall in front of your chosen horse resulting in losses that could not have been predicted. These variables simply cannot be controlled, whereas with trading, many of these variables can be avoided by education and knowledge.
Reducing uncontrolled variables with forex
When you are looking holistically at a stock market or a currency, there are a lot of data points and events that you can pay attention to in order to help push the trading gods in your favour. A lot of traders who swear by charts and indicators are also following a dedicated structure or pattern that simply does not exist when it comes to gambling.
You likely have heard of the saying, “The house always wins”. There is a definite truth in this with traditional gambling as the odds are slightly adjusted to allow for an element of bias to the bookmaker. Take the example of the roulette table where the 0 is the extra number that makes the odds truly 1:37 whereas the player is given 36:1.
With Forex, the markets are made by buyers and sellers and are not weighted in either favour. It is therefore as close to a perfect trading environment as you will find. Traders are also able to educate themselves thoroughly in their chosen markets, study entry and exit trends and help to move the odds back into your favour.
There are risks in both of these past-times but the underlying markets that traders and gamblers are looking at are completely different. They cannot be directly correlated.
How to ensure you stay on the right side of Forex Trading
There are a number of ways to ensure you stay on the right side of Forex Trading and not slip into gambling territory.
The first would be to ensure that your financial portfolio is healthy enough to withstand some losses, and you are trading with spare capital that will not impact your well-being or that of your family.
The money that you are trading with should be classed as “risk capital” and you will not be risking financial ruin. It is also advised that you are not looking into Forex Trading as a “get rich quick scheme” but rather a long term investment plan, when executed correctly.
Then, you should ascertain what sort of personality you have towards trading, whether or not you are an aggressive trader, or more of a timid trader.
If you have a tendency to make rash, off the cuff decisions, Forex Trading may not be suited to you if you are unable to control yourself and trade without your emotions clouding your education. This is not a recommended strategy for Forex trading and you will encounter difficulties before you have a chance to move into profit.
Trading Three E’s
Education, Education, Education. As we keep reiterating in this article, the key to successful trading is to be well versed in your chosen markets, your chosen currency pairs and the global economy at large.
To be aware of current news that may impact a specific currency and to use this to your advantage. Educating yourself on your chosen broker platform may sound like a juvenile thing to mention, but it can only sharpen your skills as a trader to know all the ins and outs of your trading platform, to know how to activate overlays and indicators and to execute trades correctly and in a timely manner.
Copytrading and Demo Trading Are Useful whilst you build knowledge
Copy Trading can be used for inexperienced traders wanting to learn trading from an experienced professional. Copy trading is when you copy experienced traders trades and make the same trades as they do without actually handing over any money.
All the trades remain in your online trading account, but you can align your daily trades to an experienced trader and reap the rewards from their hard work. This works well for beginners, or inexperienced traders that want to learn how to learn how to trade by mimicking a professional.
Demo Trading is another useful tool for beginner traders. Various online trading platforms have Demo trading suites that allow you to practice trading without the use of real money. This allows you to put the skills that you have learnt to practical use without exposing yourself financially. Once you are fully confident with Demo trading, you can then move onto trading with real money and reaping the financial rewards.