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Differences Between Forex Trading and Gambling
Written by: PaxForex analytics dept - Thursday, 15 February 2018 0 comments
Numerous attempts have been made to simplify trading in the forex market, and while a degree of success has been achieved in this area, trading forex is more than installing a trading platform, funding an account and clicking a buy or sell button on your computer. In fact, trading has often been compared to gambling since a high degree of risk and speculative activity is involved. Nevertheless, some very important differences exist between the two.
There are basically no rules in the trading arena, it is just you versus you, and the winner or loser will be you. Sure, you can think you are trading against other market participants, but in reality, you are trading against yourself. You are the one who determines whether you make or lose money in the markets. The point is when you put a human being in this unbounded trading environment, they have nearly unlimited temptation to gamble with their money, so we have to devise a plan to combat this temptation. Many traders think they are trading when in reality they are behaving exactly like someone with a gambling problem.
If I am a shoemaker, then my efforts create a pair of shoes that someone else can wear (new wealth), while I earn an income from cobbling. When I am a trader or gambler, I may earn an income, but there is no additional wealth created. Some markets experts would claim traders create market liquidity to the benefit of long-term investors, and that this in itself has value, similar to “new wealth” creation. But because trading and gambling involve capital transfer without capital creation they are viewed skeptically, especially when their outcomes are unpredictable. Society generally prefers
the shoemaker-type endeavor because it creates something others find valuable.
There are a number of forex traders who are able to make consistent returns from trading the forex markets. While this group is relatively small estimated to be between 10-20% of the total forex trading population, this suggests that skilled traders may be able to turn a profit from forex trading. Gambling typically precludes gamblers from being winners in the long run, due to the fact that most games have a built-in advantage for the house. For instance, the game of Roulette will see the player go bust eventually though this may take a considerable amount of time. With forex, there are numerous instances where traders have been able to remain consistently profitable over the long-run, which suggests for skilled traders forex is not akin to gambling.
Gambling tendencies run far deeper than most people initially perceive and well beyond the standard definitions. Gambling can take the form of needing to socially prove one's self or acting in a way to be socially accepted, which results in taking action in a field one knows little about. Gambling in the markets is often evident in people who do it mostly for the emotional high they receive from the excitement and action of the markets. Finally, relying on emotion or a must-win attitude to create profits rather than trading in a methodical and tested system, indicates the person is gambling in the markets and unlikely to succeed over the course of many trades.