
Ask HN: Is Forex Trading Gambling? - smithmayowa
So my brother just really got into forex, and he sort of encourages me to give it a trial, but I have always seen stuffs like that as gambling, but then perhaps maybe I am just biased, which brings me to the subject matter at hand, I will like to know what your opinions are on forex, is it gambling or not.
======
overcode
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.

------
shoo
“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
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.

------
pr07ecH70r
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
The proper term would be "speculating", not gambling.

~~~
throwawaymath
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
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.

------
notahacker
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...

------
danieltillett
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.

------
lucozade
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.

------
elamje
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.

------
kasey_junk
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.

------
Spooky23
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.

------
hijinks
I worked at a Forex company and most people will lose. So ya it's pretty much
like going into a casino

~~~
marketgod
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.

------
alimw
Does he know something that noone else does?

------
diehunde
Yes.

