Is forex trading gambling or not

Is Forex trading really just gambling?

Everyone knows that financial trading comes with a high degree of risk, but often Forex trading is picked out as being more risky than other types of financial trading. In fact, if you take a browse around the internet you will find a number of people claiming that Forex trading is nothing more than gambling. In this article, we evaluate why some people think Forex is no more than a form of gambling and what are the reasons behind this.

Forex and Gambling.

The Free Online Dictionary, gives three definitions for the term to gamble;

1a. To bet on an uncertain outcome, as of a contest.

1b. To play a game of chance for stakes.

2. To take a risk in the hope of gaining an advantage or a benefit.

3. To engage in reckless or hazardous behavior.

As you can see the activity Forex trading has some overlap with the general conception of gambling. Traders open positions in the hopes of making a profit, but this also comes with the risk of the market moving against them. The direction of the Forex market can also be very hard to predict, with currency pairings often moving counter to general expectations. It could be also said that for the vast majority of retail FX traders, that Forex is both reckless and hazardous. As data seems to suggest that only around 20% of Forex traders actually turn a profit.

Still, many people would be very resistant to the idea that Forex was really just gambling. There seems to be good reasons to resist such a definition of Forex trading.

Firstly, there are a number of Forex traders who are able make consistent returns from trading the FX markets. While this group is relatively small estimated to be between 10-20% of the total FX trading population, this suggests that skilled traders may be able to turn a profit from FX trading. Gambling typically precludes gamblers from being winners in the long run, due to the fact that most games have a built in advantage for the house. For instance, the game of Roulette will see the player go bust eventually though this may take a considerable amount of time. With FX, there are numerous instances where traders have been able to remain consistently profitable over the long-run, which suggests for skilled traders FX is not akin to gambling.

Secondly, when traders enter into a position there are generally rational reasons for doing so. The trader may have used technical analysis or have fundamental reasons for entering into a position. This seems to be another way in which Forex trading differs from gambling. A person playing Roulette simply places bets on his gut feeling, and if we were to discover a FX trader doing the same thing we would likely say he was just gambling. The fact is that successful traders will have rational reasons for opening positions, which will often have some empirical basis.

Why is Forex Seen As Gambling?

If it’s possible to make a legitimate distinction between Forex and gambling, why are there so many people who insist that Forex is simply gambling in disguise? There seems to be a number of reasons why this idea of Forex as a type of gambling has become so common place.

Use of Leverage.

Retail brokerages often offer clients huge amounts of leverage. With many brokerages offering leverage of up to 500:1, and in some cases unregulated brokerages have gone even further offering clients the chance to use 2000:1 leverage. Even 500:1 leverage increases risk massively for a trader. A trader making use of 500:1 to one leverage would see the whole value of his account blown by a 0.20% move against him. Of course a 0.20% move in his favour would see him double his money, but any trader using such leverage in the long run is likely to have his account completely wiped out eventually. Such leverage can make Forex trading no more than gambling.

Lack of Knowledge.

Forex is often sold as an easy way to make money online, and you will even find some brokerages selling their services in such a way. This has attracted many people who do not have the skills or expertise to try their hands at Forex trading. In general, financial trading is very challenging and this is why those working at hedge funds or other investment vehicles tend to be paid so well. So it is unsurprising that the majority of retail traders with limited knowledge or experience tend to be unsuccessful at trading. So those newbie traders with no finance background or knowledge who simply start opening and closing positions with no real justification are essentially just gambling.

Conclusions.

While the activity Forex and financial trading has some overlaps with the definition of gambling, there are also important differences. However, it would be fair to say that for both those using excessive amounts of leverage and those who are newbies lacking experience, it might be the case that Forex is simply just another form of gambling. The fact that there is a significant minority of successful traders who are able to turn a profit over the long run demonstrates the fact Forex is more than just simple gambling. Forex should be seen as being distinct from Binary Options which certainly can be considered gambling.

Forex Trading and Gambling: Five Reasons They Are Not the Same.

After working in the Forex industry for some time now, I have been met with one common question countless times. “Isn’t Forex trading just like Forex gambling”? Before I completely negate that question and explain why they are totally different, let me first explain that there is something to that question.

