Let’s take a look at a more specific example of blackjack odds to get a better understanding of where the comparisons between forex trading and gambling hit a roadblock.
One of the most important characteristics of blackjack, as well as any other casino game, is that no matter how professional a player is, the house will always win in the long run. Granted, some people will win big prizes, however, the total losses will eventually cancel out winnings and turn the balance positively towards the casino. In a typical casino, the more you play, the more you are likely to lose.
In gambling, the house is the ultimate winner, because the gambling house has an edge over its customers, which makes opening a casino a viable business in the first place. In blackjack, a player has to always act first when the first round of dealing is over. And when they hit a card (demand another card from the dealer) and bust, i.e., the card values go over 21, they lose, even if the house goes bust as well. Interestingly, the chance of this happening is about 28%.
Another detail that needs to be mentioned is that every hand value has a specific probability of busting a player. For example, if a player has a hand value of 11 or lower after a starting hand, there is a 0% probability that they will bust. Immediately above the value of 11, this probability increases massively: 12 hand value – 31% chance of busting, 13 hand value – 39% chance of busting… By the value of 20, the probability of busting is 92% and at 21, a player is nearly guaranteed to bust by hitting an extra card.
Now, players can use different techniques like doubling down to increase the payouts, splitting the pair, etc. to reduce the odds that are in favor of the house. However, the house has the upper hand regardless of the measures taken by the player.
Trading Forex isn’t gambling – Here’s why
Unlike gambling, there is no “house” in Forex trading. Your competitor on the market is another trader with their own interests. What's more, not all market participants are interested in making vast profits. The list of Forex market participants include: commercial banks, central banks, retail and institutional traders, governments, multinational corporations, etc. Multinational corporations do not focus on losing money when exchanging currencies. They trade currencies out of necessity, as they operate in multiple countries and need various currencies.
Psychological factors can do a lot of damage to your performance on the forex market. If you do not have a plan that you stick with, there is a high chance that you will lose money. It is essential to have clear expectations and objectives when trading forex to avoid overleveraging and excessive risk-taking. Knowing your risk tolerance is also incredibly helpful.
What differentiates Forex and gambling is that traders aren’t passive participants of the process where they’re intentionally put in a worse position by the market. By using various strategies and tools, traders have the ability to turn the odds to their advantage and get ahead of the market, and grow their trading balance.
Another key distinction between forex trading and gambling is institutional activity. For example, a pension fund is unlikely to hire professional poker players to make money, but they certainly employ forex traders to get ahead on the market. Additionally, proprietary trading firms also fund forex traders, while professional gamblers do not have such privileges.
How can a trader turn the odds in their favor?
There are different approaches and techniques in trading that enable people to make more conscious and well-thought-out decisions. Let’s have a look at some of the most popular ones:
- One of the most widely-used approaches is to incorporate technical analysis into trading. With this method, traders can further minimize the resemblance with gambling by minimizing the randomness of a trade. Technical analysis allows people to observe prior price movements, analyze them, and speculate in which direction the market will move. And there are lots of technical indicators that make this possible;
- A trader can also conduct fundamental analysis with the help of different economic indicators. By using this method, they can observe the current state of a company, market, or an economy, assess their strengths, and determine whether the price of an asset will increase, decrease, or stay the same;
- There are also various risk management strategies that add stability to their portfolios. For example, a trader can diversify their portfolio by using different trading instruments.
- Traders can search and develop trading strategies, test and backtest them using trading platforms to see which strategy can give them an edge over other market participants.
Obviously, these aren’t the only strategies that help traders increase their odds of success, as there is no way of consistently predicting the exact future price points on a chart. However, they still give traders a better chance of achieving success and getting ahead on the market.
FAQs
To many outsiders, the forex market appears to be like a gambling market. Certainly, the forex market and the casino industry have a lot of things in common, such as the money involved, and the amount of risk involved. Certainly, one small mistake in both cases can lead to great financial losses to the person involved.
Is forex trading basically gambling? ›
While forex trading does involve some risk, it's essential to understand that it's not the same as gambling. Successful forex trading requires analysis, strategy, and risk management.
