People often mistake the stock market and forex trading for gambling, but it is not. Trading and gambling are two different terms but are used interchangeably by mistake. Though one thing is common in trading and gambling, and that is taking the risk. In both, you indulge or lose money to win it in multi-folds.
Is Forex Gambling?
Forex trading is not gambling because gambling is based on taking risky action in the hope of a desired result. Trade is a methodical and systematic process not based on luck – it is based on analysis and testing. However, many traders that trade because of excitement has hidden gambling tendencies. Poor risk management without analysis and testing can change the trading process into gambling.
When you gamble, you prefer luck to have a driving seat, just like you roll a dice; you never know what would be the outcome. It is just mere taking chances. Though when you trade, you don’t enter the market with luck as the market discounts everything. A trader analyzes the market conditions, and based on his/her analysis, concludes what would happen.
As a forex trader, you can also apply various trading strategies, patterns, indicators to know when to trade; it also increases the chances of winning the trades.
By having a mindset of a gambler, trading also becomes gambling. If you trade without understanding the market, without a trading plan, and without doing any research on your part, you are just gambling in the forex market.
Unlike gambling, if you apply your logic in forex, you have better odds of winning. The best way you can do so is by having a forex education. It will make you a trader from a gambler if you are one. This article would help you to learn these concepts better.
When Trading Becomes Gambling?
When you put your money in trading without having a plan, it becomes gambling. It can happen in several ways, as stated below.
1. When You Chase Losses
This is a prevalent and worst type of mistake that forex traders often make. In such cases, a trader keeps on betting money even when he/she is losing money. It is similar to gambling in casinos, where you keep on trying to win your lost bets by making more bets, and in the end, you lose more bets than you initially had in your account.
It is indeed a vicious physiological cycle fuelling the concept of winning in a gambler’s mind. But traders often forget that it is risky to trade so blindly. If a trader has used leverage for the same, it becomes many times more perilous than the initial trade.
Let’s understand this with an example. Susan is a forex trader and buys USD/JPY at 2.3333. At the end of the trade, her position is at 2.3110. She made a loss. But now, instead of accepting the fact she made a loss and moving on, she freaked out and ended up taking a similar new position immediately.
She didn’t see market conditions, opening price, or volatility; she just entered the trade, and in the end, ended up multiplying her loss. Her mindset was to settle her loss, but she gained more enormous losses. Her panic and short-sighted vision led her to take bigger trades.
Often, a trader keeps on trading and repeating this pattern until nothing is left in their account. They might make a little money in this process, but this kind of mindset is hazardous if one wants to be in the trading arena for the long term.
2. When You are High on Winning Trades
Well, everyone’s trading journey is different, and so is how their forex trading turns into gambling. When a novice trader enters a trade and by chance ‘Get Lucky,’ he/she may feel that he/she has got it and can make money very easily.
But often, it is just the beginner’s luck, and it would not back every trade. However, the wins, in the beginning, make them so excited that they end up misunderstanding it for their capabilities.
As a result, such forex traders keep trading the way they are trading without studying the market, but trading in such a foolish way leads to a bubble blast someday. Things get worse when the trades are bigger. Having a gambler mind can lead a person to believe that if he/she gets profit with such a small amount, he/she will do wonders if traded with big trades. That’s how they get into a disastrous loop.
In this case, a trader is not chasing the profit, but he is pursuing the high of gaining the trades. They have the capacity to involve all their money to get the feel of winning by luck as they did for the first time (on a loop.)
How Can One Identify the Signs of Gambling?
Gambling is very similar to addictions and can be identified with a few signs, as stated below.
Under this sign, a person stops interacting with other people such as friends and family because of being so involved in gambling.
Messed Up Financial Condition:
The person ends up gambling the most amount of capital that he/she owns; they may also lose all their savings and borrow money on interest from others to fuel their gambling addiction.
The person gets involved in trading so much that he/she hardly sleeps. Their losses or the thought of losing interrupts their sleep making them feel insomniac.
Their addiction does not stop here, as the person also becomes irresponsible in eating, maintaining hygiene, and taking care of the house.
Their emotional imbalance causes the person to become anxious, hyper-aggressive, or he/she would feel depressed as well.
Challenges in Performing at Work:
The person can find it hard to manage and perform at work. The person may have issues with his/her co-workers, they act absent-minded, and in worst cases, they may gamble at work as well.
These people often combine their addiction to gambling with other addictions such as drinking, smoking, taking drugs, etc.
Oblivion of Other Problems:
The person is so much involved in gambling that he/she can ignore other problems that are in front of him/her.
No Knowledge of Forex Trading:
While the person gambles in the forex market, he/she may not possess any training, education, or knowledge about it.
People struggling with gambling should take help from others without any hesitation. There are many organizations like NHS that help people to come out of their gambling addictions.
How Can You Avoid Gambling Forex?
If you already have a tendency or addiction to gambling, you should avoid getting into forex in the first place, along with any other form of trading. Forex trading seems easy, but it is not for everyone.
If you have just entered the forex trading, you can stop it at any time you feel. You need to have a firm mindset to enter the forex market. You have to learn how to trade in the forex market to avoid forex trading best. Forex education is a must, whether you are a beginner trader or an experienced trader.
Another important thing that one should consider is that forex trading is not a pass time; it requires as much focus as a full-time job or academics. It needs the preciseness to identify the patterns and indicators with the skills that you have gained.
The Bottom Line
No professional traders gamble all their deposits, lose it and try to win it back by trading impulsively. By that, it does not mean that professional traders don’t lose money, but they don’t make the same kind of mistakes repeatedly. They have skills to identify when they can enter the market and exit to earns them a profit. They keep themselves updated with all the news around the glove and apply their own reasoning and logic to practice while trading.
In addition to that, they have their own trading strategy and risk management in place. Traders are likely to lose money at some point in time, but they must control how much they are willing to lose and their risk to reward ratio. Having stop loss is equally important as the market doesn’t go by what you predict, and it becomes essential to have your own safety.
It is also important to know as a trader when you have to give up and continue. Taking slow and steady steps always win. So, the bottom line here is – if you want to avoid forex gambling, the solution is to educate yourself and trade forex just like a professional.
Top Points to Remember
The following points would give you the crux of this article.
- Remember that forex trading is not gambling; if you do not know, it becomes gambling.
- There are signs that a person having addictions to gambling shows like insomnia, lack of self-care, absent-mindedness, etc.
- Those involved in gambling do not have any trading strategy; they trade totally naked without considering anything.
- Trading in forex needs one to have education regarding the same as that is the best way to avoid gambling.
- You can also trade forex on a demo account to learn trading first and avoid losing money.