Is Forex Trading Glorified Gambling?

Trading Discussion
21

IMO, a better term to use than “gambling” is “speculating”. Of course, some people who are speculating are actually gambling, but not all speculating is gambling.

Our product is not currency nor commodities nor equities - it is price. We trade the price development of whatever the underlying product might be. This is legitimate trading and the fact that it is a position based on price does not automatically make it a gamble.

Financial markets are complex nowadays and there are many ways and reasons for using CFD’s instead of the actual underlying product. The use of these does not automatically mean one is gambling.

For example, the futures and options markets have been around for decades already. These are instruments that lock in a price for a future date. They are not the actual product, they are the price of that product. Some futures/options are convertible into the underlying product on expiry but most such contracts are closed before expiry and sometimes rolled over into the next contract date.

Futures and options are used by major industries such as electricity and oil producers to lock in future prices. This is not gambling. Banks use futures and options to hedge against interest rate moves. Investment funds use these instruments to trim their exposure etc.

So one should say that it is NOT the instrument that defines whether one is gambling - it is how the person USES these instruments that defines that.

Speculating is a process that is based on the view that prices will be either higher or lower in the future than where they are now. One might call that gambling, but it is the process and not the product that defines that. It is irrelevant whether the position is formed with the actual product or with an instrument because the prices are tightly linked together.

As has been said, this argument about gambling recurs over and over again. The simple answer is if one is comfortable with trading, then trade. If not, then don’t. :grin:

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22

It might be more interesting to consider what in life is NOT gambling. Many things in life are not as secure as they might seem.

Do you own your own house or apartment? You must have thought its value was going to go up. But that cannot be guaranteed. Nor the possibility that its value will have risen to the point in time at which you need to sell it. Is that not gambling?

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23

It’s very complicated, because spreadbetting is considered gambling in some situations but not in others. It’s confusing to say the least.

I’d certainly consider it as a form of gambling, especially when leverage is involved, but it’s not entirely random like a casino.

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24

I’d hit the block button. He does this boasting thing about never making a losing trade, but only ever trades a $100 account. Ask yourself why somebody would only ever trade a tiny account like that yet never make a losing trade. All the arrogant boasting on the days it goes well get posted on here, but you only see these every couple of months.

That’s not to say there’s anything wrong with this approach. Using a small account to limit your risk is one way to do it, then if it goes badly wrong you only lose a small amount but when it goes well you make a lot. But don’t trust anybody that only shows snippets of their results, or even pictures. Because 99.9% of the time this is somebody only showing you the bit that they want you to see.

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25

Yes, I get the same leverage as from any UK regulated broker but here spread betting profits are tax-exempt.

26

I trade/gamble through a spreadbetting account too :slight_smile:

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27

I forgot, I think you said so before.

28

Given that 70%+ traders are unprofitable with data to prove it, it’s hard to argue that, for most traders, the answer is yes.

One could also argue that there’s a difference between “speculation” and “gambling.”

Speculation is usually described as “taking a view” of the future direction of prices, because “taking a view” sounds more legitimate than gambling.

But isn’t speculating a little more than gambling on an uncertain outcome?

If you have a view that Google’s stock price will be higher next week than it is today, you can buy Google stock. If the prediction comes true, you profit. If not, you lose.

Is that speculating? Or gambling?

You could refine the definitions to where speculation implies relying on “intellectual effort” while gambling relies on “blind chance.”:

But what exactly is intellectual effort? :thinking:

A better definition would probably be:

  • Speculation: bets made based upon calculation, where the outcome has a positive expectancy
  • Gambling: bets made without calculation (or if calculated, have negative expectancy)
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29

Let me first clear up your misconception.

First of all, I never mentioned whether gambling is bad or good. Based on country laws, some places consider it legal, and some consider it illegal.

In this post, I shared my thoughts after reading the School of Pipsology.

What I thought about A Book Forex Trading:

For example, let’s say the GBP price is $2 (in USD exchange rate), and I have $100 USD. So, I have purchased/exchanged it for 50 GBP based on some analysis. If the GBP price increases to $3, I will make a $50 profit when I sell (exchange back to USD), and vice versa if the GBP price decreases to $1, I will lose $50.

