It’s easy to dismiss forex trading as just another form of gambling. After all, both activities involve risking capital with hopes of future profit. But while currency trading and gambling share similar characteristics, they are entirely different.
For instance, gambling is typically a short-lived activity, while forex trading is a long-term venture that demands a certain level of skill and experience as well as a methodical approach. Equating the foreign exchange market to gambling is not just illogical but also dangerous, especially for beginner traders who are still learning to control risks and make profits.
In this guide, we explore the differences between forex and gambling, as well as common mistakes you should avoid when trading currencies.
Anyone can take part in both gambling and currency trading. However, the forex market often involves bigger players, not just retail traders and individual investors. Large financial institutions from all parts of the world also participate in forex trading.
See below a list of the major players who are trading in the foreign exchange market every day:
- Commercial banks
- Sovereign wealth funds
- Retail traders
- Retail brokers
- Real money
- Proprietary trading firms
- Prime brokers
- Money transfer/remittance companies
- Hedge funds
- Governments and central banks
- Foreign exchange fixing
- Commercial companies
With such big players involved, you can rest assured that currency trading is 100% safe and legal. Some types of gambling, on the other hand, often include many legal hurdles and are prohibited in some countries.
While the forex market comes with its own uncertainties, technology allows traders to make more informed decisions and prevent significant losses. A wide range of technical analysis tools and software is now available to help you time and plan your trades with greater efficiency.
Some tools also let you observe and analyse market trends for several days or even weeks before entering a trade. This proves that you cannot rely on mere luck in real profitable forex trading. You need analytical skills and proper market research to make successful trades.
However, in gambling, there are no trends to study or tools that can inform your choices. With gambling, everything is left to chance and pure luck, which increases the probability of loss.
As with any financial market, forex trading incurs risks, losses, and uncertainties. This is why it’s essential to always be prepared for whatever happens. Knowledge, practice, and strategy are crucial to forex success.
Often, traders who face prolonged losing streaks are those who made trades without any technique or analysis. Some of the most common trading strategies include swing trading, day trading, position trading, and forex scalping.
Before entering any money, find the correct pairs to trade first and carefully calculate potential risk against potential reward. Make a proper analysis and look at the market objectively.
Gambling doesn’t require much strategy or evaluation beforehand. Currency trading still expects you to have a grasp of global markets and politics, and to be successful.
Common Mistakes Forex Traders Make
If you want to be a successful trader, watch out for these common slips and errors.
Ignoring Global News and Economic Data
Global news events such as GDP growth rates, elections, political turmoil, treaty negotiations, and central bank decisions can significantly impact currency markets.
Paying attention to global news will help you spot and understand trends in currency pairs. With this knowledge, you can make more informed trading decisions.
Trading Without a Stop Loss
Limit potential losses in a turbulent market by having a stop-loss order for every trade you make. A stop-loss order automatically closes a trade position at a limit price you’ve specified. It prevents you from losing more than you can afford.
Choosing the Wrong Broker
Entrusting money to a forex broker is one of the biggest risks you will have to make. Take time in choosing a broker. Review their regulatory compliance, account offerings, customer service, and currency pairs offered.
It’s better if your potential broker offers a free demo, so you’ll know what to expect when trading with them.
Work with a Reputable Broker
Choose a broker that offers a reliable and user-friendly platform where you can make a trade with ease. With spreads from just 0.0 pips and Free deposits into client segregated accounts, Fair Forex will help increase your chances of success in the competitive forex market.
Request a free demo today.