I have been in the forex game for a little while n0w and have, largely, experienced success.

Welcome FXGears' Forex Trading Community! Here you can converse about trading ideas, strategies, trading psychology, and nearly everything in between! - We also have one of the largest forex chatrooms online! - /r/Forex is the official subreddit of FXGears.com, a trading forum run by professional traders. Originally Answered: Is forex essentially gambling? It can be if you have no discipline!! Forex trading should and can be all about making a smart investment, taking the time to learn a system or strategy, practice and test it. You can make a living out of trading if you treat it like a business.

To answer the question, is Forex trading gambling, we have to break it down by the very definition of what it is to gamble. But before we do that, I want to share a brief outline of the way I used to think about trading and gambling. I remember when I first started trading Forex back in late 2007, a little more than 6 years ago.

This success is not down to luck. It is down to hard work, spending a lot of my time looking at different trading methods and strategies.

I have even created a course that has created strategies and proved to generate long term profits.

And yet, I still get this question so often, now is the time to put it to bed.

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Is Forex gambling?

Now, let me first caveat everything I’m about to say on the subject.

No matter who you ask, there is not one person in the entire world that can say with 100% certainty what the next movement in a market will be.

They can be 90% sure, 95% sure, even 99.999999% sure. But never 100%. No one can this or that will happen in the future as fact. It’s not possible.

If it was, then the whole stock markets would become obsolete and the people who can see what will happen will be multi-billionaires.

There are tools available to get you educated and give you a good idea about what can happen, but nothing that can eliminate all elements of risk.

So, with that out of the way, let’s get into it.

What is gambling?

The definition of gambling, taken from the Oxford dictionary, is the following:

What can we take away from this?

Look at the choice of language that the dictionary uses.

Words like risky are being used.

Now, as we know from being forex traders, there are always risks that come from trading.

When you go tow the local casino and spin the roulette wheel, there is always a risk that you can lose and you require only luck to get the win.

Forex however, can end be coordinated in a way that there can be little to no risk involved.

Why do you trade in forex?

If your answer is because you want to make as much money as you can so you can buy whatever you want, chances are you are a gambler.

Why’s that you ask? In one word: greed.

In a way, your answer makes sense. Who wouldn’t want to make a fortune and be comfortable, right?

In truth, your greed will end up taking your account to the cleaners.

Anything can happen in an instant. If you understand this then you can be consistently profitable. If not then you’ll be wasting your time.

Why is forex considered gambling in the first place?

This is because people who are unfamiliar with trading seem to think that all the movements in the market are completely random and cannot be predicted.

In truth, successful forex trading is actually a business model that is no where near like betting.

In order to be successful, forex traders must have hours and hours of learning and studying under their belts. They will be looking at all the different investing strategies and looking for the best opportunities to get in and out of the markets.

Most importantly, because traders plan for such a long time, they will have a lot of data to come up with new theories on when and how to make a trade, rather than just pure instinct and that they can feel it coming.

Gambling is a game of chance purely built on personal desire to win.

The gambling business

When you gamble, you bet on with the intention of winning a far greater amount of what you originally invest.

If we look at poker nowadays, there is a lot of hype around playing in a style called GTO, which stands for game theory optimal.

Professionals using this model to claim that they play the game using mathematical systems in order to play a hand the best way possible.

Mathematical systems aren’t exclusively used in poker. A common technique in blackjack is card counting in order to try and get an edge over the house.

The point is that gamblers use these systems to exploit weaknesses in systems rather than to use your own strengths to gain an advantage.

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This is where trading differs.

Profits that are made from trading are not made from luck alone. Of course there will always be a tiny element of luck but mostly, gains are made from the knowledge of the individual.

Why are casinos a profitable business?

Day after day, week after week, year after year, millions of punters walk in and hope to make a fortune.

Every now and then, someone will come along and win big. That’s the nature of the game.

However, casinos share common knowledge with forex traders: they understand probability.

The games that they make always have the odds in their favour, meaning that it statistically over time, the house will win more than it will lose.

Look at roulette for example. The typical US roulette table has 38 numbers on it. 18 of them are red, 18 and black and here are 2 green numbers.

The best chance you have by making only a single bet is by betting on red or black.

In a best case scenario, you cover 47% of the entire wheel, meaning that the casino still has an extra 3% advantage before it’s even 50/50.

That 3% may not seem like a lot but over a long period of time, the results are staggering and end up making the casino millions of dollars.

People that go to a casino rely on luck.

Traders make sure they have an edge.

Ok, so now let’s dive a little deeper into the trading itself.

Forex leverage

This is actually one of the reasons that commentators use to say that forex is a form gambling.

Many of the platforms that enables trading on the markets (for the record, we recommend eToro) with leverages at levels like 500:1.

The greater the leverage, the greater the risk, therefore makes forex trading no different to gambling.

But remember, the point of using leverage is that you are only required to use a fraction of your bankroll to make larger trades.

It’s easy to explain why this actually is less of a gamble than people realise.

As you will see form our article focused on how to manage your bankroll, we will only be using 2% maximum of our bankroll per trade.