It is for this reason that a very high percentage of Forex traders end up losing more than they gain. For this exact reason, it is crucial when first opening up a Forex trading account that you only use money that you can afford to lose. Call it vacation money, designate it for your Forex account, and face the fact that you might lose it.

Players.

Emotions.

Strategies.

Cynthia May 2011.

Hi Keith, Thanks for the comment and nice words. Of course you can use the article, just please make sure to add a link back to DailyForex.

Hillel March 2010.

Dear Hillel Fuld, First of all the report you wrote called "Forex Trading and Gambling: Five Reasons They Are Not the Same" is a work of art and the words are the words I would use also. I am writing a report about Forex Trades compared to Casino/Poker players and can i ask your permmision to use your article? Many thanks in advance Keith.

Keith Williamson March 2010.

All these comment seem to ignore the MORAL / ETHICAL aspect of gambling. Just because something is RISKY does not make it gambling. (I am a real estate investor and I just lost a TON of money in apartment buildings - supposedly a win/win endeavor but I lost BIG). ..The real issue is, Are your profits coming purely from the losses of other speculators? And, in Retail forex, are we are we trading an actual asset, or are we in reality just placing side bets on the action of the real forex market? Is it really just like sports betting or spread betting, which is true gambling? Or is it more like the stock market, where we are actually doing deals with an real asset? THIS IS A MORAL DILEMA FOR ME!!

Anthony Diaz November 2009.

I do not totally agree upon the legal comparison between the forex - and the gambling industry, but overall you are right. We all know that there are plenty of profitable traders out there, which would be impossible if it would be 100% gambling. I think forex trading is very similar to playing poker. Most players loose because they don't have the skills required, but for the profitable ones it is serious business.

Bjorn August 2009.

Forex Trading is not Gambling. Retail Forex trading with forex bucketshops is gambling alright.

w. cares August 2009.

Thank you all for your great feedback. I hope I got my point across that there IS still a chance and a risk when trading, but as opposed to gambling, if you are disciplined, there are ways to increase your chances for profitability by a lot. Happy you liked the article!

Hillel Fuld August 2009.

Stating that Forex trading is not gambling would suggest that you can predict the future--and nobody can. But like casino bets, some gambles are riskier than others and with forex trading, you indeed have tools available to help you make educated decisions.

C. Vanh August 2009.

I like it/To me Gambling is flipping a coin and betting heads or tails. There is no sure answer to the next flip EVER. Just like a roulette wheel. It can come out black 50 times in a row and your sure red will turn up sooner or later but there is a possibility that black will come out Forever! But when you have a trading strategy that you stick with that works for you and a plan with goals in mind, I don't consider that gambling.

Marty August 2009.

"You can familiarize yourself with all the technical indicators, study fundamental analysis from dusk till dawn, and there still is some sort of a risk when trading Forex. It is for this reason that a very high percentage of Forex traders end up losing more than they gain." I think that a very high percentage of Forex traders end up losing more than they gain because many brokers draw unexperienced rookie traders to the market for profit purposes only, and they don't have any idea what they doing with there money. and they are GAMBLERS. The only traders who are "familiarize with all the technical indicators, study fundamental analysis from dusk till dawn" are the NON-GAMBELRS. what i can say: All the so-called "secrets of success" will not work unless you study those secrets. Great article Hillel.. i like your writings.

malik omar August 2009.

It is similiar to Gambling, but not exactly gambling. I think with Forex you have more control over the end result, if you have discipline.

Casey Stubbs August 2009.

Thank YOU for reading and taking the time to comment.

Hillel Fuld August 2009.

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Forex Trading is Not a Gambling.

Forex trading is becoming increasingly popular around the world. More and more people register at a forex brokers and try to trade currencies . But, it is more like testing their luck when they start trading because most new traders actually gamble and don’t trade seriously. They open positions due to emotions or feelings just like a Roulette player thinks that the next number will be 21. A forex trader without enough knowledge and experience just acts like that.

To the uneducated person or the inexperienced forex trader , it would appear to be very easy to arrive at this conclusion, particularly if you start watching the chart of any currency pair and observe how it moves in a seemingly random fashion. However, many large financial institutions around the world, and indeed individual traders, make consistent profits from trading forex markets , so you can be pretty sure that they are not gambling away huge amounts of money every day at random.

