When it comes to making money, many consumers assume that Forex trading and gambling are the same. The assumption that trading and gambling are the same is wrong because fundamental differences are found between the two activities. Learning about the differences will make it easier to feel comfortable with investments and trading to generate cash from savings.
Research:Forex trading is based on research into different countries, currency exchanges, politics and other factors that will create a rise or fall in the exchange rates. Investors spend several hours, days or even weeks looking into all of the factors involved in the exchange rates.
In trading, research is a vital part of making any investment decision. Investors are making an educated decision based on historical trends in prices, current rates and the economic climate in two countries. The amount of research that goes into making a trade is a key difference between gambling.
In gambling, research is not necessary because the odds are already given. The individual makes a bet and plays the game. It does not involve hours of research and the bets are made with the full knowledge that individuals are more likely to lose than to win.
Risk of Losing:
The risk of losing is much higher in gambling because the odds are stacked against the players. In a casino, gamblers are more likely to lose funds over the course of the evening. Professional gamblers have a much higher risk of losing funds than making gains.
In trading, and especially if you’re a scalper, the risk of loss is much less because countries care about their economy and work to improve economic standing over time. While it is risky to invest in emerging market currencies due to the speculative nature of the country’s current economy, most well-developed countries will take measures to protect their currency.
Actual Value:
Gambling is making a bet on a game. It does not have any value and it is not a type of property. Trading is different because the exchange is between two currencies. When the trade is complete, the investor is still holding onto a property. In the case of Forex trading, the investor is holding onto the currency of a different country instead of the original currency put into the trade.
Limiting Losses:
In trading, it is possible to limit the amount of loss an investor is likely to see. Trading allows investors to put a stop-loss on the account so that it will automatically sell the original investment if it drops below a certain amount. As profits are made over time, investors can move the stop-loss so that it is possible to ensure a profit by selling before the figures drop below the initial funds put into the account.
Gambling does not have a limitation. It is an all-or-nothing game. Players either lose everything or win everything in most gambling games. That means it is impossible to limit losses.
Diversity:
Trading is about diversifying investments to hedge risks. In Forex trading, that means investing in several different currencies and exchange markets to get the greatest diversity among emerging markets, developed markets and different countries. By diversifying the currencies, it is possible to gain profits even if one currency results in a loss.
Gambling does not have any diversity. While players can select different games, they are all a matter of pure chance and it is not possible to hedge the risk by playing more than one game.
Trading and gambling are not the same. Fundamental differences exist because it is possible to reduce the risk of trading different currencies to ultimately result in a profit. Investors will usually see a profit over time by diversifying accounts and making careful decisions. Gamblers will inevitably see major losses because the casinos have a major advantage over the players.
About the Author
Post written by Jamie Hanley, writer for a number of finance and forex blogs, and forex trader for himself.