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Is forex trading gambling?
Written by: PaxForex analytics dept - Tuesday, 24 February 2015 0 comments
Many inexperienced forex traders and those who have failed at trading forexare quick to dismiss forex trading as gambling. Lack of knowledge and frustration are the two biggest contributors of this misconception. Forex trading is nothing like gambling, but many fail to understand this. Cynics will point to the high failure rate of successful forex traders which in turn can be partially attributed to the mindset that forex is indeed gambling.
One of the biggest mistakes new forex traders make is to approach trading forex with the gambling mindset. The size of the forex market with daily turnover approaching $6 trillion every day, dwarfing the equity markets, is intimidating to many. This leads to misjudgments about trading forex. When you had the leverage offered to forex traders, which can be up to 1:500 while some brokers are known to even offer 1:3000, and the entire forex market seems to overwhelming.
No other market offers this unique combination. Imagine the following situation: You have $1,000 to invest in the forex market, your broker offers you a 30% bonus which means now you have $1,300 in your trading account and if you selected a leverage of 1:500 now you can control
a forex portfolio of $650,000. Understanding how the forex market functions is important if you want to succeed. Despite the fact that you can control $650,000 you can only lose your initial deposit and not any more.
Gamblers function based on a different mindset and new traders are best advised to avoid the gambler mentality as well as the idea that you can get rich quick as a forex trader. Plenty of time needs to be spent on proper education before even considering trading. After the education part it can take years to perfect a trading strategy which allows forex traders to earn profits from trading on a sustainable level. Trading forex has nothing to do with luck or gambling, but comes down to proper management of funds and creating a risk profile which prevents excessive losses.
Why do so many forex traders fail at trading? There are numerous reasons which can lead to the lack of success, but thinking that forex trading is similar to gambling or that luck is involved. How can this be avoided? Take it one step at a time, compare forex trading to building a home. You do it layer by layer and do not start with the roof, but down with the basement from where you build up. Forex trading is similar to that.