Some people may not even have an interest in trading or investing in the financial markets, but social pressure induces them to trade or invest anyway. This is especially common when large numbers of people are talking about investing in the markets . People feel pressured to conform with their social circle. Thus they invest so as not to disrespect or disregard others' beliefs or feel left out. Making some trades to appease social forces is not gambling in and of itself.

There are a number of forex traders who are able make consistent returns from trading. While this group is relatively small estimated to be between 10-20% of the total forex trading population , this suggests that skilled traders may be able to turn a profit from forex trading . Gambling typically precludes gamblers from being winners in the long run, due to the fact that most games have a built in advantage for the house. With forex, there are numerous instances where traders have been able to remain consistently profitable over the long-run, which suggests for skilled traders forex is not akin to gambling.

While it is true that on a very short-term basis, there is an element of randomness in the markets, if you look at the longer-term charts and use technical analysis to analyze the markets and make trading decisions, you can place the odds of winning firmly in your favor. Therefore to answer the original question I would say that forex trading is definitely not another form of gambling because with a bit of education you can become an accomplished technical analyst and determine high probability trading positions where you win far more than you lose.

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Is Forex Trading Gambling? The Answer Might Surprise You.

To answer the question, is Forex trading gambling , we have to break it down by the very definition of what it is to gamble. But before we do that, I want to share a brief outline of the way I used to think about trading and gambling.

I remember when I first started trading Forex back in late 2007, a little more than 6 years ago. Whenever the subject of trading would come up at a social gathering, I was usually pretty quick to chime in; I was so proud to be a “trader”. Without fail, one of the first comments people would make was,

“Oh, so you must like to gamble”. Or my personal favorite, “You must love going to Vegas!”. Being the naive trader I was at the time, I would get a little defensive and respond with something like,

“No, not really…trading is nothing like gambling if you know what you’re doing”. Of course at the time I had no clue what I was doing, but that’s beside the point.

Fast forward to today…boy was I WRONG about that statement.

Make no mistake about it folks, trading is gambling!

Here’s what Webster’s Dictionary has to say about the definition of the word “gamble”:

To risk losing (an amount of money) in a game or bet To play a game in which you can win or lose money or possessions To risk losing (something valuable or important) in order to do or achieve something.

Notice a common theme? “Risk” and “losing”. If there are two things a Forex trader knows, it’s that there’s always risk and you will lose money at some point. It’s simply the cost of doing business as a Forex trader.

So why then do so many Forex “pros” love to tell you that trading isn’t gambling? Or that their new and improved strategy is a sure thing with a 98% win rate? Because they want to sell you their product, of course. They want you to feel like you’re no longer gambling. Because gambling is a bad thing, right? The truth may surprise you.

What is the truth? The truth is that even the “big boys” at the large banks and hedge funds gamble every time they sit down at their trading computer. But (and it’s a BIG but) there’s an inherent difference between how they gamble and how 99.9% of retail Forex traders gamble. It’s a little thing called “probabilities”.

Learn to Think in Probabilities.

It all comes down to putting on trades where the probable win is higher than the probable loss. In other words, stacking the odds in your favor. In a previous lesson, I wrote about price action and confluence. The more “Confluence Factors” you have in your favor on any one trade, the higher the probability is that the trade will make you money.

So is Forex trading gambling?

Forex trading is the ultimate form of gambling. We get to review past price action before putting on a trade. Can you imagine getting to see the dealer’s hand before making a decision at the casino? That’s exactly what we can do in Forex.

However, this advantage you’ve been given as a Forex trader will go to waste unless you know how to use it to your advantage. The key is finding the right Confluence Factors that stack the odds in your favor. Here’s what that looks like.

Notice how we’re now in a trade where we have five different factors in our favor. All of these factors mean a higher probability that this trade will make us money, and it did.

Price action pin bar on the daily chart Price is rejecting a key level The trend is up The moving averages are providing dynamic support No immediate resistance to the upside.

Let’s go back to the casino example for a second. We can learn something from casinos. The goal for any Forex trader should be to trade their account like a casino owner runs his/her business. Casino owners know they’re going to lose money on some customers, it’s the cost of doing business. But they also know that by the end of the year, they’ll turn a profit because the odds are stacked in their favor.

So start trading your account like the casino owner runs his/her business by using price action and confluence, and begin stacking the odds in your favor.

