Comparing forex trading to gambling holds an argument that is, on its own merits, practically sensible. The mechanics are analogous in that both activities are exposed to a financial risk and reward tradeoff. Addiction is presumable, and evidently, emotional roller coasters are also at play. That is why it is no question that trading currencies has been likened to a form of gambling.
A quick look at the random walk theory
In the past, those who praised the random walk theory embraced the idea that historical and breakthrough information is irrelevant to the predictability of stock prices.
So even if there’s an underlying business corresponding to the equity, proponents of the random walk still believed that information about the company’s finances is fruitless to determine the future movement of its stock price.
While at present many would agree that the stock market isn’t exactly efficient (because, for one thing, there wouldn’t be bubbles), other markets like currencies are often labeled as a mere game of chance.
And, disappointingly, those being initiated into the forex market often ask, is forex trading gambling?
Characteristics of currencies
To understand the cloud of doubt over a vast market such as currencies, traders must carefully look at its characteristics.
In the past, currencies, like the US dollar, can redeem a certain quantity of gold, but since the defunct of the Bretton Woods Accord in the 70s, they are virtually worthless having no ties to any asset.
One way to look at a currency is simply a way to facilitate an exchange without straining on the precise number of apples to trade for a cow — barter, that is to say.
However, some countries that are reliant on exports as a growth factor may prefer a weaker one and thus may intervene in the "devaluing" of their currency. This is done to enhance the competitiveness of exports in international trade.
Intrinsic Value of Currencies
Compared to stocks, currencies have no intrinsic value, but it does have relative value meaning that its price is only determinable if contrasted to another currency.
That’s the reason why the US dollar, for instance, has differing values when juxtaposed with another country’s currency — against the Japanese yen, it’s more valuable, but next to the British pound, it may be not.
Stocks, on the other hand, are partial ownership of fully functioning businesses.
Put differently, there are revenues and profits to be made, and the corporate financial figures is a way to arrive at fair stock price.
Why is Forex linked to gambling?
The question of why Forex is considered gambling can be pinned on several factors, dishonest marketing tactics and scams are just a few. But the brunt of the blame should be on the forex traders themselves who lost a lot of money in trading.
It is an accepted fact that trading forex is risky, and the use of high leverage only multiplies the risk. Still, plenty of newbies are headstrong and confident that they are cut from a different cloth than all those who had failed before them.
But when they also fail, they throw shade at the entire industry.
Other newbie traders exhibit cluelessness as if they were somehow teleported to the world of currency trading and forced to trade without the proper know-how.
The minute these clueless traders realize that they're rapidly losing in their trading account, they scream “scam!” They don't even think of blaming themselves.
But, they’re only half culpable though -- the other half are the brokers who got them there. The brokers who practice devious methods of luring clients to trade the forex market so that they could earn their share of the pie.
And, lastly, some are just outright gamblers, traders who don’t necessarily snark at forex trading but completely embrace the notion that it actually is gambling.
They enjoy being part of a game with high stakes nonetheless.
Combining the factors
The fiat money, as stated, is virtually worthless.
Its value relative to others is manipulable, and a country’s poor policy-making can erode its credence as a monetary unit. Its value fluctuates daily and sometimes can be erratic.
Companies that strive from marketing campaigns with a get-everyone-to-trade approach only victimize rookie traders.
Gamblers-turned-market-players perpetuate the idea that currency trading is luck-based.
In short, when the characteristics of currencies are combined with the misguided approaches to trading plus bad experiences due to some shady brokers, an iffy industry is created.
So Is Forex Trading Gambling?
Trading currencies, with all the risk associated with it, can only be considered gambling if a calculated strategy is absent.
It all boils down to how a trader approaches the currency game. If the strategy exploits factors that influence currency movement as opposed to randomly buying or selling currency pairs, then it isn’t gambling.
Gambling does have a strategy too, though, but it’s mostly linked to excessive risk-taking, which ups the potential risk and reward simultaneously. Quite often, the meaning of “to gamble” interchanges with “to risk.”
Nonetheless, if there’s a calculated strategy or a factual basis for taking a trade, then that means that there are efforts to mitigate risk rather than soak up all of it.
But, at the end of the day, a Forex trader only speculates.
Are you convinced that Forex trading is not gambling?
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