It’s probably worth hanging a big, bright lantern off why many people liken foreign exchange trading to gambling: Forex involves chance. There are so many factors and variables, it’s rare you’ll hit a day of forex trading where at least one decision could not have gone south.
There’s no question that in forex, as with gambling, you’re dealing with unknowns. And if you’re going to succeed at it, you’ll need a strategy for managing both those challenging “what just happened?” moments and how you react to them. But despite a passing resemblance, forex trading is unequivocally not gambling. Spend any time delving through the copious trading literature on a popular forex trading company like iMarketsLive, and you’ll see that, for the most part, “educated gambles” are discouraged.
Gambling in forex often creates a vicious cycle, one that puts the unwary investor in a hole really fast. So let’s take a look at how gambling and forex coincide before looking at a few of the critical differences.
Just like gambling, there’s no single “right way to play” when it comes to Forex.
In fact, any forex product that claims to provide a simple, secret formula for always coming out on top is likely a scam. It’s as unreliable and untrustworthy a claim as a person claiming to know a simple method for always beating the house at a casino. That’s just not reality. The reality of forex is that no single product or approach is going to work all the time. What works this week may not work next week. How you trade in forex, just as how you play poker or blackjack, will depend on your experience, your knowledge, and your temperament. The only way to reliably earn money from forex is to understand at least part of it deeply and intuitively. This requires patience, practice, and study.
In gambling, you can know the rules of the game, but the real trick of consistently winning in a competitive game of chance is to learn to read those all-important signals and tells. It isn’t just the cards your opponent is holding, it’s how your opponent reads and uses them. Similarly, knowing how to find and understand market-relevant news is a crucial element of forex. While you can gain access to that data in any number of ways, the real secret lies in learning how to read it. In other words, just like gambling, with forex you’re looking for the twitch, the tic, the tell: that tiny, near-imperceptible alteration in the course of events that presages a pathway to profit.
OK, it’s true, the same could be said of certain kinds of gamblers, but usually, those gamblers are professionals who don’t approach their game of choice as though it were gambling. But most gamblers and most gambling games reward chance and moments of serendipity. Sure, you need to know when to pounce on those moments, but you have little control over when they arrive.
Generally speaking, unless you approach it very differently to most serious investors, forex doesn’t reward intuition. It rewards hard work. To succeed at forex you’ll need a set schedule, a careful approach to gathering data and some firm lines you never cross. All of this requires the daily grind of hard, persistent work.
Then there’s the flip-side of that coin. Unlike gambling, forex rarely provides sudden, life-changing windfalls. While it’s true you may experience the occasional sudden win with forex trading, banking on those is a losing strategy. It’s a mindset that encourages mistakes. Unrealistic expectations have to be one of the quickest ways new forex traders careen off the rails. Novices are still susceptible to that twitchy need for the endorphin rush of a sudden financial win. In forex, pursuing that rush moment will often lead to mistakes. Forex trading rewards those who are comfortable with actively doing nothing when the occasion calls for it.
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When it comes down to it, while there are some parallels, forex really has little in common with the prevailing mindsets and strategies which inform gambling. So why is this such a common analogy?
A big part of that might simply boil down to how forex trading feels.
To do well at it, you have to understand and overcome the excitement of feeling like you’re on a winning streak just as much as the despair of having a run of outs. Like gambling, the deeper emotional game of forex is about dampening both the endorphin rush and the fight or flight response.
Perhaps at the end of the day, while forex and “having a flutter” are different intellectual exercises, both pastimes may be predicated on the same basic emotions: the fear of loss and the excitement of acquisition.