Many people nowadays are exploring the potential of earning passive income through investments by engaging in online forex trading. Forex and stock market trading offer opportunities to generate extra cash, but they also carry the inherent risk of losing all your invested funds. On the flip side, gambling involves voluntarily wagering your money with the hope of winning a higher amount. It’s often referred to as a “game of chance,” but there are significant risks associated with it, which could potentially lead to devastating consequences in your life. So, let’s delve into the question at hand: Is forex trading gambling?
What is Forex Trading?
Forex trading entails buying and selling foreign currencies through brokers, banks, or local markets with the aim of making profits. When you buy a currency and it appreciates in value compared to your initial purchase price, you stand to make a profit. For instance, imagine you intend to buy Japanese Yen using US Dollars. Let’s assume that one US Dollar is equivalent to 110 Yen, and you decide to invest 100 Dollars.
Now, you possess 11,000 Yen. If the Yen’s value against the Dollar decreases, reaching 115, you could have around 11,500 Yen with your initial 100 dollars. In this trade, you would earn 500 Yen, approximately equivalent to 4.3 dollars. The timeframe for such price movements can vary widely, spanning from just one minute to one hour, one day, or even one month.
It depends on a multitude of factors, including the economic situation of the countries involved, macro and microeconomic developments, inflation rates, unemployment figures, or global news events related to these countries.
What is Gambling?
Gambling diverges from investment in several ways. In gambling, you willingly stake your money, anticipating the possibility of winning a larger sum quickly. Gambling, when taken to extremes, can become an addiction and includes various forms, such as card games, slot machines, sports betting (including soccer and basketball), roulette, blackjack, and more. Whether online or in traditional casinos (where permitted by law), gambling is a prevalent activity in today’s world.
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Participating in gambling doesn’t require specific information or skills. You merely enter a game or activity and risk your money with the hope of securing a larger amount rapidly, without exerting substantial effort. It’s as straightforward as that.
Differences Between Forex Trading and Gambling
In forex trading, you need to possess at least a basic understanding of economics, familiarity with currency dynamics, and the willingness to conduct research and stay informed about news relevant to your investments. Successful forex trading demands not only knowledge but also a fervent commitment to managing your positions, as making a wrong decision at the wrong time can place your entire investment at risk.
Conversely, in gambling, you don’t require any specific knowledge or information. Extensive research is unnecessary, as luck primarily dictates the outcome. The critical distinction lies in the reliance on chance. While both forex trading and gambling entail risks, gambling hinges entirely on luck and doesn’t necessitate the same level of knowledge or diligence as forex trading.
Gambling promises the potential for rapid profits, but emotions can be challenging to control, and this lack of control can lead to losing your entire stake. Regrettably, many individuals have experienced this, and it’s why experts classify gambling as a component of “Addiction-related psychological disorders.”
Similarities Between Gambling and Forex Trading
Leverage in forex trading is a factor that leads me to classify forex trading as having similarities to gambling. Here’s why: Forex offers tools like “leverage,” which functions akin to gambling strategies. Leverage entices individuals to invest more and risk larger sums with leveraged capital.
What is Leverage?
Leverage, at its core, involves trading with borrowed funds. Numerous brokers provide leverage ratios, ranging from 10X to 2000X or more. To illustrate, suppose you invest 100 dollars with a 2000X leverage ratio. This implies that your 100 dollars are treated as if they were 200,000 dollars, and your investments are calculated based on this larger sum.
For instance, you invest 100 Dollars with a 2000X leverage ratio. With this leverage, you could potentially acquire 22,000,000 Yen using your initial 100 Dollars. If the Yen appreciates and becomes 115 against the Dollar, your investment could be valued at approximately 23,000,000 Yen, resulting in a net profit of 1,000,000 Yen, which equates to 8,600 Dollars. This represents your profit! However, the inverse holds true if the Yen strengthens against the Dollar.
Controlling your investments under such leverage can be exceedingly challenging, as the system may liquidate your positions within seconds if your actual investment is insufficient to cover market fluctuations. This level of risk is substantial, and nearly 99 percent of individuals who utilize high leverage ratios end up losing their entire investments, sooner or later.
Similar to gambling, individuals engaged in forex trading with leverage often entertain the notion that they can become millionaires overnight, especially when significant capital is involved. This notion primarily arises due to the influence of the “dopamine hormone,” which fosters these beliefs.
If you have a propensity for addictive behavior, your approach to forex trading may begin to mirror gambling. The majority of forex traders employing leverage eventually transition from investment to gambling, often in an attempt to recover previous losses incurred in casinos or online gambling platforms. Furthermore, both gamblers and traders may struggle with impatience, craving swift results, whether within minutes or seconds.
Both gambling and forex trading provide platforms that can trigger the brain’s prefrontal cortex, responsible for reward processing. The allure of platforms stems from captivating figures, currency symbols, upward trends, captivating designs, and immersive sounds. Some gamblers report that they’re drawn to the visual and auditory stimuli provided by slot machines and leave feeling satisfied, even if they experience losses.
Upon analyzing both online casino platforms and forex trading platforms, you’ll observe that numbers, symbols, colors, and imagery consistently feature in high definition with attractive color palettes. Based on my experience with forex traders, they often return to leveraged forex trading when they encounter uptrend charts similar to the example figure below:
They explain, “When I see the green upward trend, my mind instinctively calculates the potential winnings I could accrue through leveraged trading. Inexplicably, I find myself drawn back into the system.” Some even admit that after experiencing leveraged trading, they no longer favor the traditional approach to forex trading.
Both gambling and forex trading offer ample reasons to engage in the activity. In forex trading, you’ll find handy applications and well-established websites that share calendars detailing upcoming critical economic events. These are often touted as “golden opportunities,” enticing traders with the promise of heightened market volatility. Upon careful examination of the calendar, you’ll notice that nearly every day (except weekends), sometimes every few hours, features significant economic events across different parts of the world.
This dynamic heightens the trader’s eagerness to participate in a multitude of events listed on the calendar. The same principle applies to gamblers, who are provided with meticulously designed apps and websites offering comprehensive information about sports teams, their current situations, potentials, and more.
Both gambling and forex trading are available around the clock, with forex trading open 24 hours a day during weekdays. This continuous availability is attributed to the fact that as one market closes, another opens in a different part of the world. As a result, you have the opportunity to trade (or gamble) whenever you please.
Gambling is available 24/7, offering a full suite of features. Whether it’s sports betting or online casinos, you can access gambling platforms at any time. Similarly, the world of sports never ceases, with one league concluding only for another to commence. The timing is meticulously organized for both gambling and forex trading to ensure continuous participation, whether it’s day or night, weekday or weekend.
Yes, the question “Is forex trading gambling?” can be approached from the perspective that forex trading shares some significant similarities with gambling, particularly when leveraged trading is involved. These similarities include enticing participants with the promise of rapid wealth accumulation without requiring extensive knowledge or effort.
However, it’s crucial to recognize the inherent risks associated with both activities. Engaging in them recklessly or without a solid understanding can lead to substantial financial losses and potentially harmful consequences. If you have a history of significant losses due to gambling or a propensity for addictive behavior, you should exercise caution and carefully evaluate your involvement in leveraged forex trading.
There are no guaranteed shortcuts to wealth in this world, except perhaps through a lottery. Consider sharing your experiences and opinions in the comments below if you believe that forex trading can be akin to gambling.