Oh, and the next time someone asks if you like to gamble, just answer with, “yes, but only if the odds are stacked in my favor”. Then wait for the strange look they give you. 😉

Do you think trading is gambling? Feel free to leave your thoughts or questions in the comments section below and I’ll be sure to respond.

you don’t know what you are talking about and that convinces me that you are not a good trader because if you were you would know that trading is not gambling as it requires very specialized skills to be successful. You can argue that people who do not have those skills, and there are many of them are gambling. But the few that have acquired the skills and know what they are doing are NOT gamblers. So you are not credible as a trader. I am sorry. You should not be trading.

Sorry you feel that way, Justin. But according to Wikipedia “Gambling is the wagering of money or something of value (referred to as “the stakes”) on an event with an uncertain outcome with the primary intent of winning money and/or material goods.”

Choose the definition from whichever source you prefer; they’re all the same.

Wagering of money on an event with an uncertain outcome with the primary intent of winning money – that sounds like trading to me.

Every business gambles to some degree, not just the trader. But that doesn’t mean you can’t win consistently over an extended period.

Of course, we can also just agree to disagree. I’m okay with that too.

If you think that way, you can say parents looking after their children and providing them with everything in theire capacity believing children would look after them in return when they will be needed and when the children ditch their parent to be in old age homes, the parent were gambling. An entrepreneur who confidently relies on his hunch and abilities to grow a business is gambling. The investors who invest in companies and shares are gambling. Nonetheless the very individual who is working hard to get a dream job is gambling because most of the time the aspirant does not end up with dream job or to make things worse even jobless. All of these people know nothing more than the history known to them and they are gambling with their time, money, resources. When I started Forex trading, i started with demo accounts and I traded without doing any analysis. I ended up blowing my full account. I was gambling. It s been 2 years now and I am still in the process of learning, because I dont want to gamble. How do I do that. Not trading based on emotions, trade purely based on facts, get news updates constantly, follow mentors, research, back test. And I am able to make profit now. Those who think forex is gambling you are set to loose 100%. Those who think it is a serious business or investment venture and do everything necessary for its success, your success is guaranteed.

Good luck folks.

It’s amusing how deeply our trader egos can be tied to the idea that what we do is somehow nobler than gambling. I think Justin made it quite clear what definition of gambling he’s using: risking something you own (capital) against the prospect of earning profits on that capital, with the caveat of doing your best to ensure the odds are in your favor.

Those who think forex is gambling where you can’t help alter the odds and it’s best to just go for it — will lose, sure. Just like people who go to Vegas and don’t play the odds will also lose.

So why do some people manage to maintain an edge in gambling, or an edge in trading? B/c something about their process allows them to only selectively gamble when the odds are in their favor.

By most people’s reflexive estimation, that’s not gambling any more, b/c most people assume that “gambling” MUST entail high odds of failure for any participant.

It’s all semantics; there are successful professional gamblers (who systematically exploit key and recurring probabilistic advantages in order to win more than they lose over time, using high-odds entries and sensible money management strategies to maximize wins / minimize losses) and there are traders (who do the same).

Well said, Dakao. I always knew this post would garner quite a bit of attention as it’s a controversial topic, to say the least.

I want to know and have skills of forexcan you help me thanks.

Investing, trading, to me is not gambling, as you own shares in the company concerned. You put your money in a Bank or Building Society and get a fixed rate of interest. You invest in the stock market hoping to make more than in a Bank or Building Society knowing that you are taking on greater risk. Investing in a share one takes into account the fundamentals of the company, how well it is run etc.. Gambling is like E G throwing a dice or a game of roulette, where you have no control at all.

If we did not have Banks and private people investing in companies, our civilisation would not be so far advanced.

Alex, this post is about trading, not investing. Those are two very different things, especially when referring to fiat currency.

I wouldn’t gamble my money in the forex market but to even begin the firm I want to trade with says you have to make at least 20,000 a year which I don’t. Is there anyway around this?

I’m not quite sure what you’re referring to, sorry.

I have one important question regarding Forex Trading. If it is like gambling, how come there are Forex Trading Funds that are succesful and given 10% per week, for 50 weeks+ already?

Are those Forex Traders just lucky, or how do they mantain to have that 10% edge?

