Why Do Some People Mistake Forex for Gambling?

06/08/2020

When trading Forex, some people have the feeling that they are doing nothing more than gambling. That during their trades, the only real variable is luck, which sometimes acts in favor of them and sometimes leads them to a loss.
 
But is Forex trading gambling in real life? To answer this question, one has to understand the underlying mechanisms of both activities and then determine whether they are exactly the same or not. In this article, we will focus on the main differing aspect between the two activities: probability.
 
On the one hand, there is gambling, which is a luck-based activity. Yet while a casino gamer may think that their odds of winning or losing are exactly 50-50, the house is always one step ahead of them by turning the odds to their advantage. We will discuss the probabilities in blackjack and see how the house has an edge over its clients.
 
On the other hand, there is Forex trading, where traders can, like the house in gambling, flick the odds in their favor. But there is no actual “house” in trading; instead, it is more like a zero-sum game where traders’ conflicting interests are competing with one another to get favorable market conditions for their trades.
 
There are numerous ways of tweaking the odds in your favor. From using technical analysis with various indicators to creating a trading journal, different strategies can help you devise a consistent plan that leads more towards payouts and less towards losses.

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Is Forex gambling or finance?

When people start trading Forex, their goal is to get as many payouts from their trades as possible and turn initial deposits into a massive account balance. While this is a perfectly reasonable plan, it can sometimes lead to greed. And in trading psychology, greed is one of the worst enemies of trading.
 
Motivated by greed, traders tend to take blind chances, instead of calculating their every step. This is the main reason why some people associate gambling and Forex with each other. In gambling, the chance and randomness are the underlying forces of every game, whether it’s slot machines, poker, or blackjack.

However, even in this sense, there is a big difference between gambling and trading Forex and that difference lies in probabilities. In gambling, the house always stays one step ahead of its players and wins in the long run by turning the odds to its advantage. In Forex, however, there is no house; instead, traders are their own “houses” - they can use various techniques to flick the odds in their favor.

 Differences between Forex and gambling
Let’s take a look at a more specific example of blackjack odds to better understand it in real life.


Odds in blackjack

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 equalize those winnings and turn the balance wheel towards the casino.
 
This is possible by what is called a “house edge” and that is where the differences between Forex and gambling arise. 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 busts as well. It is interesting that a chance of this to happen is about 28%.
 
Another interesting detail 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 will definitely 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. But even by doing that, the house will still be in a better position.
 

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 who has his/her own interests. In short, trading Forex is more like a zero-sum game where some people win and some people lose. But more importantly, the real adversary in this sense is yourself: you have to think before you make a decision and don’t let greed get the better of you
 Is gambling and Forex the same
So, 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, a trader has the ability to dial the odds to their advantage and be ahead of the market, as well as other traders.


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 outline Forex and gambling differences 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 a fundamental analysis with the help of different economic indicators. By using this method, he/she can observe the current state of a company, market, or a country, assess their strength, and determine, whether the price of an asset will increase, decrease, or stay the same;
  • There are also various risk management strategies that reduce the chances of losing too much and make the portfolio more stable. For example, a trader can diversify their portfolio by using different trading instruments.
 Forex unlike gambling
Obviously, these aren’t the only strategies that help traders dial the odds in their favor. Besides, even they won’t be able to offer the exact point where the price will go next - they are useful as much as they make speculation a bit more accurate. But more importantly, they enable traders to trade more consciously on Forex unlike gambling.
 
 
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Is gambling and Forex the same? - Key takeaways

Some people think that Forex trading and gambling are similar activities because traders are risking their funds on a certain price movement that will happen or not. They believe that luck is what makes these two resemble each other.
 
However, is Forex like gambling in real life? There are lots of differences between the two activities and the most fundamental one is associated with probability. In this article, we looked at the example of blackjack and saw how a casino has an edge over the players. The house understands the odds of winning and losing positions and turns them in a way that losses are more frequent than winnings.
 
Unlike that, Forex traders aren’t against a unitary house: their competitors are other traders, as well as themselves. Therefore, they hold the power to turn the odds in their favor by incorporating various techniques and strategies into trading.
 

FAQ on the differences between gambling and Forex

1.What are the differences between gambling and Forex?

Some people believe that because they’re both dealing with luck and chance, gambling and Forex are somewhat similar activities. However, when examined closely, many fundamental differences start to emerge, where the most important one is probability.
 
On the one hand, we have gambling, which has two participants: a house and a player. No matter how professional a gambler is, the house is always ahead of them. What this means is that the odds for a losing bet are set higher by the house than the odds for a winning bet. This way, while some gamblers can win big jackpots, the rest will lose and those losses will dial the balance wheel in favor of the casino.
 
On the other hand, we have Forex trading where there is no “house” against which a trader must act. Here, traders have to compete with other traders, as well as themselves, and make decisions in a way that they have better chances of getting a payout. In other words, a trader can act as a house in gambling by turning the odds in their favor.


2.Can a Forex trader increase their chances of success more than a gambler?

Both in gambling and Forex, individual actors can increase their chances of success. However, in gambling unlike Forex, the house will always retain the upper hand over the player. And all the different techniques can only reduce that upper hand, not remove it completely.
 
In trading, however, people can flick the odds in a way that they hold the advantage. And there are lots of different ways of doing that. The most popular way is to do technical analysis. With technical analysis, traders can analyze prior price movements and have some idea as to where the price will go next. There are many technical indicators that allow them to do that.
 
There’s also the fundamental analysis, which observes the current situation of a company, market, or a country. With it, traders can evaluate the strength of an asset and speculate, whether it will go up, down, or stay the same.
 
Another method of maintaining the advantage is risk management, which itself has many different elements. One of them is portfolio diversification: traders use different assets at the same time in order to reduce the risk of large losses and keep the account more stable.

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