When Trading Forex Becomes Gambling
Without A Forex Trading Strategy You Are Gambling
Before we dive right into how trading can become gambling, we should just clarify that there is a clear difference between the two and they are not interchangeable terms.
Gambling and trading do have one key thing in common: risk. When you place a trade or a bet, you risk losing money with an aim to make more money. You can ‘win’ money and you can ‘lose’ money.
But the differences mostly stop there.
The primary difference between the two is ‘probability’. With gambling, you are relying solely on ‘luck’. For example, when you roll a dice in a casino, you have no idea what number you’re going to get.
In comparison, when you trade, you can analyse the market and predict where it is likely to go. You can implement a trading strategy and set yourself goals. There is a logic to trading and an ability to increase your chances of success.
The gambler mentality will not lead to success in forex trading.
That said, forex trading can become forex gambling when you treat it that way. When you don’t set goals, analyse the market or even understand what you are doing.
In gambling, the house always wins. In forex trading, you stand a chance of winning. You just need to act logically and with restraint.
At what point does forex trading become gambling?
Forex trading can become gambling when you don’t know what you’re doing and it can exist in many different ways. In most instances, forex traders end up gambling when they don’t follow a trading strategy.
Chasing losses is one of the most common ways people gamble on the forex market. It is where traders lose money and immediately try to recuperate their losses by placing further trades.
This kind of behaviour mimics that of a casino gambler who has lost a bet and places a further one to regain their losses.
What develops is a vicious cycle where the trader keeps trying to win back their losses by making bigger and bigger trades. Not only to regain what they lost but perhaps to also finally make a profit on top of their first initial trade.
Things can then get even riskier if a trader decides to involve leverage in this awful downward spiral.
Here’s an example of chasing losses:
A trader opens a position on USD/EUR at 1.1311.
The trader makes a loss closing the position at 1.1288.
Instead of accepting this loss, the trader panics and automatically opens a new position, without even looking at the opening rate with a larger lot, one that, according to them, will recuperate the previous loss and may bring in a profit.
But instead, the trade results in an even bigger loss.
Again, the trader panics and attempts to regain everything they have lost so far with another bigger trade. One that will make back everything from the first trade and the second trade, and maybe make the profit the trader initially wanted.
This process repeats itself until the trader is left with nothing. Of course, they may make some money back at certain points, but eventually, they will lose everything if they continue down this path.
King Kong syndrome
However, it is likely that for most forex gamblers their addiction didn’t start by chasing their losses.
It is more likely that they started gambling when they ‘got lucky’ on one of their first trades and made some money.
This is what we often call beginners luck. But the thing about beginners luck is that in many senses it can be more of a curse.
This initial win excites them and they may naively believe that they are on a ‘lucky streak’ and the money will keep pouring in.
They make more frequent trades, foolishly believing that they’ll strike lucky twice. Why wouldn’t they?
To make things worse, they make bigger trades. To gamblers, it’s obvious, if this small trade worked then the next one, if larger, should also work and reap a larger reward.
The thing to bear in mind about forex gambling is that the ‘trader’ isn’t necessarily chasing profits, but chasing the high of winning. And they’ll throw away all of their money just to replicate that feeling of their first win all over again.
What are the signs of gambling?
Gambling addiction is just like any other form of addiction and there are a number of signs. Here are some of the most noticeable:
- Socially isolated. Their addiction has reached the point where they are no longer talking to their family and friends.
- Finances are a mess. They may have lost a large amount of their money on trading, perhaps even to the point where they have lost their savings and may even be asking people for more money to continue gambling.
- Lack of sleep. They are spending all their free time gambling to the point that they rarely sleep. Thinking about their losses or the idea of regaining what they lost may be keeping them awake.
- Not caring for themselves. Aside from not sleeping, they may not be eating enough, taking care of their hygiene or their home.
- Emotional problems. This can take the form of anxiety, anger issues or even depression.
- Trouble at work. They may perform badly at work, have issues with colleagues, miss whole workdays, be frequently late, and they may even attempt to gamble while working.
- Combine their addiction with other addictive behaviours. They may start drinking heavily when gambling or involve other illicit substances.
- They are unaware that they have a problem. They believe that their behaviour is completely normal. To them, what they are doing is forex trading, to everyone else it looks like forex gambling.
- They are uneducated in forex trading. They didn’t take any steps to educate themselves on trading before they started and they may even be unaware of very basic terminology.
If you think you or someone you know may be struggling with gambling addiction, you should reach out for help from a reputable organisation that can deal with it, such as the NHS.
How to avoid forex gambling
First and foremost, if you have a history of addiction, specifically gambling, it is probably for the best to avoid forex trading (or any other form of trading for that matter). Unfortunately, it has to be said that forex trading is not for everyone.
If you are new to trading it is still possible to reverse the process. But you need to mentally accept that you need to change your approach and that you need to learn more.
In fact, the best way to avoid gambling everything away when trading forex is by learning how to trade. All beginners should start with a forex trading education first.
Forex trading shouldn’t be viewed as a pleasurable pass time, it should be viewed as something you need to study, just as you would for anything else that requires skills.
You will never see a professional trader open a trading account, gamble away their deposit, fund it again and repeat.
Professional traders have learnt not to make the same mistakes twice, to set themselves goals and limits, and practice different trading strategies.
They know exactly at what point to enter the market, how much they want to make and at what point to exit their position.
They know this because, on top of being taught how to trade, they watch and analyse the market, which informs them when to act. Professional traders have the skills to look out for trends, use tools to predict where the market is heading and, of course, read the news.
Experienced traders also understand risk management. Forex trading is not just about making money, it can also be about losing money and you need to know how much you’re willing to lose.
It also means understanding that you could be wrong and what your analysis shows might not happen. You need to have a safety net in place.
Most importantly, they know when to stop and accept that they have lost.
All experts were once beginners. They got to where they are now by taking it slow, one step at a time.
To summarise, you can avoid forex gambling by learning to trade like a pro.
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If there’s anything to remember from this article, make it these key points:
- Trading forex is not gambling. Though it easily can become gambling when you do not have the right mindset.
- There are obvious signs. If you are concerned you or someone else is addicted to trading, look out for the signs of addiction.
- Gamblers don’t have a strategy. Real traders set themselves goals and never enter the forex market blindly.
- Trading forex requires an education. You can prevent yourself from gambling by getting a forex trading education.
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Now you know more about When Trading Forex Becomes Gambling, you could be ready to take your interest to the next level. Understanding the forex market can take years of study. However, by reading this article today, you’ve taken your first steps towards becoming a better forex trader. The next step is to choose the best Forex online trading broker to trade with.
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