So if our bankroll was $10,000, we would be trading with $200.

If we use the leverage of 500:1 described above, we would trade with $100,000. To those unfamilair with forex, they think that we are trading with $100,000 our own money when in fact we know this is not the case.

If we weren’t using leverage, then to make similar profits, we would need to use 10x our bankroll on ONE trade!

This is highly irresponsible so using leverage decreases risk for making larger profits rather than increasing it as commonly thought.

Confirmation bias

People are quick to seek out information that backs up their theories as opposed to advice or data that would contradict it. This is known as confirmation bias.

Gamblers are often guilty of (I use the term lightly) ‘suffering’ from confirmation bias. They will look for evidence that supports the action they took. This results in them making similar bets as they believe they have found a system.

This often results in a loss, leading them to go back to their excuses

I’m so unlucky, I can’t believe that happened.

Yeah, ok, just like you said the other hundreds of times you made the same mistakes.

Forex trading does not allow for confirmation bias. This is because traders are aware it exists.

It’s common for forex traders to seek contrary advice on trades that they made. Forex traders understand that critical advice from others can help them avoid mistakes.

Just because you collect what you think is evidence and works for one trade does not mean it is gospel.

Forex investors avoid asking questions that confirm their beliefs and look for those that challenge them.

This is big difference between trading vs gambling.

Losing money

When someone loses a bet, it’s largely because the probability of them losing exceeds the probability that they win.

This is not the case from trading.

Traders mostly end up losing on their investments because of errors in their planning.

When a trader loses on a trade because of their errors, they are able to identify what went wrong and have the control to put things right. In fact, what’s more important is that they are personally accountable if the trade does not work.

If a movement bears but the trader predicted a bullish movement, it’s entirely on them they got it incorrect.

The same cannot be said for a gambler.

When they lose, the fault lies with someone else. If we go back to our example of roulette, there are multiple ‘excuses’ why they lost.

The ball that wasn’t spun by the gambler, the ball bounced up higher than usual, and so on and so forth.

The blame will never lie with the gambler because they are hoping to make some gains based entirely on luck.

Mindset of a trader

Mindsets in trading are entirely different to those of gambler, particularly when they lose.

How many times have you or a friend of yours said that they got ‘so unlucky’ or they ‘run so bad’ and that’s the reason why they lost?

Of course, it could never have been anything else. Not on the choices they made in particular situations, not their reasoning or things of this manner.

This sort of mindset belongs with gamblers because they fail to account for the mistakes that they made along the way.

It goes back to the what we described in the last section. Gamblers do not take any accountability.

When they go for the next bet or the next gamble, nothing has changed and when they inevitable lose, the same logic remains.

It wasn’t our fault, we only needed to avoid x card and we would have won $$$$$$$$.

Give me a break. Sure, this may be genuine every now and then but 90% of the time, it was your mistakes.

I think you can tell that these excuses frustrate me. Rant over.

Emotional differences

As you will probably know, one of the main problems that comes with gambling is addiction.

Stop and think about why this is for a moment.

It’s because gamblers let their emotions get the better of them. This leads to them chasing back losses and gambling more than they probably afford.

Gambling more after a loss is often aggressive and even less thought goes into the consequences of them losing.

This is not good.

Forex traders on the other hand know that emotions should be kept away.

You should have specific goals in place before you even enter the trade. If it goes wrong, no problem. You can go back and look for the mistake that was made so you won’t make it again.

By sticking to the plans and having the right bankroll management in place, you will never need to force trades to get the money back.

On the other hand, when trades are successful and you are making gains, your emotions would urge to make bigger trades.

Trading and tracking

Gamblers do not have any sort of plan when they make their plays.

They line up bet after bet without taking into account what each of their previous bets had won or lost.

Well, they know they lose because they chase their losses, leaving them broke.

Forex traders always have a record of each trade that they make.

They will analyse the market and evaluate the profitability of the trades over a given time period.

Each profit or loss making trade is recorded.

Because they make a note of every trade, they can seek out advice from unrelated parties and, as we discussed earlier, avoid confirmation bias.

They can then act on the best trades possible because they know their theories correct or not.

Trader v gambler

I hope by now you will not be thinking that forex trading is not gambling and is far less risky than you previously thought.

But just in case you aren’t fully convinced yet, let me sum up the traits of a gambler vs the characteristics of a trader.

A gambler:

• Does not use strategy
• Does not pay attention to risk management
• Profits on luck alone with no advantages
• Chases losses with bigger and more aggressive bets
• Lets their emotions take over

A trader

• Has put time and effort into developing trading strategies
• Has controls in place on each trade to minimise the small risks involved
• Uses an edge to gain advantage
• Has effective bankroll management
• Does not become emotional over winning or losing on a trade

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If you haven’t already, check out our free Forex Trading PDF and the most complete guide to beginner forex traders on the market.

Tom is the owner of Elite Forex Trading. A website that provides beginner tips, trainings, reviews and strategies to help newbies get started making money in the forex markets.

