Differences Between Trading and Gambling in Forex Market by Amjid Afridi Apr 16, 2020 Forex trading 0 comments There have been several attempts to simplify trading in the forex market, and although a level of success has been achieved within this field, Forex Trading is also more than installing a trading app, funding your forex account. However, gambling is much complex than the definition is considered when it comes to Fx trading. Many traders do not even know -Trading way, or for a reason, that is totally dichotomous to market success they just gamble. There are also many market factors, and false information creates a forex trading gambling scenario for market traders. The potential for making money in Forex trading is as close to endless as any market on the globe. While the Forex gambling/Forex trading comparison is not totally baseless, it is also not accurate and the following is a list of five attributes that differentiate the two industries. The truth is, over 99% of people retail trading spot Forex are in fact gambling. Even worse – most people ‘trading’ spot Forex at retail level are either problem gamblers or pathological gamblers – I know this hurts people but that is the truth – you won’t hear that in wannabe trader circles.
Is Forex trading gambling you may ask?
Well – in and of itself Forex trading IS NOT GAMBLING. That is because all you are doing is speculating on currency pairs.
BUT…
There are many mechanisms around the market in which crafty individuals and organizations scam people. All for their own greedy gains. This has often lead people to feel that forex trading is gambling.
In this article, we will look into these mechanisms and pitfalls. That way your forex journey can be more profitable.
Let’s dig in.
The info-graphic below provides a breakdown on how to become a SCAM PROOF trader
How do people get SCAMMED through Forex trading?
A scam can be defined as an attempt to defraud. Typically an individual after gaining their confidence through the use of various tricks and tactics. If your a beginner read the 101 guides to Forex trading for beginners.
Let us investigate the various ways in which these “tricks and tactics” are implemented.
1. Scammed through the use of an unregulated broker.
An unregulated broker in the Forex market is like loaning money to an individual you will never see again. Plus hoping that they will send you your money back.
I want you to think about this. Giving your money to an unregulated broker is gambling.
In the article: Essential guide to forex brokers, a comprehensive guide on how to choose a great broker is presented.
Let’s investigate the origins of this scamming technique.
In the early days of forex or currency trading in the late 1990s. There weren’t that many brokers in the market.Brokers were largely unregulated and people were not knowledgeable about the forex market as information was not as readily available as it is today.
This led to forex brokers swindling money from retail traders like me and you. People who wanted to trade in the forex market. They did this via charging large and unwarranted spreads.
This period was also a very dark time for the forex brokerage market . As the operation of Ponzi schemes were commonplace. Many brokers would disappear and clients would have no way of getting their money back. Forex trading gambling was a reality in the early 1990s. So much has changed since then.
Naturally – this leads to the development of regulations around forex brokerage firms.
The commodity futures trading commission became more stringent in regulating brokers. In the USA.
These regulations and clampdowns included:
- The Brokers management of clients funds;
- The Brokers execution of clients trades; and
- The Fiscal stability of the brokerage firms.
As a result of these interventions across the globe. A couple of things occurred, mainly – A major crackdown on fraudulent forex brokers was implemented. The ethical and transparent brokers received a regulatory seal of approval, which has become a standard. This way the public can get an independent review of a broker.
This seal of approval is the brokers’ regulatory status.
Legitimate brokers advertise their regulatory standing with pride, therefore it is not difficult to spot them.
In actual fact here are examples of good solid brokers:
After reading the above is forex trading gambling to you still? Keep reading it gets better.
2. People claiming that they have the “SECRET” to successful trading.
A quick search on any social media platform for forex trading and you will quickly notice that there are a lot of people who claim they have the discovered the secret to trading. Which leads many people to ask is forex a scam. To get a definitive read on forex trading read the article: What is Forex trading.
These people promise great returns and most do not shy away from showing the lifestyle that the “supposed” forex riches have bought them or their members.
All of these are very enticing,
BUT…
we must investigate their claims against known science to protect ourselves from being scammed, this is how you can spot the scammers:
They claim to be able to predict the next big market move.
This is forex trading gambling without a doubt. Because the people who claim to know this information are very easy to spot. They use words like – “Buy gold now it is at a certain level and it WILL go up” or “My analysis says that you MUST sell USD/ZAR because of xyz”.
Now although there is nothing wrong with speculation and having a view on certain market forces before they happen.The scammers approach the market, with an undue level of certainty as if their analysis of the market WILL occur.
They usually charge traders like you and me a fee so that they can provide you with these PREMIUM signal. More often than not having no regard for risk and money managementprinciples of technical analysis such as:
- Forex candlesticks; and
Avoid such “fortune-tellers” at all times.
Efficient Market Hypothesis (EMH)
There is a hypothesis in economics, termed the Efficient Market Hypothesis (EMH). In essence, what this states is that there is no way an investor or a trader can obtain higher levels of profit as compared to other traders or investors. Over an extended period of time, because of special information.
Further, it implies that there is no way a trader can gain an undue advantage over the market. Primarily based on the information that is already available. EMH states that all currently knownand available information is already factored into the price.
Although the EMH has its doubters, on a logical basis there is some truth to the hypothesis. Think about it.
