Forex Trading and Gambling - Are they the same thing?

[Nick]

I often get asked this question when after people find out what I do for a living.

My response to the question "Do you think trading is the same is gambling" is always an unconditional YES.

Now - this doesn't mean that you can't make money consistently from it. There are professional punters all over the world following thousands of different gambling pursuits and making a living from it.

But don't kid yourself into thinking that being a trader makes you more sophisticated than the average Joe losing half his paycheck at track. The only difference is how you treat your trading. If you're getting a rush out of opening and closing positions then you're probably doing it for the emotional rush of winning. This emotionally driven trading will almost certainly result in lost sleep, and a depleted account. Just like your average gambler...

A few reasons I believe forex trading is just another form of gambling:

- When trading, an individual takes a view on the market based on a series of variables that have occurred in the past. This is the same as a gambler backing a horse based on historic form, a card counter at the casino placing a large wager when he believes the cards are stacked in his favor or a sports fan wagering on their local team because "they're statistically due for a win".

- The odds are against you, his is also known as a house advantage. The spread is the house advantage when trading and it's no different from the zero on a roulette wheel. Over 1000 random trades you are statistically going to lose money every time.

- The ratio of successful traders and successful gamblers is roughly the same. 99% of them fail to earn consistent income from it.

If you want to make money trading stop thinking like a gambler, stop using your compound interest calculator to work out how much money you'll have at the end of the year if you can keep this "hot streak" going, don't get depressed when you lose (hard to do!) and start thinking like a CEO.

You'll never get it completely right, but if you can swing the odds slightly in your favor by having a plan before entering a trade and managing risk then you stand a chance of being part of the 1% that make money in this casino

[Turtle Forex]

Nick I view trading exactly this way. It all comes down to this:

Knowing when to bet
Knowing how much to bet
Knowing when to stop betting

The professional gambler knows how to gain a slight edge on the house and exploits it to make consistent profit over time. Consistently profitable traders do the same thing, they are able to achieve predictable results over a large sample from unpredictable random occurrences based on trading their "edge". On paper it is simple. But while trading is "simple", it is not "easy". The "X" factor is human emotion - fear and greed.

Mark Douglas' book Trading in the Zone completely changed how I looked at trading. I purchased the book in 2001, but did not get my "ah ha" moment until years later. Trading in the Zone sits right next to me on my desk...I read little bits of it every day to reinforce a "Traders Mindset". I was planning on doing a review of this book sometime in the next few days. Its the one book that every trader should read IMO.

Happy Trading!

Joe

[phillip]

I agree, the problem is most people associate the word 'gambling' with a negative image. Some 'down and out' guy desperately putting his last few quid on a 20 to 1 shot, hoping for a miracle or worse.

Gambling is taking a calculated risks, period. You could say as people, we gamble every day through the choices we make. The thing is its in our nature, if it wasn't we'd still be swinging in tress, covered in hair and clearly would not be having this conversation via the Internet. (Conversation for another forum )

The main problem is definitely expectation. I've been well known for trying to make this point (over too many beers granted) that if you were to give me $100,000 and send me to Vegas with a goal of making $10,000, I would be confident I could achieve it. The problem is most people go to Vegas with $1,000 or less to hopefully become a millionaire.

OK that may be a stretch to think I'd achieve that and the house does have the advantage but its not that great of an advantage, statistically, if you were to bet on Red or Black on roulette, for example. The house advantage is only compounded by the human factors, greed and unrealistic expectations.

The same is true for sports and financial markets but we can get an edge over the house by applying some personal understanding of the event or market which will tip the odds in our favour. Unfortunately we can only tip the odds slightly from the wrong side, to the right side of an even money bet. Betting on anything substantially higher than an even money bet, is a quick way to waste that hard earned cash or simply put.. is gambling!

As Nick said trading shouldn't be exciting, it should be boring. If you find yourself checking your balance after a good trade and thinking you have made X amount, your doomed to fail because you will flip out at the thought of a losing trade lowering your prized balance.

Make a long term plan with realistic expectations and you have a fighting chance in this casino!

[shayanjameel08]

Forex trading is not gambling. It is like stock market where the currency prices go up and down, that give you a chance to get profit.

[Guest]

If you know how to read the charts and you know what you are doing then I don't believe it's call gambling.

-ReBORN

[Nick]

If you know how to read the charts and you know what you are doing then I don't believe it's call gambling.

