Let’s take a look at a more specific example of blackjack odds to get a better understanding of where the comparisons between forex trading and gambling hit a roadblock.
One of the most important characteristics of blackjack, as well as any other casino game, is that no matter how professional a player is, the house will always win in the long run. Granted, some people will win big prizes, however, the total losses will eventually cancel out winnings and turn the balance positively towards the casino. In a typical casino, the more you play, the more you are likely to lose.
In gambling, the house is the ultimate winner, because the gambling house has an edge over its customers, which makes opening a casino a viable business in the first place. In blackjack, a player has to always act first when the first round of dealing is over. And when they hit a card (demand another card from the dealer) and bust, i.e., the card values go over 21, they lose, even if the house goes bust as well. Interestingly, the chance of this happening is about 28%.
Another detail that needs to be mentioned is that every hand value has a specific probability of busting a player. For example, if a player has a hand value of 11 or lower after a starting hand, there is a 0% probability that they will bust. Immediately above the value of 11, this probability increases massively: 12 hand value – 31% chance of busting, 13 hand value – 39% chance of busting… By the value of 20, the probability of busting is 92% and at 21, a player is nearly guaranteed to bust by hitting an extra card.
Now, players can use different techniques like doubling down to increase the payouts, splitting the pair, etc. to reduce the odds that are in favor of the house. However, the house has the upper hand regardless of the measures taken by the player.
Trading Forex isn’t gambling – Here’s why
Unlike gambling, there is no “house” in Forex trading. Your competitor on the market is another trader with their own interests. What's more, not all market participants are interested in making vast profits. The list of Forex market participants include: commercial banks, central banks, retail and institutional traders, governments, multinational corporations, etc. Multinational corporations do not focus on losing money when exchanging currencies. They trade currencies out of necessity, as they operate in multiple countries and need various currencies.
Psychological factors can do a lot of damage to your performance on the forex market. If you do not have a plan that you stick with, there is a high chance that you will lose money. It is essential to have clear expectations and objectives when trading forex to avoid overleveraging and excessive risk-taking. Knowing your risk tolerance is also incredibly helpful.
What differentiates Forex and gambling is that traders aren’t passive participants of the process where they’re intentionally put in a worse position by the market. By using various strategies and tools, traders have the ability to turn the odds to their advantage and get ahead of the market, and grow their trading balance.
Another key distinction between forex trading and gambling is institutional activity. For example, a pension fund is unlikely to hire professional poker players to make money, but they certainly employ forex traders to get ahead on the market. Additionally, proprietary trading firms also fund forex traders, while professional gamblers do not have such privileges.
How can a trader turn the odds in their favor?
There are different approaches and techniques in trading that enable people to make more conscious and well-thought-out decisions. Let’s have a look at some of the most popular ones:
- One of the most widely-used approaches is to incorporate technical analysis into trading. With this method, traders can further minimize the resemblance with gambling by minimizing the randomness of a trade. Technical analysis allows people to observe prior price movements, analyze them, and speculate in which direction the market will move. And there are lots of technical indicators that make this possible;
- A trader can also conduct fundamental analysis with the help of different economic indicators. By using this method, they can observe the current state of a company, market, or an economy, assess their strengths, and determine whether the price of an asset will increase, decrease, or stay the same;
- There are also various risk management strategies that add stability to their portfolios. For example, a trader can diversify their portfolio by using different trading instruments.
- Traders can search and develop trading strategies, test and backtest them using trading platforms to see which strategy can give them an edge over other market participants.
Obviously, these aren’t the only strategies that help traders increase their odds of success, as there is no way of consistently predicting the exact future price points on a chart. However, they still give traders a better chance of achieving success and getting ahead on the market.
FAQs
Many people lose money in Forex trading due to lack of education, poor risk management, emotional decision-making, and unrealistic expectations. Failing to understand market dynamics and relying on speculative approaches without proper analysis contribute to significant losses.