If everybody (By everybody – meaning the big financial institutions, such as the banks).Knew about specific economic data, then based on the forces of supply and demand that information is no longer valuable. This is because this information is no longer unknown we would all be trading on an even footing.
In terms of forex trading what this means is that if the exchange rate for the EUR/USD is 1.19668. That is the price having factored in every source of know information – this is logical.
So people attempting to coerce you into putting your bets on a certain currency pair based on xyz (known knowledge) are inadvertently operating against the premise of the EMH. Usually if they are extremely lucky they might be right one or two times, but over a period of a year, 5 years or even a decade, they will not survive the market conditions.
Be alert to this scamming technique by:
Is Forex Trading Just Gambling
- Avoiding taking signals from individuals or companies, rather invest in yourself and develop the forex trading skill.
- Avoiding individuals claiming they have insider information, and are willing to offer this information to you at a fee.
Another way you can get scammed is through so called fake account managers.
3. Fake account managers [True form of forex trading gambling]
This is another common scamming technique
What is an account manager?
An account manager in the forex market is an individual who is responsible for trading on behalf of clients, this individual is usually deemed as a professional trader with a good track record who is qualified to trade customers’ funds.
Hence clients who may not have the time nor the patience to develop the skill to trade the forex market on their own, but still want to participate in forex trading speculation will thus have this option.
Is Forex Trading Gambling Reddit
Account management in the forex market is by no means a scam.
But a quick glance through the newspapers and we quickly realize that many people have been scammed by so many so called account managers.
How can this be? Who can you trust?
Let’s delve deeper and see how scammers disguised as account managers operate in the forex market and how you can identify them for yourself, and avoid them if you wish to operate in the forex market via this route.
All legitimate account managers are registered with their countries specific regulatory body.
If you are in the USA, the account manager and their company should be registered with the CFTC or the National Futures Association (NFA).
In South Africa the prospective account manager should have a CAT 2 FSB license – in order to trade your money on the forex market for you.
All other nations where forex trading is permitted will have similar rules and regulations pertaining to fund managers operating in the currency trading market. Contact your local financial services board and find out what these requirements are.
Scammers appearing as fund managers are:
- Not licensed to any reputable financial services board;
- They provide snapshots of results, of which are not full audited, usually been trading for less than 2 years.
- They do not have any reputable references.
A good account manager:
- Is licensed to trade your money with a reputable financial services board.
- Has an audited and independently verified trading record, they usually have a client base and have been trading for more than 3 years.
- Is transparent with their clients about their trading activity, and the performance of their funds – either good or bad.
- They have reputable references.
Is Forex Trading Gambling Or Not
Bonus content (Just for you)
Furthermore here a few questions that are worth asking to ensure you safeguard yourself and your funds against fraudulent account managers. The questions you should ask are:
- “Are you qualified to provide me with the service you are selling?”
- “How will you (the account manager) be paid from this?”
Additionally ensure that you:
- Ask for a written risk disclosure; and
- All relevant information in writing or via email before committing or signing anything.
Remember forex scammers prowl on those who are financially strained and desperate, of which at times we all are, but hopefully, the above guide will assist you in identify forex scams, and more importantly helping you in avoiding them.
4. Automated trading software scams [Another form of forex trading gambling]
What are automated trading systems?
Automated trading systems. Also referred to as forex trading robots or bots. Are systems that operate within the forex market executing trades for you based on the specific entry and exit conditions. They do this based on trading rules.
They are usually advertised to provide “great returns” with “no effort”.Therefore they are coupled with snapshots of trading results that are difficult to ignore. Who wouldn’t be interested right?
PAUSE
This is a common ground for scammers, as no matter how good a trading system is, it has inherent problems.
What are the problems with automated trading systems?
All algorithmic trading software are rule based.
What that means is that they operate on the premise that they will execute a trade (or not) based on certain market conditions. This means that they will only work for trading conditions, they have been designed for.
The moment the market changes. They become exposed.
How do people get scammed this way?
Potential scammers will entice you with the claim that their trading robot is the answer to all your trading issues and that they have found the “holy grail” of forex strategies. Do not be fooled, if you are interested in learning how to develop a robust forex strategy click here for an excellent resource.
However – Not all trading robots are fraudulent.
What must you do if you come across a forex robot you are interested in?
- Ask for a demo or a 14 day trial of the system. You probably won’t get it, and if that is the case then you should be convinced that you shouldn’t invest your money in the system anyways.
- Ask for comprehensive supporting documents on how the system works, under which circumstances it doesn’t work, and how you will be assisted in the case that the trading system fails to provide the results that are advertised.
Automated trading systems are not bad, and they can be very handy if done right
Let’s investigate how to use Forex Robots in the right way.
- Create your own
This is by far the best way to develop an expert advisor. There are many sources on the internet where you can get resources. If you are a complete beginner check out algorithmic trading.
The reason you should develop your own is that you would understand the system completely, be able to adjust the source code and improve your robot with changing market conditions.
- Test your robot on an demo account
Ensure that you test your automated software on a demo account, if it doesn’t work on a demo, it will not work on a real account.
With everything being said, the hope is that you are better equipped to to operate in the forex market avoiding the scams on your forex trading journey. For more valuable resources click here.
hopefully we answered the question for you “is forex a scam?”
Happy Trading