Wednesday, June 16, 2010

What Between Trading and Gambling ?

can forex trading be considered as gambling?
i had witnessed many arguments between people, on the web and outside it, surrounding this question.
some folks claim that trading forex is just like gambling in a Casino, you take your bet, and if you are lucky enough – you win .
To people who really understand how financial markets work, this is total rubbish.
Of course, you can , if you want,  gamble with currencies, just like you can gamble with anything else in life- like the final score of a  football game , the weather tomorrow, or how late will your train be this morning.
that does’t mean any of these things have anything to do with gambling directly.
the same goes for trading forex.
when a trader enters a trade, he does not do so because he is feeling lucky today, but rather because he had analyzed market conditions , used his trading system signals , or any other mean that gave him the opportunity to make an educated decision about where the market is going! a trader  has some tool that can give him an edge over the market, and if it is a good tool, and he follows it correctly, he’s profit potential is boundless.
in a casino however , the house has the edge over the gambler. anyone playing enough time in a casino will statistically lose – we call this ” the law of big numbers”. throw a coin 10 times, you might get 9 times heads and only 1 time tails, but throw a coin 1000 times, and i am pretty sure you will get very close to 500 heads vs 500 times tails.  play 1000 rounds on the roulette , and you will loss your money to the casino!
all i am saying is: if you have an edge – if you learn how to use  information and translate it into a trading decision – than you are a trader, and the risk you take in your trades is purely a business risk – not a gambler’s bet !

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