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The Forex market is one of the most liquid and largest markets in the world with volumes of over $6 trillion per day. But this leaves many people thinking? Isn’t it just like gambling? Well, today I’m going to help clear this up for you and help you understand the differences between Gambling and Forex trading – it’s a bit of a grey area.
Forex trading is generally not like gambling although sometimes, people can use Forex as a method of gambling by not using the proper risk management strategies and/or trading recklessly. In order to trade profitably, Forex traders must take adequate precautions and learn to trade the market before participating in it.
In order to better understand the differences between trading and gambling, we have to first look at what each term actually means.
What is gambling?
According to Wikipedia, “Gambling is the wagering of money on an event with an uncertain outcome“. Most people are pretty aware of what this means; it is essentially the act of risking your money knowing that you could lose it all.
What does Forex Trading involve?
IG, one of the world’s leading Forex brokers says that “Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another” but what does this actually mean? It means that when you trade Forex, you are thinking that the other currency will be worth more/less in the future.
So, what’s the difference between them?
Naturally, there are many ways in which the two are similar and different, and most of the answer lies within how you commit both acts (Forex Trading & Gambling).
Trading without knowledge is gambling
I know – it’s a pretty bold statement. But trading Forex without any prior knowledge may as well be classed as gambling. After all, you are looking to make money on the back of an uncertain event (remember the gambling definition above?) without any knowledge of how to prevent a total loss.
Gambling is riskier (untrue)
Many people assume that traditional gambling methods are more risk-averse, but in my opinion, the can be of equal risk. There is such a thing as betting safely, some people develop strategies and use something called bet insurance to make their bets less risky. On the contrary, some Forex traders are highly risk-averse by using high leverage and no risk management tactics.
Trading can be profitable, betting rarely is
It’s true, traders have more chance of being profitable than bettors due to the sheer nature of the industry. Arguably, there is more skill involved with trading and therefore, more room to improve. To add to this, it is important to note that with each trade, like gambling, there is a winner and loser – so in that respect, it can be seen in a similar light.
Tips to trade safely (and not gamble)
In order to ensure that you trade Forex safely, and not gamble with your money, here are a few tips to get you on the right tracks.
A Stop Loss order is a way of preventing further loss on a losing trade. These orders ensure that your capital is safe if a trade goes in the opposite direction to where you expected it to go.
Manage position sizes
Using all of your capital on one trade is a sure way to gamble on the Forex market. By doing this, you are risking all of your money on one trade which could lose out – it’s no different to putting it all on black down the casino. To start off with, try trading with 5% of your capital on any one trade, this is a good way of keeping risk down and trading professionally.
Do your research
This goes without saying – the most knowledgable earn the most Forex market. Try reading a Forex beginner’s guide to start with, and then expand your knowledge using YouTube and other similar online resources (I found this mix the perfect way to learn how to trade Forex profitably and safely). The learning doesn’t stop there though. After you’ve learned how to trade properly, you’ll still need to keep up to date with the latest economic news as this is the basis of most profitable Forex trades.
Trading Forex can be nothing like gambling, or it can be exactly the same – it all rests on exactly how you do them. There are traders who resemble gamblers, and there are gamblers who resemble traders. In order to trade Forex without gambling on the markets, make sure you get proper technical and fundamental analysis training as well as using risk management techniques when you get round to trading. Anyway, best of luck with your journey!