Is Forex Trading Gambling? The Short Answer Is No 

Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound

 

To the uninitiated, there appears to be little difference between forex trading and gambling. The same can be said of any form of financial trading. There are many layers to the question, is forex trading the same as gambling? After all, financial trading isn’t just the buying and selling of financial securities on the open market. It also covers a broad category of behavioural norms and practices that blur the boundaries between legitimacy and impropriety. For that reason, it’s important to have an honest discussion about the business of forex trading and how it compares to casino-style gambling.

The Business of Forex Trading

Forex trading is the world’s most liquid financial market, operating 24 hours a day, five days a week. Each day, governments, banks, investment firms, corporations, traders and speculators access the foreign exchange to facilitate trade, purchase foreign securities, streamline interbank market transactions and take advantage of price fluctuations. If the business of forex were one big casino, it would be the largest in the world.

If you look closely, you’ll realize that the foreign exchange is a vital component of the global financial system. It affects all of our lives to a considerable degree. Certainly as an investment vehicle, it has evolved a great deal to provide easy access to alternative asset classes1. The rise of the information age and availability of online platforms have made the forex market easily accessible to individual traders around the world.

Understanding Gambling

According to dictionary.com, the definition of gambling is:

1. The activity or practice of playing at a game of chance for money or other stakes.
2. The act or practice of risking the loss of something important by taking a chance or acting recklessly2.

Gambling involves pursuing a return on investment that is well beyond the amount of effort put into the act. Although there may be some mathematical logic to it, price patterns and analysis are far less likely to play a role3. Success in gambling is overwhelmingly based on luck and chance rather than skill, as games of chance rarely offer the opportunity to develop the skills needed to generate consistent returns.

According to a new body of evidence, gambling addiction can be spotted in the brain4. More and more, doctors are diagnosing gambling addiction as a disease5. One can easily see how such behaviour would adversely affect an individual’s approach to forex trading or the financial markets in general. In fact, Jay Meisler, a partner in Global-View.com, summarizes the issue perfectly:

“Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas. If you treat forex trading like a business, including proper money management, you have a better chance of success.”6

Success in Forex Trading

Success in forex trading is the furthest thing from gambling. Successful forex traders operate on a high level of planning, organization and risk management. Their success is rooted in skilled assessments of the financial system and the ability to capitalize on opportunities at the right time. This requires a great deal of understanding of technical and fundamental analysis. A good trader can sharpen their skills to generate consistent, measurable returns over time. In gambling, this is usually impossible.

Forex trading is not gambling when it is treated like any other business or profession. Unlike gambling, the more time and effort you put into trading, the more you will get out of it. The world’s most successful traders have honed their skills over many years, and some have taught what they know to others. The famous Turtle Experiment of the 1980s provides a perfect example of how successful trading can be learned. Self-made millionaire trader Richard Dennis, who had long made hundreds of millions of dollars on Wall Street, trained 21 people to trade futures using his methods. After financing their accounts with a few thousand dollars, his protégés generated a collective $175 million over five years7.

Although this may be an extreme example, it demonstrates that trading skills are learnable. Ultimately, it’s up to the individual trader to take responsibility for their actions and avoid overreacting when the market goes against them. Learning how to control your emotions is one of the most critical aspects of developing a healthy perspective on the financial markets.

1Finances.com. Forex Education.
2Dictionary.com. Gambling
3500Traders.com. Is Forex like Gambling?
4Science Nordic (March 6, 2013). “Gambling addiction can be spotted in the brain.” Science Nordic.
5Cynthia Lee (January 10, 2011). “Doctors treat gambling addition as brain disease. UCLA Newsroom.
6John Bland, Jay M. Meisler and Michael D. Archer (2009). Forex Essentials in 15 Trades: The Global-View Guide to Successful Currency Trading.
7Michael Carr (September 10, 2008). “Turtle Trading: A Market Legend.” Investopedia.

Leave a Comment


Broker Cyprus TopFX