If you have ever traveled internationally, then you have probably had to exchange your current currency into the currency of your traveling location. Without knowing it, doing that action alone qualifies as forex trading, or Foreign Exchange trading.
That is basically it, trading from one currency to another qualifies as foreign exchange trading. So now that you know about forex, get out there and make some money!
… Oh, wait, you are still here? Right, us merely telling you what forex is does not mean you can instantly go get rich. You must want to learn more. Alright, then, we will keep going!
People Actually Make a Living from Trading Foreign Currency!
On a larger platform, when investors are trading forex (called FX), they are both selling and buying currency over the foreign exchange market.
With the foreign exchange market being the largest financial market in the world, it is probably odd to think that not many people partake in it, and that is because the world of forex trading is complex.
On the other hand, forex trading can also be very lucrative. Like, seriously, really lucrative. It is because of this potential for high returns that many people associate it with gambling. It is also this potential for high financial returns that people with a gambling mindset are so interested in forex trading.
If this sounds like something you would like to expand your financial portfolio with, this article should get you up to speed on the basics of forex trading. And we do mean the basics. We could write for 10,000 words about forex, and it still would not be an exhaustive guide. However, everybody needs to start somewhere, and this just may be your starting point.
Or, if you are into losing a lot of money at the casino, then we can get you up to speed with that too! Because forex trading can psychologically release the same hormones that cause people to love gambling, even though they are not necessarily the same thing. Kind of. We will elaborate more later in the article. For now, let us get you up to speed on the basics.
Forex Trading Compared to Stock Trading: Are They the Same?
A more widely understood investing asset class is stocks, but there are some key differences when comparing that to trading forex. If you have a basic understanding of stocks, then knowing how they differ from foreign exchange trading can actually help you understand things a little better.
●The forex market is open 24 hours a day, 6 days a week. Because it is an international way of trading funds, the hours need to be completely available depending on which time zone and country you are currently in and trying to trade to.
●Unlike stock trading, forex currencies are always traded in pairs. To keep this system the same throughout, prices are always quoted in pairs as well. (ex: USD to EUR or RUP to YEN. You cannot only invest in one currency without pairing it to another)
●Investors do not make much money on smaller trades, because prices of currency are continually changing, but typically in small increments. What this means is currency will almost always be traded with leverage or with additional money that is borrowed from a broker.
How do you actually, trade foreign currency?
Okay, so, whenever you trade stocks, you do so through a brokerage account. These days you probably just open up an app and buy and sell your stocks. Forex trading also requires a brokerage account. Because of the high competition in the market, there are a couple of big-name players out there that let you get started for relatively cheap.
Now that you have an overall grasp of what forex trading is and what it entails let us talk about how a lot of people refer to forex trading as a type of gambling. While opening up a forex position is a little bit of a gamble in and of itself, they are not mutually exclusive. To that, I guess I will agree, but mostly because there is no way to look at any form of trading with complete certainty, so technically there is a ‘gambling’ aspect, but let us go through some reasons why they really are not interrelated.
●Numbers: When you are comparing the money traded in the forex community to the gambling community, there really is no comparison. At any given time, there are around 5 to 6 trillion dollars traded daily within the forex market. While there may be a few exceptions, there are not going to be many industries, especially gambling, where this amount of money is traded regularly. If the profit potential were not significant, forex trading would not be outpacing gambling so dramatically.
●Players: Gambling is essentially backed by an individual or a group of individuals setting after a particular amount. Within the forex market, funds and the forex brokers are supported by some of the most prominent and most influential financial institutions on a global scale. Again, this may be an apples to oranges kind of comparison, but it is definitely worth mentioning. The level of legitimacy that forex traders are trading in the retail market does not even come close to the gambling market. Every aspect of forex trading is legitimate and closely supervised, so there are no morals or laws that will be working against you like they would if you were gambling against a house edge.
●Emotions: Unlike gambling, all people who start trading in the forex market know that emotions have absolutely no place to interfere. Trades get constructed in a scientific and objective manner, which essentially means you decide on a specific goal and stick with it. The complete opposite is true with gambling, where emotional responses are the driving force behind betting, rebetting, losing it all, and betting again. Now that is not to say that people do not let emotions get in the way of their investments. But emotional trading is a sure-fire way to lose a lot of money.
●Tools: For those who set out to trade forex, there is an extensive amount of dedicated research and time spent to eliminate as many possible risks as you can before starting your trade. Unlike gambling, forex is not about luck. There are technical and fundamental approaches to forex trading, but neither relies on whether you have a rabbit foot in your pocket or not. People will spend days watching and carefully analyzing the forex market before simply opening their trade. Would you study a blackjack table for multiple days before playing one single hand? Furthermore, you can use something like MetaTrader for forex trading, but imagine if you brought a tool like that into a casino. You would get blacklisted from all of Vegas!
●Strategies: A large percentage of forex traders end up losing, and it is usually because they went into the trade with a poor or no strategy (or because they traded based on emotions: Fear and Greed). Yes, I hear you, some could argue this is just like gambling, but it is on a little bit different of a scale. When you are looking to start trading forex, you need to make definitive decisions about your trading limits and overall goals. From there, you can utilize a “Stop Losses, Take Profits” mentality, or look to find a better strategy that works for you. In the long run, the risks of losing in gambling can be significant but are most likely not going to be as large as losing when trading forex.
While these are only a few of the differences between gambling and forex trading, there are plenty of others. It is important to remember the scale of trading forex in comparison to gambling. From there, all other aspects of the two seem to make more sense.
It is also important to remember that just because something is risky, does not mean its gambling. Yes, forex trading runs a considerable risk for a rather big reward, but that is a world of difference from putting your entire life savings on black at the roulette wheel. Consider that with forex trading, you are trading an actual asset, bound by international rules, laws, and regulations.
Risk Disclosure: Trading financial instruments such as but not limited to off-exchange foreign currencies, cryptocurrency (cryptocurrencies), Futures, ETFs, Equities and Indexes contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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