‘Is forex gambling’ remains a hotly-debated topic online. This is an interesting question, given that FX and gambling are both highly speculative activities. Each of these fields continues to receive negative public perception due to the level of risk involved, and rightfully so. Yet, the driver, not the vehicle, always determines success.
There are surprising similarities between the forex and gambling. But, at the same time, they are structured quite differently, where one is more favorable than the other.
Read on in this article as we reveal the truth and answer the question: is forex trading gambling?
Similarities between forex and gambling
To begin with our ‘is trading gambling’ argument, let’s define gambling. To paraphrase Wikipedia, it is the betting of a valuable stake on a random event with the desire to win money. Furthermore, the site states that “instances of strategy are discounted,” although this is not entirely correct (more on this later).
The Cambridge Dictionary defines it as “the activity of risking money on the result of something, such as a game or horse race, hoping to make money.” The common thread here is the act of risking cash to make even more.
Well, in forex, we are essentially doing the same thing. Therefore, this element is the first commonality.
The second analogy in the ‘is forex trading gambling’ is probability, describing the rate at which an outcome is likely to materialise. All gambling forms operate on this premise, which is also true for currency trading.
When you press the ‘sell’ button for a particular forex pair, you are betting on the high likelihood that the price will move some distance from your entry. The probability is generally 50% here because the market can either move up or down.
In a simple straight-win horse racing wager, for instance, the probability is about 7.14% (one in 14 horses) that you bet on the correct horse to win.
So, to sum up this first part of the forex trading gambling debate, gambling, and FX:
- Involve a level of speculative risk where you can lose money
- Operate on the probability of various outcomes where luck is exploited
Differences between forex and gambling
Here comes the interesting part. The primary distinction which doesn’t make forex gambling is the house edge. Whether we are looking at chance-based (like roulette or the lottery) or skill-based gambling (like horse betting, poker, and blackjack), there is a ‘house’ element.
The house is an establishment offering the betting odds to gamblers, typically a casino (or the card dealer in a casino), a sports bookmaker, or even your national government at the lottery. These institutions design their products by offering lower rewards for high-probability events and higher payouts for low-probability outcomes.
Put another way; they set higher odds for losing bets and lower odds for winning bets. So, there is inherently a negative expected return no matter how you manipulate the outcomes. This is what we call the ‘house edge.’
Most activities like roulette, backgammon, and slots contain high house edges, meaning it is nearly impossible to win these games with skill.
On the other hand, a few gambling forms, like poker, craps, and blackjack, have lower edges, which is why skillful professional gamblers are making a living from them.
All gambling is competing against a centralised house. This is not the case in forex, a point many miss when they call forex gambling.
Instead, traders compete against other traders. Your success lies in predicting how the majority will behave at a certain point. Still, this doesn’t make trading simpler.
You will need an edge, advanced tools and the right mentality to capitalise on these opportunities. This is why some consider forex trading gambling. There is a perception that most gamblers bet without a system, just like traders with no trading plan.
However, as we have professional gamblers, we also have professional traders. Therefore, forex may seem like gambling if you don’t know what you’re doing.
Another noticeable difference in the ‘is trading gambling’ conversion is leverage. We know that FX is traded on high margin, meaning that you can make substantial losses or gains of equal magnitude.
Conversely, traditional gambling is not leveraged, which is, of course, a good thing because you can only lose what you’ve bet. In forex, you can lose more than what you’ve allocated in your equity.
On the plus side, leverage means you can have a greater return off one position with a higher probability of success.
Time is another element worth mentioning in the forex trading gambling discussion.
Most gambling is short-lived. The outcome of your wager is usually immediate. Conversely, not all forex trading is designed for short-term gains unless we are referring to scalping and day trading. This is why many believe scalping or day trading is gambling or a get-rich-quick for this reason.
Most experts view forex as an investment because you can hold a position for months at a time. We typically never refer to gambling as an investment, even if the two have similarities.
Tips to implement so you don’t consider forex trading gambling
So, what are some things you can do so that you don’t treat your trading like a trip to the casino? Here are some tips:
- Have an edge: We’ve spoken a lot about edges in this article. This is something the most skillful gamblers and traders possess. It’s about having some technical advantage over the market, ensuring a positive expected return in the long run.
This can be as simple as a trick with an indicator, a chart pattern, or specialised knowledge about price movements. You should be confident about coming out on top once you trade your edge over and over again. In a nutshell, be the casino!
- Be professional: Treat trading like a business because it is. Real money is always on the line. Therefore, it is a full-time job to always be careful with your funds. A profitable trader is risk-conscious before thinking of profits and keeps a journal of their long-term performance.
- Consider long-term trading: Sometimes, it’s best to slow things down and take the stress off of trying to achieve massive short-term profits, as most gamblers would. This is one of the most attractive benefits to swing trading and position trading.
In summary, is trading gambling? For the most part, no, but there are many resemblances. In fact, there are many lessons to be learned from the world’s best professional gamblers.
A proficient blackjack player has mastered the card counting game, regardless of the number of decks. They have a strategy to win and exploit the tiny house edge consistently.
We can make a similar analogy with traders. A solid trading plan coupled with specific techniques that exploit repeatable patterns can ensure you come out ahead regardless of any losing days.
Although some may deem forex trading gambling, it has more advantages due to leverage, and you can hold positions for virtually an unlimited period.