This site is designed to give you the best information when it comes to trading currencies. But although forex trading makes up 60% of my personal income, the other 40% comes from other investing. This includes stocks and shares but also a growing part comes from sports betting, we even have a separate website that talks about this in detail called Ghost Betting Tips.

When I tell people I have £50,000 across a number of sports betting accounts their first reaction is pure shock. Usually followed by the “How can you risk that much money?” The truth? If you keep correct bankroll management, all investing is easy over the long term. Whether that be stocks and shares, forex, sports or anything else. So today I’m going to run through some of my personal opinions on the pros and cons of forex vs sports. I even have a twitter dedicated to only this.

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Forex Trading Pros:

Back testing a strategy is very easy – Luckily we have a crazy amount of data from the currency markets. They have been around for year and it is very easy to get information about previous prices, structure highs, news and everything in-between. As a result if you come up with a trading strategy. It is very easy to see if you would have made a profit if you traded this in the past. This means you can essentially predict the future (by using the results of the past.)

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Limits – There are very few limits to trading forex. You simply have to set up a trading account and then get going. There aren’t any limits to the maximum you can make on a trade. If you are following correct forex trading principles then even if you have 100 million in your trading account you should still only be trading 1 million per trade and hence the currencies won’t fluctuate just due to your investment.

Forex Trading Cons:

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Tax – You have to pay tax on all your profits. Like a business this means you have to aquire the funds to start

Starting Capital – Probably the biggest issue to trading forex. As the spreads and pip movements are so small you will need a relatively large bankroll to become a profitable trader. Even if you get leverage at 10/1 you will still need a starting capital of £10,000+. This is one of the reasons I’m so against demo trading accounts. But that’s a rant so I won’t get started!

Strategies – Building the perfect trading strategy takes a lot of time. Back testing through previous years also takes a very long time. The issue with the strategy/system element is traders move around and become too aggressive with their trading strategies. When they fail or blow all their bankroll, suddenly its the strategies fault and not the fact you were putting 15% of your bankroll on every trade… Bankroll management is king.

Sports Betting Pros:

No TAX – Wow this is a big one for me. In the UK you don’t pay tax on sports betting winnings. I know in the US and other countries this isn’t the case. But if you are seriously making a lot of money then you might want to consider one of the tax havens, that goes for any investment earnings. Paying less tax is something I have been looking into for years. Originally having a business and paying 20-50% tax on earnings was hard enough. Nowadays with investing its down around 18%. But with sports betting you pay 0% (in the UK at least).

More hands off – It’s a lot less time intensive than forex trading. Sports betting is more geared around value for specific odds. However you calculate that value, whether you have a hunch (not recommended) or do statistical analysis and back-test results based on previous data (recommended). Once a model is created this is very hands off. You can simply bet where you see value and leave the results to play out.

“Inside Information” – In other types of trading inside information is illegal. People go to prison for decades for trading with inside information. It is a crime. BUT when it comes to sports betting, it seems the more you know the better. Why punish someone when all they have done is found out a start player isn’t playing before the bookies adjust their prices? Or that there is going to be a storm in the middle of a football match, making it much more likely that less points are scored and hence the under total points becomes the best play. But the most important element is that individuals “tipsters” (I hate that word) can give you plays in return for cash. Now you have to be incredibly careful with these people! BUT if you follow the most reliable tipsters you can make 500% ROI per year and that’s no exaggeration!

Sports Betting Cons:

Regulation – There are lots of regulations around where you can place bets. For example in the UK I cannot use Pinnacle or a number of other large sportsbooks. In the USA as previously mentioned I believe you have to pay tax on your winnings too and in some states sports betting is straight up illegal, so check the regulations before you get started.

Low Limits & The dreaded “exceeds maximum bet” – Unlike forex trading, when you make a bet/trade you are making it with the bookie itself. This means that as your bankroll grows you are more likely to be flagged as a very good sports trader. This means you are more likely to have limits on how much you can bet per event. This depends on the size of the event. For example the maximum bet on the superbowl is over 1 million for almost all sportsbooks. But the maximum bet for a small soccer game in league 2 would probably only be £500 in most places. Bigger events have higher limits as the lines are more carefully calculated, meaning the bookies have a higher degree of confidence and hence will accept larger bets. If you are with a sportsbook or bookie that says “exceeds maximum bet” for a specific result then it is probably time to move. This means they are on to your smart betting and don’t want you to take any money from them!

Conclusion

Personally I love both sports and forex trading. I will never stop one for another and I will be doing them both for years and years to come. But spreading “risk” and having some diversity is great. Back-testing sports betting strategies to see how much you would have made in a season is very similar to back-testing a forex trading strategy to see if your strategy is profitable. My biggest piece of advice would be don’t just rush into any type of trading. Build a strategy. Build your bankroll. Decide your bankroll management strategy. Good luck. Remember to check out our beginner ultimate guide and our free ebook for your forex trading introduction.

Tom is the owner of Elite Forex Trading. A website that provides beginner tips, trainings, reviews and strategies to help newbies get started making money in the forex markets.