With the rapid rise in the popularity of Forex trading, the number of traders in this market has increased substantially.
With so many new traders joining the game, it’s easy to see why most beginners make the mistake of getting involved with seeing that is Forex gambling, without understanding what Forex trading actually entails.
So, Is Forex Gambling?
To be clear, Forex is not gambling, and there are plenty of legitimate ways to make money trading currencies, especially if you have an edge in knowing the fundamentals of the market, using technical analysis, or following trends.
When we talk about forex trading being gambling, we’re referring to a specific type of forex trading known as “spread betting.”
While the term “gambling” may seem to make things sound too easy, there is no luck involved in forex trading, but rather, the spread.
A spread bet is essentially a derivative contract, which is an agreement between two parties. These two parties are known as the “sell side” and the “buy side.”
This means that the “sell side” sells an instrument in exchange for money, and the “buy side” buys an instrument in exchange for money.
Although there is no official definition for gambling, the term is usually associated with games of chance and/or risk.
However, it’s not necessary that the player be risking anything.
Rather, a game of chance is a game in which the outcome is determined by a random factor.
Although Forex trading does not qualify as gambling, it is highly subjective.
That means there is a large element of luck involved – even though the system is based on mathematics and science, not sheer luck.
Forex is the most popular financial instrument traded globally. It is based on the fact that two different currencies will always trade against each other, meaning that one currency will always be bought for a specific amount of the other currency.
In a nutshell, the only real risks are those related to a trader losing money on a particular position.
However, this is not gambling.
Rather, this is called speculation, which is an investment activity that uses trading to profit from price movements.
Some People Consider That Forex is Gambling and Here’s Why
Forex trading is very risky and some people consider it gambling.
At the very essence, you do have a simple 50/50 chance the price will rise or fall.
This is how people who don’t want to put the effort in, or quite simply, don’t want to know about forex view it.
They hear about losing money, and it’s not for them – they try to discredit the investment vehicle.
They may have lost a few trades and given up – saying there is no skill involved, it’s just gambling.
We’ve all seen it on social media.
Instead of putting the effort in, they want to distance themselves and blame the world’s largest asset as a problem.
These are the “glass half empty” kind of characters.
This doesn’t tend to get you very far as a trader.
To Be a Good Trader, You Have To Think In Probabilities
While it’s possible to trade profitably with the odds, the best traders are able to identify price patterns that are likely to continue.
They’re able to tell whether a trend is going to continue or reverse and whether there is a good chance of that trend continuing or not.
This doesn’t mean you should treat probabilities like a gambling casino – they’re simply a guide to how likely a given price move is.
In the real world, probabilities are based on past performance, the strength of the trend, and other factors.
A smart forex trader uses probabilities to improve his or her chances of success, rather than relying on luck.
Probability theory is what lies at the heart of all forms of technical analysis.
Without a solid understanding of probability, it’s very difficult to understand how the market works.
So if you’re serious about making money in the forex market, it’s a good idea to learn how to use probability to your advantage.
There are several different types of probabilities, including conditional probabilities and unconditional probabilities.
Conditional probabilities show the likelihood of a specific event occurring based on a previous event.
An example of this is the probability that a market will fall after a big rally because the rally is based on the expectation of the bull run continues.
Unconditional probabilities, on the other hand, are based on expectations of the market without regard for past performance.
This is the kind of probability you see most often in technical analysis, as the market is viewed as being fundamentally sound.
Viewing Forex as Gambling Is A Mindset Problem
When we look at the Forex market, there’s a tendency to see it as an activity akin to gambling.
The problem with this attitude is that it will limit our potential to take advantage of the market.
When we think of gambling, we tend to think about risk. We might even subconsciously associate risk with losing money, or with taking risks to win.
In fact, this is completely untrue.
As long as we understand the true nature of the Forex market, we can engage in the market with confidence and security.
Let me explain why:
First, Forex trading has nothing to do with gambling. There are no random numbers involved.
Everything is driven by market sentiment and data flow.
The only thing that matters is your trade size and risk management.
Second, if you know what you are doing and have done some homework before you place a trade, then Forex is not gambling at all.
If you don’t follow a proper trading strategy and don’t stick to the Risk Management Strategy that you have chosen, you will end up losing money and possibly losing your investment.
To become a successful trader, you must understand the fundamentals of the financial market and you must have a set of trading strategies.
Trading with these strategies will make you a profitable trader.
Forex trading is highly speculative, with very high risk, and it’s also considered gambling by some.
When trading forex, there are three types of traders who can lose all their money.
The first group is those who are unable to control their emotions and trade with a negative attitude.
The second group is those who believe they can predict the direction of the price movement of any currency pair.
And finally, the third group is those who take excessive risks in the hope that they can gain profits.
If you want to avoid the pitfalls of forex trading, you should ensure that you know the fundamentals of forex trading before entering the market.
Read this article next to find out how.