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Ask HN: Is Forex Trading Gambling?

• pr07ecH70r 8y ago
  Any trading could be either gambling or trading. Gambling is when you put your money w/o any knowledge and hope "faith" will make you "lucky". Trading is when you understand finance, the underlying concepts of the securities you are trading and when you are well informed about the currency (for the forex at least) you will trade. All currencies are linked to the fundamentals of the country they belong to - finance, GDP, etc. For me personally they are harder to trade, as you need to inform yourself and learn a lot of the country's financials. Stocks are easier in that way, that when you know what to look for in the business of a company, you will find somewhere value, and you will "buy that business" - a trade, not a gamble.
• cerberusss 8y ago
  The proper term would be "speculating", not gambling.
  • throwawaymath 8y ago
    Assuming you're not being facetious, while that's technically correct it's probably better to assume an individual trading forex is gambling rather than engaging in legitimate and well-informed speculation. Likewise for options trading.
    • marketgod 8y ago
      Options trading is a skill. Poker is a much harder but I hate seeing people say options trading is gambling. You just need to find an advantage. I am not the most skilled developer, I definitely wouldn't get a job at a FANG with my skills, but I was able to build a strategy that works wonders for me with the skills I have. If people on here use their skill, they can play with the data, use TA, and find an edge, maybe better than mine.
    • cerberusss 8y ago
      Nope, not meant as facetious, just meant to nudge the OP into looking up the meaning of "to speculate". I agree with your assessment that it's only technically correct, though. Plus I read your other reply; very helpful!
• shoo 8y ago
  “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” -- Benjamin Graham, The Intelligent Investor
  • throwawaymath 8y ago
    Speculation is economically distinct from gambling. At a cursory level you can draw comparisons between the two, but there is a meaningful difference between them. Speculation is a form of investment in which the investor accepts significant risk for (potentially) outsized returns which are decoupled from the consensus fundamental value of an asset. Gambling is not a form of investment; it's a form of trading in which participants have no or negligible information and cannot perform better than chance. You can engage in gambling or speculation when trading forex, because it enables both activities. There are rational reasons to engage in speculation, whereas there aren't any to engage in gambling. Generally the test of rationality lies at the line of information asymmetry: do you have information which the market does not? Then you can engage in speculation and positively inform price discovery, which contributes to the well-functioning of the market. If you do not have superior information and you're not trading on the fundamental value of a thing, you're gambling. There are similar tests to distinguish gambling from hedging and arbitrage, both of which also comprise legitimate economic activity Graham himself acknowledges in that very book that speculation is a necessary function for markets, because someone needs to accept risk in order to keep the value machine running (i.e. empower short term price discovery). His primary thesis is not that speculation and gambling are equivalent; rather, that as an individual you are more likely to be gambling than speculating. While modern perspectives on this topic do split hairs, the generally accepted view is that speculation and investing operate along a continuum. Strong opinions to the contrary tend to be rooted in moral and ideological disagreements, not economic nuance. It's not particularly useful to condemn speculation as gambling because a lot of legitimate and useful investing is very risk-tolerant. A much better heuristic is whether or not it's an individual or a firm engaging in the trading.
• overcode 8y ago
  Yes. Casino house games are set up in a way that the player is guaranteed to be losing in the long run (all of the player's decisions have negative expected value). So maybe trading is more similar to poker because in both of them it's possible to have positive EV but they still have many of the problematic aspects of gambling such as: - uncertain outcome - opportunity to lose or win large amounts of money - some element of skill and the opportunity to "have and edge" - confounding skill and luck - it's easy to attribute your wins to your skill and your losses to bad luck - need for emotional regulation to avoid making bad decisions (also known as tilt) - need for emotional regulation after a session to deal with large losses (or even large wins) - the fact that you can make good decisions and still lose, in fact this will happen a lot - the randomness of the outcome and all the associated cognitive biases are prime factors in creating addictive behavior (often to the point where it's problematic) That's why I would label it as gambling, which doesn't necessarily mean that it's bad. But it's important to be aware of the risks and know that most people's personality and their emotional and mental tooling isn't well suited for it.
• t0t4lnoo3 8y ago
  Yes. With margins accounts where the house will lend you money so you can leverage your bet to insane amounts.
• hijinks 8y ago
  I worked at a Forex company and most people will lose. So ya it's pretty much like going into a casino
  • marketgod 8y ago
    Casino is throwing money away or a way to entertain yourself for a few $K, except for Poker which is highly skilled. Trading is a skill. I lost more money in all the above scenarios compared to most people.
• lucozade 8y ago
  It depends on what you're doing with the forex trading. If, as I'm guessing is the case with your brother, you trade with the hope/expectation that a rate will move towards you in the future and you'll profit from that rate move, then that's just common or garden gambling. But it's also used to buy or sell currency because you cash in that currency, hedge the forex component of an asset/liability, make a market etc. Different people have different use cases.
• Spooky23 8y ago
  It’s sort of like horse racing. It’s gambling for most people, and crosses over to speculation for a limited population of people with domain expertise.
• notahacker 8y ago
  Yes. It's zero sum, you don't have any real influence on the market if you're at the "give it a trial" level, and you don't have any knowledge advantage over other actors in the market. (cf. investing in stock categories you understand, which has the risk of losing money and significantly overestimating your ability associated with gambling, but does at least have a realistic prospect of an overall upward trend in prices and some possibility you can understand certain relevant things better than the big institutional investors moving the market price) There are practical reasons to trade forex like a multinational company hedging against currency movements causing income to fall in one part of the world, but that doesn't sound like what your brother is doing...
• diehunde 8y ago
  Yes.
• alimw 8y ago
  Does he know something that noone else does?
• kasey_junk 8y ago
  It's been a few years since i worked in forex trading but when I did it had the reputation for being the most _shady_ of the various things you could trade. You are largely having your deals set by your counterparty which is not what you want to have.
• danieltillett 8y ago
  It is worse than gambling since you are going to lose everything. I know plenty of casual gamblers who put a certain amount through a casino and walk away with their wealth intact. Everyone I know who has gone into forex trading has lost everything they owned (admittedly this is a smallish sample). They seemed to think they had figured out some smart system, but they all blew up in the end. Very dangerous.
• elamje 8y ago
  Considering the terrible YouTube ads featuring millionaires that “work from home”, “have no boss”, and “make 10k in a matter of minutes”, I would say yes. If it was a reasonable realm to make a lot of money in, the ivy graduates at hedge funds and IB’s would be doing it, not Joe Schmo who is paying for an ad for you to take his Forex class.