In the last few years, forex trading online has grown into a massive industry with millions of retail traders around the world trying to master the markets. With the influx of new and unexperienced traders, there is a huge amount of retail traders losing money in the markets. Is this because they don’t have the knowledge? Or perhaps, is forex trading just gambling?
In short, forex trading is not gambling, or at least it shouldn’t be. Professional forex traders execute a small edge over the market in the form of a trading plan. Traders should have stats from thousands of traders to know exactly the probabilities, management and outcome of a series of trades. Unlike gambling, no emotions or luck should be involved.
The Differences Between Forex And Gambling
It’s easy to think of forex and gambling as one and the same. Both are built around the principle of risking money to make money and playing out a theoretical edge, either in the markets or at the tables. However, despite their similarities they should be completely different and a great gambler wouldn’t necessarily make a great trader.
If gambling and forex share so many similarities, how is forex not gambling?
It all comes down to how a professional forex trader actually works. When some gambling comes to the table, typically they have no idea on the edge, the probabilities and exactly what they need to follow time and time again to actually get consistent profits. Gamblers will then get emotional, go on winning and losing streaks and just be playing with luck until ultimately they lose their capital.
Traders however, operate completely differently. Professional traders have backtested an exact system thousands of times over years of data. This means they have exact stats and figures on the edge, management strategies and exactly how a setup needs to be traded. When a setup presents itself to a trader, they know that if they take that exact setup 100 times in a row, they will be profitable so they blindly execute on that setup, as per the trading plan, with zero emotions and zero influence from ‘luck’.
There are certainly traders that do gamble. These are usually newer traders risking huge amounts of their capital, whilst professional traders risk less than 1%. These newer traders or gamblers will get emotional when they’re in drawdown, adding more to positions, getting angry, then eventually lose the shirt from their back.
Traders:
- Calculated decisions
- Following a set out trading plan
- Only 1% risk per trade
- Years of historical backtest data behind them
- No emotions
- Never breaking the plan, no matter the outcome
Gamblers:
- Wreck-less decisions
- No plan
- Risking large amounts of capital per bet
- No historical data
- Very emotional, fear, greed
In Summary – Is Forex Essentially Gambling?
In conclusion, forex trading, done properly, is not gambling at all. However, the majority of people trying to make profits in the forex markets are not experienced traders and are essentially gambling their money.
