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.
●
OANDA
Is Forex the Same
as Gambling?
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.
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