Please take your time to answer, Iam really curious to your explanation.

Elias, the point of this post is that you need to trade like the casinos (by stacking the odds in your favor). By its very definition, trading is gambling (so are many things in life), but that doesn’t mean you can’t profit consistently. I’m living proof of that.

Trading is not gambling, it is possible to make money in the market, only those who know the market how it is moving. the market always not work in the same way some time you have to away from market. i know that, I done that, I made money.

Rajesh, of course it’s possible to make money consistently. It seems you missed the point of the post, which is to trade like a casino by stacking the odds in your favor.

The similarity to gambling is that the outcome of one individaul trade is unknown and ramdom. You can try to increase proabilities with more confluencies, but it is still ramdom. Serious traders make money via a series of trades with proper Risk Reward.

Pawel, I would mostly agree with that. Thanks for commenting.

Absolutely true article. There is no way to guarantee your trade will be a profit. Every time you enter in a trade(doesn’t matters your strategy, indicator, news, etc) you must be prepared for a potential loss.

Lucas, you got it!

I’m a good forex and stock trader and at the end of the day its a gamble because no one knows if it’s going up, down or in fkn circles thats why we use stop loss.

Thanks for sharing.

Yes is gambling.

I agree, I’mm not sure why people are getting so serious about the technicalities of the word. I’d say its an investment more than gambling but at the end of the day you’re risking A for a greater B.

Thanks for sharing, Andrew.

if some body open a restaurant. and he expect people to come to him. is he gambling, if he is. it is means every thing in our life is gambling. forex needs skills so its akind of a jop.

If you define gamble as taking on risk in the hope of a desired result, then yes, opening a new restaurant is a gamble. Most life endeavors are gambles if you stop and think about it. But as I’ve stated before, that doesn’t mean you can’t have an edge and win in the long run.

Trading means a supply and demand cycle. You get the supply so if there is a demand you sell your supply. If you have business, e. g. selling fruits etc., if a businessman gets 5 cartoons of apple, how sure he is that all 5 cartoons of apple will be sold? of course he is not sure if all will be sold, perhaps some will be rotten and that is his loss. is that gambling? maybe gambling in a sense that you have to take the loss, but that’s how business is, a probability.

Very true. I think some folks get the literal definition of gamble confused with the idea of gambling. Each trade is a gamble to some degree, but that doesn’t mean you can’t have an edge and win in the long run.

yes I still think forex trading is gambling, I tried it before though I did not understand much of what I was taught and loosing a lot of money made me realize I was just like a punter in a different platform of betting.

can I make a career out of Forex trading?

I do not want to work a white collar job all my life.

Forex reminds me of establishing privately controlled central bank by making public fool or hypocrite. Its Gentle form of Gambling. It pushed many religious and moral people in gamble by confusing them, Those wouldn’t try forex if they knew it clearly. I know many muslims including me gambled in forex without knowing that its gamble. Its more unethical than gamble because its based on hypocrisy. I think only hypocrite or illiterate will call it trading rather than gamble.

So Justin, you are not in anyway discouraging anyone from looking at this (forex trading) as a stable income generating venture to embark upon….Right? As for your definition, life choices in themselves, are gambles. They are accompanied with the possibility of positive or negative consequences. That said, I am just beginning out on trading. …. are the prospect good?

Yes it is. Because simply not anyone can tell what tomorrow will bring, eventually trading is a game of GUESSING with some kind of probabilities along.

[…] like the casinos. A casino makes business decisions based on probabilities, not possibilities. By thinking in terms of probabilities, you will inevitably begin stacking the odds in your favor. That’s how a profitable Forex trader […]

I think Justin hit it on da spot. If we could just undastand da meaning of da word gamble we’d vividly comprehend what he emphasis concerning diz topic. In simple, gamble means to bet with in a game or play with intention of predicting da unknown outcome. Da same is what people do with forex irrespective of technicalities and whatsoever analysis used. Bear in mind its a “game” with rules entailed. That’s it, all forex traders are gamblers. Oh by da way, next time when someone ask u if u are a gambler or not just say “yes” but i do it with ma gadget or home in ma room not in a casino. Thanx justin u just hit it on da spot and I bliv diz will aid also those who do not wan2 involve themselves in gamble.

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