Is Forex a gamble after all? Difference from investment and risk measures
Koki Ando
Many of you may be wondering, “Is Forex gambling after all…?” Many people may be wondering, “Is FX a gamble after all? This article provides a clear answer to that question. It also clarifies the reasons why FX is considered gambling and explains in detail the key points of risk countermeasures.
Forex investing is risky, but you can prevent losses and increase your chances of making a profit by taking risk measures. After reading this article, you will have the insight to make your trading more strategic and successful, and reduce your chances of loss.
First, we will explain whether forex is gambling and what the difference is between gambling and investing.
Is Forex Gambling? Difference from Investment
Is Forex gambling or an investment? We will now explore the fundamental difference between gambling and investment, and provide clear answers to the questions you want to know.
What becomes clear here is that Forex is not just a gamble based on luck, but a real investment aspect that can yield results through careful planning and in-depth market analysis. Understanding the difference between investment and gambling will help you hone your trading judgment and pave the way to greater success.
This section will reveal how Forex sets itself apart from gambling and how it fits into the investment framework. First, let’s look at the fundamental differences between gambling and investing.
Difference between gambling and investment
Gambling and investing, while seemingly similar, have a number of fundamentally different elements. Gambling is an activity whose outcome depends entirely on chance. Roulette and slot machines, for example, involve little skill or strategy on the part of the player. Investing, on the other hand, is heavily influenced by planning, analysis, and strategy. Forex investing, in particular, involves understanding market movements and using technical and fundamental analysis to predict future price movements.
Gambling tends to pursue short-term gains, while investment aims to increase assets over the medium to long term. forex is said to be a zero-sum game, but its risks are calculated and can be minimized with proper risk management and strategy.
FX is not gambling, but investment
Forex (foreign exchange trading), although mistakenly viewed by many as gambling, is actually a serious investment based on planning and strategy. in forex, trades are made by predicting price fluctuations of currency pairs. This forecasting is done from multiple perspectives, including technical analysis, fundamental analysis, and even sentiment analysis.
For example, stop loss orders can be set to prevent large losses. In addition, leverage allows for large transactions with little capital, but it also increases risk and must be carefully managed.
In general, forex is an investment activity that is distinct from gambling and is based on deep analysis and planning. With this understanding and proper strategy and risk management, success in forex is entirely possible.
Why people say “Forex is gambling.”
Although Forex is an investment, it is sometimes said that “Forex is gambling”. Why is this so? In this section, we will delve deeper into the main reasons why Forex is said to be gambling and identify the rationale and aspects behind it.
In conclusion, here are three reasons why
・Market Uncertainty
・Potential for loss
・High risk and high return through leverage
Let’s start by looking at market uncertainty.
Market Uncertainty
Currency prices are affected by diverse factors such as political events, economic indicators, and natural disasters. The possibility of sudden price fluctuations due to these factors is always latent. The Random Walk Theory is a well-known concept to explain such market movements. This theory states that future price fluctuations cannot be accurately predicted, but certain predictions can be made based on historical data and statistical probabilities.
One of the characteristics of investment is the ability to execute appropriate risk management, such as adjusting position volume and utilizing stop loss. It is also important to find the point where the trade has a high advantage through technical and fundamental analysis.
In this regard, investing and gambling differ greatly.
Potential for loss
Forex trading typically involves the use of leverage, which allows for large transactions with small amounts of money. However, this characteristic can backfire and result in large losses. In particular, if a trader trades without setting a stop loss order, the sudden movement of the market can cause losses to mount to the point where the trader cannot afford to cut his or her losses. Such a situation involves the risk of losing a large portion of the trader’s account balance.
This “potential for loss” is one of the reasons why forex can be mistaken for gambling. Many people see the risk of losing money as part of gambling as a result of trading.
The psychology of a trader after experiencing a loss is very delicate. Often, they lose their composure after a loss and are in a hurry to recoup their losses. Trading in this state increases the risk of further losses.
Specific strategies and tools exist to minimize losses. By always setting a stop loss, losses can be limited to a certain extent. Also, by adjusting the number of lots appropriately, the risk of trading can be managed. In addition, trailing stops can be used to ensure profit and minimize loss strategies.
High risk and high return through leverage
The use of leverage allows for large transactions, but with it comes increased risk. This “high-risk/high-return” nature can lead to the misconception that forex is a form of gambling. However, leverage is merely a trading instrument. Depending on how it is used, it can also be a viable investment.
While the maximum leverage available per account is often determined by the broker, the actual effective leverage is determined by the margin and the number of lots. In other words, it is up to the trader to decide how much leverage to apply.
In the case of forex, taking excessive risk can make it feel like a game of chance. Therefore, it has the nature of being both an investment and a gamble, depending on the trader’s approach. Proper management of such risks is the key to success.
Forex Investment Risk Prevention
As we have told you, there are risks involved in forex investing, including market uncertainty, the possibility of losses, and high risk due to leverage. However, by understanding the risks and taking appropriate countermeasures, you can prevent losses and increase profits. Let’s take a look at some of the specific countermeasures that can be taken.
