Many uneducated and inexperienced forex traders consider forex trading as nothing more than gambling. In any case, forex trading requires you to bet a currency’s price to either go up or down. Does this process equate trading forex to gambling?
Trading forex is not considered a gamble if you know what you’re doing. Forex trading can be rewarding if you know how to do technical analysis and are consistently good at it. Traders who take time to identify trading patterns can find high probability trading positions.
Here, we will delve deeper into the nitty-gritty of trading forex. Read on to find clarity on the forex trading process and the aspects that delineate it from gambling.
Why Do Some People Equate Forex Trading to Gambling?
The uncertainty surrounding forex markets typically makes some people equate forex trading to gambling. It’s not easy to predict the movement of a currency. But analysis tools and past projections can offer some direction to forex traders. Still, there’s some risk when entering a forex position.
While it might be challenging to avoid the forex risk, a forex trader can use different trading strategies to increase their chances of winning. Traders can leverage analysis tools to monitor and predict market trends that might favor them. Unlike a gambler who believes that the odds are always against them, a forex trader has specific control over the outcome.
Many forex traders lose more than they gain because they don’t know how to wait for the odds to swing in their favor before beginning to trade. Therefore, it is always helpful to open a trading account with money you don’t mind losing.
Assessing the forex markets on a short-term basis often indicates some element of randomness. However, longer-term charts are excellent in increasing your chances of success in the market. Essentially, trading forex requires some form of education to help you reap big in the industry.
Overall, trading forex isn’t another form of gambling. You simply need some education to determine high probability trading positions where you increase your chances of winning.
Forex Trading and Gambling Are Different
Still not convinced that forex trading and gambling are not necessarily the same? The following discusses this argument in more detail.
Many Financial Institutions Back the Forex Market
The forex market is backed by the leading financial institutions worldwide, which increases its legitimacy compared to the gambling world. Unlike gambling, forex trading doesn’t face any persisting legal challenges. Spending money in these markets will give you little to worry about.
Also, most gambling houses set the odds of losing a bet higher than those of winning a bet. With this approach, some gamblers may win incredible jackpots while the rest lose in favor of the casino. On the other hand, forex traders compete with other traders to increase the chances of getting a lucrative payout.
Forex Trading Doesn’t Rely Only on Luck
Regardless of the risks involved when trading forex, you eliminate much of this risk with the right resources. Forex trading is not entirely about luck. You can analyze the forex market before you start trading. Also, you could monitor your currency of trust and make a move based on your findings.
On the other hand, gambling often leaves you in the hands of luck or fate.
How To Stop Trading Like a Gambler
Treating trading like you would your business or career can help you overcome gambling tendencies while trading forex. First, you’ll need to create a sound business plan to guide your trading. Your plan should include:
- Rules of trade management
- Your risk exposure
- Entry and exit rules for all your trades
- How you’ll scan the forex market
- Decision-making process
Besides the trading plan, you need to take a realistic approach to forex trading. Don’t expect to make $1 million a couple of days after opening a $1,000 trading account.
Also, ensure that you maintain a clear record of all the money you make or lose. A trade journal will help you record your trading journey, including the trades you place and their outcomes.
It is also helpful to remember that professional traders consider trading forex as a task of managing risk. Ensure you avoid risks that can lead you into financial ruin. Take time to learn diverse money management techniques to minimize risk without capping your potential.
Never Stop Improving Your Technical Analysis
Forex trading offers different approaches and techniques that help you make well-thought-out decisions. Embracing technical analysis is an essential first step toward excelling as a forex trader.
Technical analysis enables you to minimize randomness and increase predictability in your trades. With technical analysis, you can also quickly observe previous price movements, analyze them, and predict market direction.
Technical analysis works well because traders can assess different technical indicators and use them to predict possible price changes. Besides, technological advancements have enabled multiple traders to get into the industry.
You could also leverage economic indicators to conduct fundamental analysis. In this case, you’ll need to consider the current state of the market and then assess whether specific asset prices will go up or down or plateau.
Furthermore, you could assess your risk/reward ratio to increase your chances of winning. Most traders prefer a minimum risk-reward ratio of 1:2 to optimize their trading business. Ensure that you assess the possibility of multiple outcomes to avoid being too subjective.
Trading forex efficiently requires you to adopt diverse risk management strategies that spread your risk and boost your return’s potential. A rewarding plan could involve diversifying your portfolio to create a more stable portfolio. Such methods ensure you trade more consciously in the forex market.
Key Takeaways
The forex market comes with multiple risks that can easily lead to financial ruin for an uneducated trader. However, diligent trading strategies result in positive rewards. Prospective traders should always focus on long-term goals and ambitions, keeping in mind that it takes time to master forex trading.
Decision-making in forex trading also gets better with time. Forex trading is not similar to spinning a slot machine. Regular practice can help you develop strategies that’ll help you make profitable trading positions.
Helpfull Sources
Sources
- Axiory: Why do some people mistake forex for gambling?
- Daily Forex: Is Forex Trading gambling?
- FX Empire: 5 Ways to Control Risk When Trading Forex
- Forex Traders: Key Risk management Principles for forex trading
