Gambling Vs Forex Trading

1. Sports Betting Vs Forex Trading
2. Gambling Vs Forex Trading Platforms
3. Gambling Vs Forex Trading Forex
4. Gambling Vs Forex Trading Strategy
5. Gambling Vs Forex Trading Platform

Today’s lesson is going to open your eyes and help you decide if you are trading or gambling, so I want you to read the whole thing very closely, three times over if you have to. Forex Trader or Forex Gambler? - You should read today’s lesson even if you don’t think you have a problem with gambling in the markets, because you will surely pick up some useful advice that will work to. At the same time, I can tell you that Forex trading is Haram, yes Forex can be 100% haram if you are driven by greed and gambling sensation for a quick catch. Trading Forex is Halal if you treat trading as a business where you calculate your risk of investment with proper risk/reward expectations. Gambling and trading are way 2 different things, but many people treat both the same way just because they have some similarities, it's exactly like you are treating your current wife the same way you was treating your ex just because you noticed many things in common between both of them, yet they are 2 completely different persons. The more I read about the stories of successful traders, the more I realize that trading is much like poker. Some people treat it as gambling, some treat it like a sport, a mental sport like chess. Some play poker just to have fun, feel the rush, some play poker as a profession, as a business. We should approach forex trading the same way. Indeed, trading has also been compared to gambling because it entails a high degree of risk and speculative activity. However, there are some very big variations between the two. In the trading field, there are no rules, it’s just you against you and you will be the winner or loser.

Today’s article examines the differences between forex and stocks.

The primary function for stocks is to invest in the future of companies that you believe are going to grow over time. “Investing” implies long-term commitment to a company and its vision, in the hope that the money you put into the investment will grow along with the company.

The goal with stocks is to grow your wealth over time by investing in the success of others.

Forex is short for “foreign exchange”, which refers to buying and selling international currencies in the hope of currencies becoming more valuable when turned back into dollars.

The exchange rate between US dollars and other currencies are constantly in flux, as are the exchange rates between international currencies.

Thus, forex is a means of speculating on the rise and fall of other currencies in relation to the currency of the speculator’s home country.

When it comes to forex vs. stocks, stocks have a positive expectation over time.

Forex is more like gambling.

What are stocks?

When you purchase stock in a public firm, you own a piece of that firm. Most likely, you chose to purchase that stock because you have decided that, over the long-term, the stock’s value will grow as the company’s intrinsic value grows.

A stock’s trading price at any moment in time depends on the supply and demand of the stock itself. As demand increases, so does the stock price, and vice-versa.

What is forex?

With forex vs. stocks, it is the foreign exchange market where currencies are traded.

Why is there an exchange market? Because currencies must be exchanged to conduct trade and business in other countries. If you live in the UK, and want to buy pasta from Italy, either you or the company that you buy the pasta from must pay the Italians for the pasta in euros.

Thus, the UK buyer must exchange the equivalent value of UK pounds into euros.

If you’ve ever visited a foreign country, you had to engage in currency exchange. You can’t buy anything in Hungary unless you exchange your US dollars for Hungarian Forint.

However, currencies can also be used as a trading vehicle to profit from.

Let’s say one US dollar buys one Canadian dollar. You use 100 US dollars and buy 100 Canadian dollars. Over time, due to various factors, the market shifts and you can only get 0.9 Canadian dollars for each US dollar.

Well, that’s great for you! Since you have 100 Canadian dollars, you can exchange those 100 Canadian dollars into $111.11. You’ve made an 11.11% profit.

Read Also: What are the best tech stocks to buy right now?

What are the differences between forex and stocks?

The best way to think about forex vs. stocks is that forex are a form of short-term speculation that’s really no different than gambling, whereas stocks are designed to be owned and held for the long term.

With this distinction also comes limitations on profits in forex, primarily because how the markets are structured.

With stocks, you can invest in them, hold for the long term, and have a good chance that over a long period of time, they will appreciate in price. The price appreciation can be quite significant over that period – multiples of your original investment.

The only costs associated with this approach are very small trading fees when you buy and sell, and the taxes on any gains you’ve made if you sell the stock.

Forex is a different beast. There’s a high volume of trading that occurs in forex, and currencies do not fluctuate very much in most developed countries.

Look at this chart. When the euro debuted in 1999, one US dollar was worth 1.1553 euros. Today, one US dollar is worth 1.1318 euros. If you had purchased euros in 1999 and held them, your position would declined about 2% in value.

Here’s a chart of the S&P 500 from those same dates. If you bought and held that index, you would have made 116% on your money.

That’s the biggest difference between forex vs. stocks.

Now, if you were very savvy and managed to catch all the highs and lows of the euro market over the past twenty years, maybe you would have caught some of the bigger moves. But nobody is that savvy.

Advantages of Stocks

When it comes to selecting forex vs. stocks, here are the advantages of stocks:

1. Long term history of profit
2. You can also bet against the market
3. Dividend payments

Here’s a video that gives additional information on investing in stocks, from one of the greatest fund managers in history, Peter Lynch.

Long term history of profit

If you look at any 10-year rolling period of the Dow Jones Industrial Average, you will see that — except in 1929 – the DJIA never lost money.

