Is Forex gambling?
There are a lot of myths and rumors surrounding Forex trading. These originated especially in its early days when Forex was one of the unregulated markets. This then allowed various shady brokerages to abuse the trust of their clients. Thus, rumors were born that if Forex was not a downright scam, it was at least a gamble. But a lot has changed since then, and this opinion needs to be revised. So is Forex really a gamble?
Many traders who are into Forex trading approach this full-fledged business in a somewhat hazardous way. This, of course, does not bode well. While it may seem that Forex trading and gambling have a lot in common - after all, both are primarily games of chance - the opposite is often true.
Trading vs French roulette
Probably everyone who has ever spent some time coquetting with gambling has probably encountered the famous French roulette (unlike the American one, it has only one zero on the playing field). Therefore, if we take into account the theory of probability, then we find that the playing area consists of 37 numbers (including zero) and the player gets a payout in the ratio of 1:36 (36 times the bet amount) if the number is guessed. It is already clear that a player will always be at a disadvantage in the long run, as he will lose an average bet for every 37 rounds played.
In contrast, trading usually does not put traders at such a disadvantage. If the trader proceeds completely randomly
and does not analyze the markets, then it can be expected that any position he opens can make a profit with the same probability as making a loss
. Thus, unlike roulette, trading does not put the trader at a disadvantage from the beginning, but the resulting probability of success is ultimately influenced by the traders themselves with their own abilities and skills, in which gambling and trading again differ greatly.
"The main architect of luck in gambling is always the casino, in trading, on the contrary, luck is in the hands of the trader himself."
Learn the basics of conscientous trading thanks to these ebooks
Ebook: How to trade Forex
Ebook: Forex with a Small Trading Account
Why some still consider trading a gamble?
Trading with unsuitable brokers (MM, DD)
MarketMaker (MM) or DealingDesk (DD) are brokerage firms that, as the name suggests, are active market makers, which means that these brokerage firms normally become counterparties to trading positions that are executed by their own clients. So if a trader earns money, then these brokers lose. This often leads DD and MM brokers to the practices used by gambling companies, and traders unfortunately eventually assume that trading is ultimately just a kind of disguised gambling.
However, there are other broker models that do not create a counterparty for clients - read a comparison of broker types: the Market Maker vs STP model.
The position of trading on the level of chance
Blind trading (trading without any analysis, strategy, and comprehensive plan) is usually a path to the great unknown and also a path to fast and uncontrolled trading losses. Gamblers often behave very similarly. Although they usually have a system that they try to stick to, if they would do a proper market analysis they would quickly find that it is very difficult, if not nearly impossible, to succeed in that gambling “market”. For gambling, Forex, and other markets, developing analysis and a strategic plan is one of the first steps needed. This is the only way we can find out whether the market is suitable for us and our approach or not.
So for Forex and other markets the following applies: every conscientious trader should know how to build a workable trading strategy, how to analyse the markets and how to combine psychology and trading, so that your trading does not become a simple gamble.