Forex is renowned for being one of the trickiest markets in the world. With around 80-90% of traders losing, surely there cannot be any logic or edge involved, right? Surely more traders would have figured it out by now and there wouldn’t be such a huge amount of losers? What if forex is just a game of luck? Maybe the successful traders just got lucky…
There is no luck involved in forex trading. The market is zero sum and successful traders find an edge within the market, then exploit that edge repeatedly. Luck is not repeatable, like a trading edge. Traders that get ‘lucky’ on one trade, will soon after lose their profits.
Is Forex A Game Of Luck?
Forex trading may seem like a complete mystery to beginner traders because of the lack of high quality education about it. In order to learn forex trading, you have to learn from those that have been successful at it for a long time and those that are constantly practicing their craft.
Forex traders do not use a crystal ball or tarot cards to predict future prices – they use complex quantitative models which try and determine different price scenarios. Even though these models are complicated, there is still an enormous amount of variables which cannot be accounted for, making it difficult to predict the market with much accuracy at all times. You must keep in mind that forex trading is much like investing – you take calculated risks and sometimes things go your way, other times they don’t.
There is very little, if any luck involved with forex trading. This all boils down to the fact the forex market is zero sum. You can test this by taking 100 random trades within the market, both buys and sells. Use a 1:1 risk to reward ratio and you’ll notice that you’ll end up around breakeven (minus the broker fees).
This shows us that there is no luck in the markets – the only way to ‘beat the market’ is to find some type of edge. This edge is usually very tiny but it can be repeated hundreds or thousands of times throughout the years to squeeze profits out of the market.
Is Forex Legally Considered As Gambling?
Legally speaking, forex is not considered as gambling or any type of luck based game. The only way to make money in the market is by finding an edge (which can be extremely difficult) and trading (buying/selling) with it. If you are placing bets on forex, then you are doing something more similar to gambling than trading.
There are many similarities between casinos and the forex markets, but they are not the same thing. Casinos rely on luck and chance as well as money management skills to take players’ money. In forex trading, there is no such luck involved and only the trader’s ability to manage their risk and capital which will determine whether they make consistent profits or not.
Many attributes from gambling are translated into forex trading and investing as a whole. For instance, risk management and money management are a huge part of both industries.
For UK based residents, Spread betting accounts are available which do technically count as gambling accounts. This is useful for tax reasons, of course, but this doesn’t mean that forex trading itself is legally classed as gambling.
Do Successful Forex Traders Just Get Lucky?
We have all seen successful forex traders, flaunting their wealth and affluence. Did they get lucky in the markets? Well, no. It’s very much possible to appear lucky on one trade. For instance, I could sell EURUSD just before NFP. If NFP pushed the price down and I got a risk to reward ratio of 1:90, I would say that is pretty lucky.
Will that one trade make me rich? Will I be able to carry my forex trading career on the back of that one ‘lucky’ trade? Absolutely not.
To replicate this success, I would need to study the markets, have a great understanding of risk management and there would be zero luck involved. The 1:90 trade would need to be replicated hundreds or thousands of times throughout my forex trading career, which is not easy even though the strategy behind it is very straightforward.
Forex traders are successful because they have honed their skills for many years and they treat every trade as if it were that one ‘lucky’ trade.
If you’re going to take anything away to action from this article, let it be the fact that you cannot get lucky and survive in the forex markets. You can certainly make money trading forex if you manage your risk effectively and have a great working knowledge of the markets. However, you cannot expect to have a play around on TradingView, take a trade, get lucky and become a millionaire. Most traders that have one huge trade will lose that profit within a few months.
In Conclusion – Is Forex A Game Of Luck/Chance?
In summary, forex is not a game of luck. Even though there are many new traders entering the market every day, it doesn’t mean they will make money because of their lack of understanding on how to price assets. Traders that are consistently profitable have knowledge about forex trading and how to implement different risk management strategies. These traders do not rely on luck to make money in the markets, it is 100% skill based and edge dependent.
If you’re thinking about learning to trade forex, it takes over a year to learn to trade (on average), so I’d recommend getting started now with some of the industries highest rated education platforms!