Forex trading is often compared with roulette owing to the high risk involved. However, FX trading is not gambling, but indeed much more complex than that. Unlike gambling, Forex trading does not only depend on the chance factor and you need to analyse trends and economic data releases to gain maximum profit from trading. Additionally, you need good anticipatory and risk-taking skills. What are the key differences between trading and gambling in general? Let’s take a closer look.
The biggest difference between trading and gambling is the chance factor. In Forex trading, you actually need to win over your prejudices, emotions and unrealistic expectations. In the case of gambling, you are pitted against another player or a set of players. There are many other differences between these two which are discussed here.
A poker player may just use his intuition and gut feeling to win games. However, the foreign currency trading market is getting new traders with high profit motives with each moment passing. Therefore, if you do not have a solid strategy for trading, it would probably result in smaller gains and higher losses. Professional and (often) successful traders always have a concrete plan in place and plan their entry and exit points before starting to trade.
Risk management and mitigation
Just like gambling, trading also has the chance factor at play. However, the risks in trading are completely different from the risks associated with gambling. A gambler may not be knowledgeable about different types of risk management tools, an FX trader should at least know how to manage and mitigate the risks. Gamblers usually take risks based on the chance factor, while traders take calculated risks to maximize profit. It’s good to know here that the highly volatile nature of the foreign currency market actually increases the risk.
The outlook of a gambler is much different from that of a trader. A gambler usually focuses on the rewards without bothering too much about the risks, while a trader focus on the risks first and guesstimates his rewards after deep analysis only. A professional trader should be flexible enough to take risks in a volatile market.
The involvement of emotion
Almost 90% of traders face losses in Forex trading as they get emotional involved in the process of trading, which leads to bad decision making. On the flip side, gamblers do not mind getting carried away by their emotions. Forex traders are usually research-minded people with great composure.
Holding and selling trades
In highly volatile markets, traders often sell their losing trades without holding them with a hope to gain profits. There are many new traders who act more like gamblers and hold their trades when they should actually sell them. This often leads to irreversible losses. Trading requires patience and experience, while gamblers, even the most unexperienced of them, can win jackpots if the chance factor goes in favour of them.
If you are looking to start trading like a pro, follow CMC markets to get pragmatic FX trading tips.