For decades foreign exchange markets have been utilized by investors to make financial gains in global currencies while spreading their portfolios and locking their wealth into dollars, euros, and sterling. But questions have always been asked about how secure FX is as a trading mechanism, and whether it’s effectively a form of gambling.
Well, there are certainly crossovers between the spheres of foreign exchange and online gambling. After all, in both instances, you’re trusting your money to good fortune in the future. But is Forex just gambling? And what are the differences between the two? Read on to learn how FX works and where it stands compared to betting.
What is Forex and Can I Use it?
Foreign Exchange – often known as Forex or FX – is a marketplace where currencies are traded. You can use your own money to buy a different currency, for example, euros, with the aim of selling at a higher rate in the future. FX is a core part of many investment plans and is a speculative practice that many big businesses get involved in.
Think of it in the same way as buying shares in the business. You use your dollars to buy pound sterling at a set rate, just as you would company shares. Over time the currency value fluctuates – just like share value – meaning you could sell at a profit or loss.
Anyone can use foreign exchange markets and learn how Forex works. In fact, if you’ve ever bought currency while on vacation then you’re interacting with Forex, albeit in a small way compared to big business. But there are risks involved and currency fluctuations can impact on your investments if you’re unlucky.
Is Forex Just Gambling?
As we detailed above, FX trading relies on buying currencies in the hope that they grow in value. And many believe that’s effectively the same as gambling. After all, with most gambling games you place a bet on an outcome you hope will happen. Surely this is just like trading, right?
Similarities Between FX and Gambling
Here are some of the core similarities between FX and gambling, and why many believe the two ways of making money are very much alike:
Outcome Speculation
Both FX and gambling require traders/bettors to speculate on the outcome of their actions. In online blackjack, for instance, a gambler will calculate the likelihood of nailing 21 or beating the dealer based on their hole cards. Blackjack players effectively have a system where they make specific plays depending on the cards on show.
Likewise, a trader will use projections and probability, as well as looking back at financial trends and political events, to make a reasoned decision on what the outcome of backing one currency over another will be. Of course, in both cases there is risk involved – but that’s all part of the game.
Managing Budgets
When gambling in an online casino players are always advised to set a budget and stick to it. That means you won’t go into the red and can confidently bet, knowing you’ll never fall below a certain amount of money.
Well, foreign exchange trading works in a similar way, in that traders need to manage their cash well in order to buy and sell efficiently. Piling all your money onto one currency would be like betting everything on red at the roulette table. It’s effectively Forex gambling with your fingers crossed. The rewards could be huge, but you’ve not managed your money well.
Arbitrage
Spreading your bets across numerous casinos to get the best odds at each site is called arbitrage, and it’s something FX traders do in order to get the best prices for each currency.
For example, gamblers may decide to place a sports bet on the same event but on opposing outcomes, and on different sites. In this case, let’s imagine Boston is priced at +110 to beat San Diego in basketball on one site, while on another San Diego is +110 to win. Bet $100 on each and you’re guaranteed a return of $110.
FX traders do the same thing, scouring the markets for the best currency prices and snapping them up, before moving on to another market and betting against that currency at a different price. Whatever the result, they’ll win!
Forex double-duty.
Differences Between FX and Gambling
While we’ve seen some of the similarities between FX and online gambling above, let’s now take a look at the core differences…
Do it Yourself
Most people who trade on the foreign exchange will hire traders to do the work for them. Thankfully that isn’t the same with gambling. There’s no fun in directing someone else to place your chips on the roulette table, or make a sports bet from your smartphone. What splits FX from betting is that you’re in sole command of the latter and don’t have to pay trading fees to anyone else.
Gambling is a Lot Quicker
Foreign exchange is a popular activity but it takes a long time to generate revenues. If anything, FX is an investment, not a quick windfall. Gambling, however, can produce hundreds or thousands of times your bet as a payout if you strike lucky. Whether its casino gaming or sports betting, bets can be over in just a few seconds. That leads to quicker returns and payouts, if that’s what you’re chasing.
Betting on Sports is Fun, Right?
Let’s tackle this issue head-on: if you love sports, you’re going to have a lot more fun betting on it compared to FX trading. It’s the same with players who love blackjack, bingo online or any other form of gambling. Forex trading may make you money but it’s also a job for many people while betting on your favorite games is a pastime millions enjoy.
Gambling on Poker Requires Skill and Luck
While there’s plenty of speculation in FX trading, gambling on games such as poker requires incredible skill as well as luck. You won’t get far on an elite poker table if you don’t know how to bluff and bully your way to big wins. Meanwhile, even though there’s plenty of work and research that goes into predicting the movement of financial currencies, with FX you can never be fully in control of what the markets will do.