What is the number one mistake forex traders make? ›
One of the most common mistakes new forex trading make is not having a trading plan. A trading plan is a written set of rules that outlines a trader's entry and exit points, risk management strategies, and other important details.
Is forex highly manipulated? ›
So, while many regulations are set to prevent it, market makers manipulate forex through various means to increase their profitability. Market makers employ several strategies to achieve their goals through market manipulation.
Is forex basically gambling? ›
So is Forex really a gamble? Many traders who are into Forex trading approach this full-fledged business in a somewhat hazardous way. This, of course, does not bode well. While it may seem that Forex trading and gambling have a lot in common - after all, both are primarily games of chance - the opposite is often true.
Why do 90% of traders lose? ›
Most traders fail because they do not invest enough time and effort in learning about the markets and trading strategies. They enter the market without a proper plan or strategy, which leads them to make poor decisions and lose money. Another reason why traders lose money is because of emotional decisions.
What is the dark side of forex trading? ›
A staggering 95% of Forex traders lose money due to a combination of high volatility, inadequate risk management, overleveraging, and lack of experience or knowledge.
Has anyone gotten rich from forex trading? ›
Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.
What is the biggest forex scandal? ›
The forex scandal (also known as the forex probe) is a 2013 financial scandal that involves the revelation, and subsequent investigation, that banks colluded for at least a decade to manipulate exchange rates on the forex market for their own financial gain.
Why am I losing so much in forex? ›
The reason many forex traders fail is that they are undercapitalized in relation to the size of the trades they make. It is either greed or the prospect of controlling vast amounts of money with only a small amount of capital that coerces forex traders to take on such huge and fragile financial risk.
What is better than forex? ›
If your goal is to take a buy-and-hold approach for positions in the long-term, then the stock market is a safer and regulated option that can result profits in even larger profits over a period of time, if that stock is successful.
Toxic traders employ strategies that exploit inefficiencies or imbalances in the market to gain an unfair advantage. Common toxic trading behaviors include: 1. Latency Arbitrage: Exploiting the time lag between price feeds to profit from price discrepancies.
How to spot forex manipulation? ›
Detecting Forex Market Manipulation
- Unusual Price Movements: Sudden and unexplained spikes or drops in price, especially in low-liquidity periods, could indicate manipulation.
- Abnormal Trading Volume: Significant increases in trading volume without a clear reason could be a sign of manipulation.
In essence, while the potential to make money is real, it is neither easy nor guaranteed. The key to unlocking forex trading's opportunities lies in realistic expectations, meticulous planning, and a steadfast commitment to personal growth and financial literacy.
Is forex a game of luck? ›
The role of luck in forex trading
Luck can be a factor in short-term gains, but in the long run, it is the trader's abilities and strategies that determine their success. Therefore, relying solely on luck is not a sustainable approach to forex trading and is unlikely to lead to significant wealth.
Is forex trading against the Bible? ›
Trading is a business, and like any other business it has risks. Trading, even when done in ignorance (which is the way that over 90% of traders approach it) is still not sin. Trading is wrong only when the person doing it is behaving foolishly instead of wisely. Foolishness is not immorality, nor is it sin.
What percent of forex traders fail? ›
Trading the financial markets is notoriously difficult and many wonder what percentage of forex traders fail. Using official data from 32 ESMA regulated brokers, my research shows that an average of 72.2% of forex traders lose money.
What percentage of people succeed in forex? ›
Forex trading is a popular way to make money, but it's also a risky business. Many people start trading Forex with the hope of getting rich quick, but the reality is that most Forex traders fail. So, how many people actually succeed in Forex? The exact number is difficult to say, but estimates range from 5% to 10%.
Why is it so hard to make money in forex? ›
Statistics show that most aspiring forex traders fail, and some even lose large amounts of money. Leverage is a double-edged sword, as it can lead to outsized profits but also substantial losses. Counterparty risks, platform malfunctions, and sudden bursts of volatility also pose challenges to would-be forex traders.
