It is a common question because when you see the price of the trading pair that is moving randomly on the chart it is normal to ask yourself.
While the price is moving randomly, one would say that it is the pure luck predicting where the price will go. Where is the pure luck there is guessing which is some sort of definition of gambling.
Gambling is guessing of the outcome where you invest money on that outcome in order to gain more money. The risk involved gives you a chance to lose all what you have or to win large amount of money.
Now, would you start trading on the Forex market or you would stay away from the trading?
I am a trader so I have decided that the trading is not gambling.
I can say that Forex trading is gambling in a way of predicting the direction of the price. But the gambling with a lot of chance on my side to win the money.
I have several tools to make each trade profitable and I have tools to cut my losses when is necessary.
Let me explain with more details where is the difference between pure gambling and trading on the Forex market.
- 1 Is Forex Gambling
- 2 Forex Trading as a Business not as Forex Gambling
- 3 Is Day Trading Gambling
- 4 The Gambling
- 5 The Difference Between Forex Trading and Gambling
- 6 How to Prevent Gambling in Forex Trading
- 7 Checklist for Forex Gambler Trader
Is Forex Gambling
Is Forex gambling can be discussed because Forex trading is trading currency pairs in order to earn money. Price of the currency pair is changing and you need to predict where the price will go.
While Forex trading is predicting where the price will go it is like betting in gambling. If you are lucky the price will go in your direction and if you are not lucky the price will move against you.
Is Forex gambling can be answered as a YES if you open order with guessing will it go up or down based on the thumb – UP or DOWN.
Is Forex gambling can be answered as a NO if you open order based on the certain rules. The rules that each business have in their business plan.
The rules are there for you to help you make a correct move and make a correct decision at the right moment.
Forex Trading as a Business not as Forex Gambling
But Forex trading can be no gambling business if you start treating it like a business. That means you have a trading strategy by which you base your trading decisions.
If you follow trading strategy then you do not guess by the luck where the price will go. You have certain criteria how to determine the price direction.
Second thing when you treat Forex trading as a business is having risk management. Risk management defines how much you will earn and how much you will lose on each trade. There is no all in or I will earn millions on the next trade.
When you use trading strategy with trading plan and with risk management you are far away from gambling. You do not rely on the luck but on the real steps. Based on your back tests you have probability to predict correct direction of the currency price.
In gambling you do not have back test results that can help you determine the future price direction or the outcome of each trade.
Forex Professional Trader
Professional Forex trader is not gambler and does not look at trading as a gambling.
Here is few points about Forex trader:
- have mastered effective trading strategy
- use a Forex trading plan
- focus on risk management plan where each trade is planned
- not focused only on the profit
- control his emotions from influencing the trade decisions
- understands trading like a business
Trader must have a plan how to enter and exit from the trade. With planning the focus is to save money if the trade is losing one.
There is no room for pure gambling or you will lose money for sure.
Is Day Trading Gambling
If you are a day trader or any kind of Forex trader if you do not treat trading as a business you will not succeed and you will end as a day trading gambler. You can say that even as a day trader you gamble if you do not act as a professional.
Any trading time frame offers certain signals. The trading signals must be confirmed by the trading strategy and only open if the risk management confirms the opportunity.
If the signal is not confirmed completely with your trading plan and risk plan, you can sure say that you gamble with your money.
Day trading offers more clear trading signal compared to smaller time frame, like H1 or less. But even day signal can offer potential signal that looks promising which ends as a losing one. The trader thinks that day signal is more accurate and open the trade without confirming trading rules.
That kind of signals trick you in a way where you open the trade looking for quick profit. And when the trade is losing one you turn around and open new trade with larger volume which ends losing money.
Day trading gambling can be gambling on any time frame like weekly or monthly if you do not have clear trading plan. It is important to act as a professional and avoid being a gambler.
Gambling is pure luck where you want to win big money without putting to much effort into it. Even there are gamblers that use mathematical systems to find the weakness in casino system, they are still gamblers.
