Forex Trading - Gambling, Betting or Speculating?
Very often when talking to people about running a forex business, I am challenged by people saying that forex trading is nothing else but gambling. There used to be a time when I would bite at the hook and launch into a defence of forex trading. Now days, experience has shown me that sometimes it was the very words that I used were being understood differently by people. Once I accepted this, it was easier to be able to define an appropriate response.
So lets look at the three words, gambling, betting and speculating.
Gambling
This single word is probably the largest cause of confusion in this debate. As an analogy, consider the word running - and let us limit this to the use of the word as a physical exercise.
The person who goes for a jog for 30 minutes in the evening after coming home from work is running. The athlete who sprints the 100m in 10 seconds is running, the person who takes runs for 5 hours to complete a marathon is running.
At its highest level gambling can be seen as the engagement of any activity which involves a risk and is associated with the prospect of potential gain. If this definition is used then yes forex trading is gambling. But then so is investing in stocks and shares, even leaving money in a bank can be seen as gambling- it rarely happens but banks do fail.
For the purposes of this article, gambling will be defined as the staking or risking of money, on the outcome of something involving random occurring events. For example, the toss of a die, the roulette wheel, the purchase of a lottery ticket. In this decision, there are no prior events that have any bearing on the outcome.
Forex trading is nothing like this.
Betting
The definition here will be to stake or risk at any event expecting an outcome where the outcome is not totally random but is influenced by other variables. The latter part of that sentence is important as it adds an additional element to the definition for gambling.
As an example, someone may decide to bet on a team winning based on the fact that two of their key players have returned from injury. Or perhaps the world number 1 in tennis is playing the world number 134.
There are a number of traders find themselves in this position. A forex trader expect currencies, for example, to become stronger based on improved economic data. A stock trader expects a stock to increase in value based on a companies performance.
I would even go so far as to say that many people who invest their money into stocks and shares, in pension funds etc are actually betting that they made the right choice. In sporting events say, the success or failure of a result is known within a few hours, when investing in stocks and shares the time line is considerably longer.
I believe that the majority of forex traders who adopt this approach can have their trading approach defined as betting.
Speculation
I would like to propose a definition that speculation is an action that involves a certain amount of risk, in order to make a financial profit, that is supported by considering a variety of factors which the trader believes support the decision taken.
In other words, when you speculate, you base your decisions on evaluating a variety of different information sources, you rely on your knowledge and analysis of past events. It is this active engagement in the decision-making process that is based on actual facts whether they be events, announcements or the technical analysis of chart patterns that defines speculation from betting or gambling.
All successful professional currency traders and those who run a home forex business trade in this manner. These skills can all be acquired and then need to be put into practise.
Very often when talking to people about running a forex business, I am challenged by people saying that forex trading is nothing else but gambling. There used to be a time when I would bite at the hook and launch into a defence of forex trading. Now days, experience has shown me that sometimes it was the very words that I used were being understood differently by people. Once I accepted this, it was easier to be able to define an appropriate response.
So lets look at the three words, gambling, betting and speculating.
Gambling
This single word is probably the largest cause of confusion in this debate. As an analogy, consider the word running - and let us limit this to the use of the word as a physical exercise.
The person who goes for a jog for 30 minutes in the evening after coming home from work is running. The athlete who sprints the 100m in 10 seconds is running, the person who takes runs for 5 hours to complete a marathon is running.
At its highest level gambling can be seen as the engagement of any activity which involves a risk and is associated with the prospect of potential gain. If this definition is used then yes forex trading is gambling. But then so is investing in stocks and shares, even leaving money in a bank can be seen as gambling- it rarely happens but banks do fail.
For the purposes of this article, gambling will be defined as the staking or risking of money, on the outcome of something involving random occurring events. For example, the toss of a die, the roulette wheel, the purchase of a lottery ticket. In this decision, there are no prior events that have any bearing on the outcome.
Forex trading is nothing like this.
Betting
The definition here will be to stake or risk at any event expecting an outcome where the outcome is not totally random but is influenced by other variables. The latter part of that sentence is important as it adds an additional element to the definition for gambling.
As an example, someone may decide to bet on a team winning based on the fact that two of their key players have returned from injury. Or perhaps the world number 1 in tennis is playing the world number 134.
There are a number of traders find themselves in this position. A forex trader expect currencies, for example, to become stronger based on improved economic data. A stock trader expects a stock to increase in value based on a companies performance.
I would even go so far as to say that many people who invest their money into stocks and shares, in pension funds etc are actually betting that they made the right choice. In sporting events say, the success or failure of a result is known within a few hours, when investing in stocks and shares the time line is considerably longer.
I believe that the majority of forex traders who adopt this approach can have their trading approach defined as betting.
Speculation
I would like to propose a definition that speculation is an action that involves a certain amount of risk, in order to make a financial profit, that is supported by considering a variety of factors which the trader believes support the decision taken.
In other words, when you speculate, you base your decisions on evaluating a variety of different information sources, you rely on your knowledge and analysis of past events. It is this active engagement in the decision-making process that is based on actual facts whether they be events, announcements or the technical analysis of chart patterns that defines speculation from betting or gambling.
All successful professional currency traders and those who run a home forex business trade in this manner. These skills can all be acquired and then need to be put into practise.
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