-ReBORN

Hi Asad,

How is reading the charts any different from reading the racing form guide?

Both use historical evidence to predict the future, and both reward you if you're right.

[Big River Man]

You should just be a bookie or a broker. Problem solved.

[benjim]

Hi Asad,

How is reading the charts any different from reading the racing form guide?

Both use historical evidence to predict the future, and both reward you if you're right.

I don't really think it's actually gambling per-se.

My reasoning is because of order-flow. If everyone looks at the form guide and backs number 1, doesn't make number 1 any more likely to win - it's gambling because the odds represent perceived probability of an outcome and the punt doesn't directly impact the outcome.

However, the order flow directly impacts price movement and outcome in trading?

I also distinguish poker from traditional forms of gambling though due to the impact of skill and wagering (in addition to luck) affecting the outcome of hands.

[benjim]

I don't really think it's actually gambling per-se.

My reasoning is because of order-flow. If everyone looks at the form guide and backs number 1, doesn't make number 1 any more likely to win - it's gambling because the odds represent perceived probability of an outcome and the punt doesn't directly impact the outcome.

However, the order flow directly impacts price movement and outcome in trading?

I also distinguish poker from traditional forms of gambling though due to the impact of skill and wagering (in addition to luck) affecting the outcome of hands.

It makes sense in my head but I could be completely wrong though...i've been up for wayyyyy too long.

[Nick]

I don't really think it's actually gambling per-se.

My reasoning is because of order-flow. If everyone looks at the form guide and backs number 1, doesn't make number 1 any more likely to win - it's gambling because the odds represent perceived probability of an outcome and the punt doesn't directly impact the outcome.

However, the order flow directly impacts price movement and outcome in trading?

I also distinguish poker from traditional forms of gambling though due to the impact of skill and wagering (in addition to luck) affecting the outcome of hands.

Most betting agencies adjust odds based on the flow of wagers.

Here in Australia the main betting agency (TAB) ignores form of the horses and instead bases the odds purely on amount of money on each horse.

Horse racing, poker, sports betting, forex trading - they all require knowledge and skill to make money. It's different to the lottery or roulette, however they're all still gambling in my book

[Turtle Forex]

Hi Asad,

How is reading the charts any different from reading the racing form guide?

Both use historical evidence to predict the future, and both reward you if you're right.

Yep, which horse crosses the finish line first, where the ball lands on the wheel, what cards come up on the flop and where the market goes after you click buy are all random events. You can only look to probabilities of one thing happening over another to give you a sight edge. From there its all about when you bet and how much you bet that will determine if you can be profitable over the long term. Though they differ slightly, they all are, in one way or another a form of gambling.

[AsadReborn]

There is more to it than just looking at the history of a single currency, you are looking at the trend of a pair and use indicators, indicators saying that if it crosses this or that then X will happen, you can't do that with horse racing. If horse A crosses B with so many feet then Bwill win for 10 feet then come back then C will win (thinking about EURUSD and USDCHF)

[Turtle Forex]

There is more to it than just looking at the history of a single currency, you are looking at the trend of a pair and use indicators, indicators saying that if it crosses this or that then X will happen, you can't do that with horse racing. If horse A crosses B with so many feet then Bwill win for 10 feet then come back then C will win (thinking about EURUSD and USDCHF)

Asad, you just have an issue with being regarded as a professional gambler....get over it!....hehehehe....at the end of the day they are all random events and we use historical patterns/data to try to predict the probability of the future outcomes. It's OK to be a gambler, I still love ya man!

Happy Trading! (Ummm, or should I say Happy Gambling!...hehehe)

Joe

[AsadReborn]

Asad, you just have an issue with being regarded as a professional gambler....get over it!....hehehehe....at the end of the day they are all random events and we use historical patterns/data to try to predict the probability of the future outcomes. It's OK to be a gambler, I still love ya man!

Happy Trading! (Ummm, or should I say Happy Gambling!...hehehe)

Joe

Gambling is against my religion that's why I avoid saying its gambling lol

[Nick]

Gambling is against my religion that's why I avoid saying its gambling lol

I'm not familiar with your religion, however I suspect that your definition is linked closer to the risking of money for enjoyment or to feed that rush that we all get when winning anything that has an element of chance attached. Is that accurate?

Forex trading isn't as grubby as traditional forms of gambling, so you're higher power will probably cut you a break and term it "investing" when the time comes. Don't worry too much about it