Gambling cannot be a business except owner of the casino who have the odds in his favor. They encourage you to spend more money and even they offer free bonus and drink just to gamble.
That is why the house always win.
There are few characteristics of a Forex gambler. If you have one of them you should stop doing it and start behaving like professional trader.
- does not have trading strategy
- do not trade by the trading plan
- does not have risk management plan
- focus on profit and only profit
- emotions affect him in a way to earn more money and risk more than he can sustain
- invest into trading without control
Gambler will wait for the next bet like it will be the wining bet. He have the false sense of optimism that keeps him losing the money.
It is hard to resist that feeling and many gamblers ends as a poor person or in a clinic for addiction.
The Difference Between Forex Trading and Gambling
To give you small overview about the difference between gambling and Forex trading I will list some facts:
- Amount of money
- Forex market is large and that is around 5 trillions U.S.Dollar per day.
- Casinos all together do not have so much money circulating per day
- Market Participants
- Forex participants are mostly the large banks and small traders. In gambling industry there are mostly small traders who likes to taste the chance of wining large amount of money
- While Forex have banks in it, that makes it legal market like stock market. Gambling industry sometimes is on the edge being illegal and in some countries gambling is prohibited
- Trading Tools
- Forex trading have various tools you can take in your advantage to get the best result.
- Gambling is pure luck guessing and hopping to win money
- Desire to make money
- Forex and gambling have one goal and that is to make money. That desire drives participant, gambler or Forex trader, to do wrong move
- In Forex trading the main rule is to have trading plan with risk management which helps avoid emotions in trading. In gambling there are no rules because you only decide will it be red or black. If you are lucky you will win
- Trading plan
- Trading strategy is one of the most important things you can have in trading. Gambling does not have trading strategy
- By trading strategy I mean having steps how to enter into trade and how much you will lose or win
- Risk management is crucial point in trading
- Gambling on the other hand does not have plan how much you will lose or win on each trade. There are no rules and steps you need to take before trying to play the game
How to Prevent Gambling in Forex Trading
One way how to avoid being gambler in Forex trading is to avoid emotions affecting your decisions. When you lose you should not let fear to get in a way and to prevent you opening the next trade.
You should not invest more money on the account and open the trade with large volume after you have experienced the loss. If you do that you will lose the next trade and even more money.
Cool Down Before Moving Ahead
When you start doing like in the above example, stop trading immediately and cool down before thinking about the next trade. If you do not calm down and change your way of doing you will invest more than you can afford to lose and eventually lose more than you have planned.
Gambler at the finish ends without the money with which he have started gambling and without money he did not planned to gamble.
From the other side when you start wining the money, you need to be careful to not get to excited. It can happen that you start feeling to confident and that you can win all trades at any time.
You will start to open trade with no stop loss or take profit. You will open more trades than your account can sustain.
At the end you can end like most gamblers ends – without money.
You see that trading involves risk like gambling. You need to pay attention when you lose and when you win to avoid becoming uncontrolled gambler that lose all his money.
Checklist for Forex Gambler Trader
There are ways to check and prevent you being Forex gambler. I have write down few points that you need to check and avoid doing so you do not become gambler.
If you are already Forex gambler you should stop trading and devote your time reading the points and find the way out.
- Do you have trading strategy that have steps and rules how to enter into each trade?
- Have you planned risk you will take on each trade where stop loss and take profit is defined before opening a trade?
- The main goal should be to cut your losses, plan each trade, plan the risk you will take, earn money and prevent losing the money
- What do you do when you have losing trade – do you increase volume on the next trade?
- What do you do when you have wining trade – do you start open more trades without stop loss and take profit levels?
- Have a trading journal which is there for you to find the mistakes you are repeating
- Decrease the amount of trades you have during the day and week. To much trading hurts you
As with any addiction the first step to solve it is to accept that you have a problem. If the drug addict does not accept that he has a problem he cannot get better. It is same way in trading.
When you accept that you have a problem it is easy to accept the solution because you, deep inside, want to get better.