What is the number one mistake forex traders make? ›
The Bottom Line
Averaging down, reactive trading to market news and volatility, having exceedingly high expectations, and risking too much capital are common mistakes.
Why do so many people fail at forex? ›
Lack of Discipline
Successful forex trading requires discipline and adherence to a well-defined trading plan. However, many traders fail to develop or stick to a trading plan. They may deviate from their strategies, chase after quick profits, or make impulsive trades based on short-term market fluctuations.
Is forex highly manipulated? ›
The forex market can be subjected to market manipulation in cases where there is a lack of transparency or regulatory oversight. However, the market is generally considered to be highly liquid and difficult to manipulate on a large scale.
Is forex better than gambling? ›
Betting, on the other hand, can cover many marketplaces, displaying a greater range. Trading forex necessitates a thorough comprehension of economic data, geopolitical events, and market dynamics. Betting, on the other hand, while needing some market expertise, is frequently based on chance and luck.
Is forex trading a pure luck? ›
One common misconception about forex trading is that it is a game of luck. While luck may play a small role in some cases, successful traders rely on skill, knowledge, and experience to make profits consistently.
Has anyone made millions from forex? ›
One of the most famous examples of a forex trader who has gotten rich is George Soros. In 1992, he famously made a short position on the pound sterling, which earned him over $1 billion. Another example is Michael Marcus, also known as the Wizard of Odd.
Why 90% of forex traders lose money? ›
The reason many forex traders fail is that they are undercapitalized in relation to the size of the trades they make. It is either greed or the prospect of controlling vast amounts of money with only a small amount of capital that coerces forex traders to take on such huge and fragile financial risk.
Can forex make one a millionaire? ›
Trying to make profits by starting to trade without any interest in trading may not get you far. To come back to our question, can you become a millionaire from forex trading? The answer is that it is possible, but this doesn't happen to everyone and not overnight.
You can lose your money within seconds if you don't have money & risk management skills. The dark side of the forex market is that it is highly volatile and risky, unlike the brokers describe. There's no shortcut and you need to do all the hard work. You won't get rich overnight and winning every trade is impossible.
What is the dark side of forex trading? ›
Among the myriad risks that traders face in the Forex market, market risk stands out as the most significant and unpredictable. This risk directly impacts the potential for profit or loss, stemming from fluctuations in market prices driven by economic indicators, geopolitical events, and market sentiment changes.
Is it hard to get rich from forex? ›
Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.
How to spot forex manipulation? ›
In this article, we will delve into personalized insights on how to identify if your forex broker is manipulating you.
- Unexplained Slippage: ...
- Unexpected Spreads: ...
- Requote Anomalies: ...
- Abnormal Slippage during News Releases: ...
- Inconsistent Platform Performance:
With proper education and risk management strategies, forex trading can be a realistic and viable option for individuals looking to make money in the financial markets.
Do banks manipulate forex? ›
The forex scandal (also known as the forex probe) is a 2013 financial scandal that involves the revelation, and subsequent investigation, that banks colluded for at least a decade to manipulate exchange rates on the forex market for their own financial gain.
Is trading technically gambling? ›
The main difference between day trading and gambling is that gamblers play available odds while traders strategize based on market trends, price movements, and past performances. Traders often use sophisticated analytical tools and real-time market updates to decide which stocks to buy or sell and how much to spend.
Is forex trading addictive? ›
All of this can induce reward pathways in the brain. When a day trader makes a profit or even gets excited about a potential one, the brain releases so-called feel-good neurochemicals, such as dopamine and serotonin. This can cause you to become addicted, just like with casino gambling or using illicit drugs.
Does forex count as income? ›
Capital Gains Tax: In many countries, forex trading profits are treated as capital gains and are subject to capital gains tax. The rate of taxation may depend on factors such as the trader's income level, the holding period of the trade, and whether the trading activity is considered a business or investment.
Is forex trading difficult? ›
Learning where to start can greatly reduce stress and make the process easier. All of these may look overwhelming, but beginners usually take it step-by-step so that the learning material is always easy to handle. Forex trading for beginners is extremely hard, it requires hours of hard work.