Analyze the market
Forex investing involves many risks, and one of the key measures to minimize these risks is to analyze the market. There are two main methods of market analysis. These are technical analysis and fundamental analysis.
Fundamental analysis requires a deep understanding of economic news and policy developments that are the focus of the overall market. For example, in 2023, the main focus is on the movement of policy rates in various countries, the U.S. Federal Reserve’s high interest rate policy and long-term measures to control inflation, and the strength of the U.S. dollar.
Technical analysis, on the other hand, is a method of predicting future price trends based on past price data and trading volume. This analysis can be used to determine the specific timing of entry and settlement. In particular, the selection of entry points is the process of exploring the price range at which a trade will be advantageous.
Among technical analysis, the “200-day moving average” is used by many traders in particular. This indicator can be used to identify major market trends and the movements of large swing traders.
Use of Methods
One of the risk countermeasures in forex investing is the use of appropriate methods. While there are a wide variety of methods for market analysis, “moving average-based methods,” “grid trading,” and “one-minute scalping” are the most popular among discretionary traders. In addition, “copy trading” offered by ThreeTrader is also attracting attention as an option for traders.
“Grid trading” is a particularly effective technique when prices move within a certain range or form a channel. On the other hand, “one-minute scalping” is a strategy that repeatedly accumulates small profits over a short period of time and requires the ability to capture instantaneous market movements. Strategies that aim for breakouts based on currency strength or weakness are also effective for capturing the flow of a major trend in a short period of time.
With regard to moving averages, the “200-day moving average” is particularly well-known, but it is also recommended that you choose a moving average of the appropriate duration, depending on the time frame and currency pair you are trading.
Ultimately, the key to long-term success in forex investing is finding a trading method that fits your lifestyle and personality.
Trading with excess funds
It is very important to “trade with surplus funds” in forex investing. Surplus funds are money that can be used to the extent that it does not affect your living expenses or emergency fund. There are several reasons to trade with this surplus money.
Psychological stability: Using surplus funds reduces the risk that trading losses will have a direct impact on your life. This helps maintain psychological stability and allows you to make calm decisions.
Risk Management: The use of excess funds helps to keep risk as a low percentage of total funds. This is a fundamental aspect of money management and leads to long-term success.
Strategic Trading: Using excess capital allows you to trade according to a long-term strategy without being swayed by short-term losses.
Efficient allocation of funds: Surplus funds allow for more efficient allocation of funds and the ability to respond to a variety of investment opportunities.
As described above, trading with surplus funds has many advantages in risk management and strategic trading, not to mention psychological stability.
Start trading with low leverage and small amounts
In forex trading, high leverage carries great risk. Especially for beginners, it is recommended to start with low leverage, i.e., a small number of lots. The following is a summary of specific examples and precautions.
Keep the number of lots low: For first-time traders, starting with 1 or 0.1 lot will reduce risk. As you become more comfortable, you can gradually increase the number of lots.
Beware of volatility: When trading stocks with high volatility, start with about half of your normal lot size to minimize risk.
Mastering Money Management: Starting out trading with low leverage and small lot sizes will help you learn the basics of money management.
Psychological stability: Trading in smaller amounts reduces the stress caused by large losses and facilitates calm decision making.
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How Threetrader reduces the risk and increases the likelihood of success in forex investing
Forex trading involves many risks, but by utilizing Threetrader’s services and tools, you can effectively manage these risks and increase your chances of success. Below are three specific ways to reduce your risk when investing in Forex with Threetrader.
Use of Market Analysis Reports: Threetrader provides a Daily Report each morning with the day’s outlook, and a Weekly Report each Sunday with economic indicators and fundamentals of interest. These reports allow you to get an accurate picture of market movements and develop strategies to reduce risk.
Using a demo account: You can easily create a demo account on Threetrader’s website. With this demo account, you can try out new strategies and practice trading. This is a great way for beginners to practice their trading skills in a real market environment without risk.
Utilize ThreeTrader points: With Threetrader, you earn points for each transaction. These points can be exchanged for items or cash back. Cash back, in particular, is a withdrawable type of cash back that can be used as regular funds. For more information on the points program, please click here.
Threetrader offers these unique features and tools, and by utilizing them you can effectively reduce the risk of your forex investments and increase your chances of success. experience safe and efficient forex trading through trading with Threetrader.
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Conclusion｜FX is not gambling.
In this article, we have clarified the difference between gambling and investment and informed you that forex is not gambling. Investing is based on planned actions and deep analysis, paving the way to success. Gambling, on the other hand, tends to rely on chance, which increases risk.
Nevertheless, forex is sometimes referred to as “gambling”. Reasons for this include market uncertainty, potential losses, and high risk and high return due to leverage. However, you can minimize the risk of loss if you take risk countermeasures such as analyzing the market, trading with surplus funds, and starting with small amounts with low leverage.
You will also be able to maximize your profits by taking advantage of ways to reduce the risk and increase the likelihood of success in your forex investments with Threetrader.
Apply the knowledge gained in this article to your FX investments to minimize your risk of loss and maximize your profits.