With leverage, for example, let’s take 100 as leverage. Any bank or financial institute helps us to increase our purchasing power. So, in this case, with the same $100 USD, I can buy 5000 GBP, and in this case, if GBP increases to $3, I will gain $5000, and if it goes against me, it will become a margin call, and before it hits zero, the bank/financial institute that provided me leverage will remove their money, and my balance becomes zero.

Here, you can see real buy, sell, and exchange are happening.

What actually Forex Trading is (I understand after reading the School of Pipsology):

We deposit money into Forex Brokers’ accounts who act as market makers or mediators between market makers (also called Liquidity Providers).

Here, if I take any trade, I am not actually buying. It shows my leverage is 100X, but on the screen. In the backend, nothing changes.

If I deposit $100 and earn $1000 - the broker or their market maker partner will lose. If I lose my money, the broker or their market maker partner will win.

So, they balance between the 2% of traders who win and the 98% of traders who lose. In reality, no one is exchanging the currency based on your trade. You’re just betting, seeing the real price.

And finally, even after learning that Forex works differently than I thought, it will benefit me in making future investment or trading plans. I am not going to stop trading; I am not against gambling, I am not against market maker forex trading. I am just sharing that Market Maker forex trading is too much similar to gambling.

30

Yes, it is Red flag.

Real earners or winners do not shout, and those who bark usually don’t make real or enough money.

31

Thanks for the beautiful explanation about speculation and gambling. However, people who buy Google stock based on blind predictions are still considered gamblers, even if the transaction is executed directly in the market. On the other hand, if someone buys the same Google stock because they have introduced something new (e.g., AI, future development, etc.) that can truly impact their company’s growth, that is called real trading.

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32

Buying Google shares on the expectations that a new product or innovation will contribute future growth could also be seen as gambling since there’s no guarantee that future growth will actually occur. The opposite is also quite possible.

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33

What would you do if i tell you trading is gambling, or how would you feel if i tell you trading is no gambling?

I’ve spent ten years analysing sports and lotteries, but one thing is evident — no amount of your analysis is worthwhile, there’s always a simulated result.

In trading, the results ain’t simulated. Infact, we as individuals drives the price…

34

Yes, we are betting on exchange rates.

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35

I am failing to see the difference. Ok, your trade, let’s say CFD trade, might not have intrinsic value. It is a bet, up or down. But the underlying has intrinsic value. The currencies you are trading has value. And, if the instrument you are trading did not exist, if you had to trade the actual pair, it would cost insane amounts, most fx traders would not be able to get involved (as was the case up until the 90s I believe). A CFD, which is what most of us are trading, is a derivative. Just like a stock option. Is an option not a bet? It is a bet, not gambling. Gambling is random (red or black), a bet is more founded. “I bet Man City will beat Burnley, because they are a much better team”. Gambling would be “I hope Haaland is injured, and Burnley will get a lucky penalty and win”. All investments are bets. If not, they would be a sure thing and everyone would make millions.

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36

gambling or not is not a problem ,to a winner

37

We are make many bets everyday that something happen or not . We “Gamble” if you make a “Bet” randomly without use any information , for example , we use a coin to make decision, this is called gamble . But , if we use mathematics , Statistics , and any other advance technology like Machine learning to predict or to find best time to enter or exit , this is not a Gamble any more
This is correct for small decisions like to go rights or left up to complex decisions things include trading
To make it short , it is Gambling based on your way of "making Decision "

I want to put my own experiences here too , many traders discuss about predict the direction of next movement , for me , I am looking for "Accumulative Profit Trend ", at then if you prediction is 70% but Accum Profit is negative your strategy is not working , all the time when you back testing your strategy check the accumulative trend , it could 50% of trade wrong and 50% correct but the Profit trend is growing over time

Good luck for all

38

Trading and investing is the act of committing capital to an asset, such as stocks, forex, bonds, commodities, etc with the expectation of making a profit. Gambling, on the other hand, is basically just wagering money on an outcome which is uncertain. Warren Buffett summed it up best when he said this about investing - “risk comes from not knowing what you are doing.” Trading only becomes gambling when you don’t know what you are doing. The more knowledge, education and skills have you in investing and trading, the less risky the venture becomes.

39

Google accepted my claims and consider my post as answer :slight_smile:

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40

This is irrelevant.

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