Forex Trading: Is it Gambling or Not?

Introduction

The question of if Forex trading is a form of gambling is often asked as the popularity of Forex
trading are on the increase globally. More people are entering this lucrative market which is
globally the most liquid financial market with an estimated daily turnover of $5 trillion. A
market that has traditionally been the exclusive playing field of banks and the super-rich, is now
available to the retail trader through advancements of internet technology.
Whilst the question of forex being a form of gambling may be asked, the same question is
applicable to other forms of investments too. It can be asked if the outcome of shares
purchased will deliver a guaranteed profit? Even the grain farmer planting his seeds under
favorable conditions is not guaranteed of a crop that could be sold at a profit in the market
place.

The concept of gambling can be made applicable to a large variety of items.
Forex Trading and Gambling: What is the difference?
The most noticeable difference between Forex trading and Gambling is that the casino is rigged
with the odds rigged in the casino’s favor. The casino will only present games where the house
has the upper hand. Let us take roulette as an example. The gamblers’ chance of winning is
1:37. The table is numbered from 1 to 36 plus the zero. If one gambling chip is place on every
number, then 37 chips have been placed. Only one number will win. The winning pay-out in this
case is 35 chips. The gambler has lost two chips. The odds are in the favor of the house.
With trading, the retail trader is able to beat the amount of money that was risked in a trade
several times over. A possibility that is not available in gambling. But the casino owner knows
that if there is no winning in the casino, the number of patrons will dry up quickly. So occasional
and “controlled” wins are part the casino strategic plans. These “wins” are communicated
vigorously to create the euphoria of winning.

The casino employs other methods to lure the gambler out of reality. The gambling floor has
no windows and no visible clocks. This is to distract the gambler from time being spend on the
gambling floor. Free drinks for the serious gamblers are seen as the cost of doing business
whilst the gamblers’ senses are impaired. Spending 5 gambling chips is much easier than
counting out R500,00. The gambler who has to count out R500,00 cash might think twice
before placing a bet.

The serious and successful Forex trader on the other hand stack the odds in his favor. This is
achieved by having a well thought-through trading strategy, tested and tweaked over time. The
strategy will dictate which currencies to trade at which time, what the trade size must be in
relation to the account balance, how risk will be mitigated by means of a Stop-Loss strategy and
how to contain human greed by having a Take-profit exit plan. The trader will meticulously keep record of each trade, recording all detail. Losses that occurred will be studied to ensure that the
same mistake is not repeated. The successful trader sees losses as learning opportunities. The
trader has learned to keep emotions out of trading by disciplined trading according to the
trading strategy. Losses are kept to the same level to ensure that large losses do not wipe out
winnings.

The successful trader has learned through experience that less trading on longer time frames
has the potential of delivering larger profits than repeated trading, based on enhanced
adrenaline based trading.

Gambling in essence is about the desire and wanting a return on an investment that is far in
excess of the amount of effort put into the act. Gamblers step into casinos with nothing but
their hope to make money. When money is lost, the gambler will try, often more aggressively,
to recover the losses by placing more bets.

And gambling has another possible side-effect. Gambling may become addictive with the
danger of loosing money the gambler is not able to lose.
Forex has the potential to become gambling if the market is treated like an enormous Jackpot
or Roulette table where the hope of winning is based on nothing but pure luck. Trading blindly
in the Forex market with no plan or strategy will cause the Forex Gambler to lose money just
like any game of luck.

Entering Forex trading without having attended a quality training course is a dangerous
endeavor where the Forex gambler will be losing money without understanding what the
reasons are.

Conclusion

It is not gambling when Forex trading is treated seriously and managed like a business, where
capital is being preserved and managed, costs are limited through risk mitigating, trading
opportunities are being seized and profit and losses are being calculated. The serious Forex
trader can rely on price patterns and analysis with technical indicators to decide where and
when to open and close a trade. The Forex trader is a life-long student and always learning from
mistakes. Disciplined trading is key to success.

The casino gambler relies on luck and chance in a game where the odds are stacked heavily
against the gambler in an environment where sense and reason are being inhibited and the
concept of time is diminished. A “must win” mindset to recover losses will see additional funds
being brought to the gambling table at the delight of the casino owner. The casino gambler
discards discipline hoping that luck will change to his favor with the next hand.
The seasoned trader has the ability to place a trade with defined stop-losses and take profit
levels and walk away from trade performing other duties. The gambler has to stay put at the
gambling table until funds have dried up.

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