If you look at any 20-year rolling period of the Dow Jones Industrial Average, you will see that the DJIA only had two years in which its returns were negative (1932 and 1949).

If you look at any 35-year rolling period of the Dow Jones Industrial Average, you will see that the DJIA not only never lost money, but never made less than 6%.

There’s a reason for this performance. Capitalism produces wealth. Companies that make goods and services that solve problems make money. That money gets invested into the business and it grows. As it grows, its earnings grow, and as its earnings grow, its stock price increases.

Forex does not have this kind of performance.

Bet against the market

We spend a lot of time at InvestingDaily.com talking about buying stocks for the long term. But there’s another strategy called “short-selling”, in which you effectively bet that a stock or entire indices will go down instead of up.

Indeed, if you look at any chart of any company or index, you will find periods in which they have gone down.

Sports Betting Vs Forex Trading

The advantage of stocks is that you can invest in individual companies that you believe will do very well in the long run, and sell short the stocks of competitors that you believe will fail, or even of entire indices if you think the broad market isn’t as resilient as those individual stocks you like.

You can even buy an entire index because you expect it to go up over the very long term, and sell short the stocks of companies you believe will fail.

Dividend payments

One of the great advantages in regards to forex vs. stocks, is that some stocks make regular dividend payments.

If the cash flow for a company is very strong, and it is able to use that cash to meet expenses, to grow, to contribute to employee pensions and so on, it may still have money left over on a regular basis.

Many companies choose to give that money back to shareholders as a kind of reward for taking the risk of investing with them.

Forex does not pay dividends.

Advantages of forex

There are a few advantages when it comes to forex vs. stocks, so you shouldn’t dismiss forex outright. Here are some things to think about:

1. Can hedge against multinational stocks
2. Can be a safe haven in bad economic times
3. Many options

Here’s a video that gives basic information on how trade in forex markets.

edge against multinationals

Most of the biggest companies in the world now obtain more than 50% of their profit from overseas. These multinational companies thus do business in many foreign currencies, and not US dollars.

As such, if those currencies are very strong against the US dollar – meaning it takes more and more of those currencies to exchange for a US dollar – then when those companies translate their foreign earnings into US dollars to report to shareholders, the earnings can take a significant hit in our home currency.
The forex market allows you to hedge against those stronger currencies to offset those effects by placing some of your money into currencies that are weaker against the dollar.

Safe haven

When times are bad in the United States, you can theoretically exchange your US dollars for currencies that are weakening against the dollar. It’s rare, but it does happen.

Many options

While the stock market has several thousand securities to choose from, there are only about 180 currencies recognized by the United Nations. Still, that’s a lot to choose from, and if you are really interested in trading currencies, you have many options.

The best currencies to stick to are those in countries that are politically stable. One of the biggest downsides with socialist and communist countries is that the government can do anything it wants with the currency, including devaluing it.

If you are a world traveler or do business in many different countries, you may get a feel for how currency markets operate. Thus, you may have the kind of knowledge most people don’t, and can use that knowledge to profit in the currency markets that you know best.

This site is designed to give you the best information when it comes to trading currencies. But although forex trading makes up 60% of my personal income, the other 40% comes from other investing. This includes stocks and shares but also a growing part comes from sports betting, we even have a separate website that talks about this in detail called Ghost Betting Tips.

When I tell people I have £50,000 across a number of sports betting accounts their first reaction is pure shock. Usually followed by the “How can you risk that much money?” The truth? If you keep correct bankroll management, all investing is easy over the long term. Whether that be stocks and shares, forex, sports or anything else. So today I’m going to run through some of my personal opinions on the pros and cons of forex vs sports. I even have a twitter dedicated to only this.

Table of Contents

Forex Trading Pros:

Back testing a strategy is very easy – Luckily we have a crazy amount of data from the currency markets. They have been around for year and it is very easy to get information about previous prices, structure highs, news and everything in-between. As a result if you come up with a trading strategy. It is very easy to see if you would have made a profit if you traded this in the past. This means you can essentially predict the future (by using the results of the past.)

Limits – There are very few limits to trading forex. You simply have to set up a trading account and then get going. There aren’t any limits to the maximum you can make on a trade. If you are following correct forex trading principles then even if you have 100 million in your trading account you should still only be trading 1 million per trade and hence the currencies won’t fluctuate just due to your investment.

Forex Trading Cons:

Tax – You have to pay tax on all your profits. Like a business this means you have to aquire the funds to start

Starting Capital – Probably the biggest issue to trading forex. As the spreads and pip movements are so small you will need a relatively large bankroll to become a profitable trader. Even if you get leverage at 10/1 you will still need a starting capital of £10,000+. This is one of the reasons I’m so against demo trading accounts. But that’s a rant so I won’t get started!

Strategies – Building the perfect trading strategy takes a lot of time. Back testing through previous years also takes a very long time. The issue with the strategy/system element is traders move around and become too aggressive with their trading strategies. When they fail or blow all their bankroll, suddenly its the strategies fault and not the fact you were putting 15% of your bankroll on every trade… Bankroll management is king.

Sports Betting Pros:

No TAX – Wow this is a big one for me. In the UK you don’t pay tax on sports betting winnings. I know in the US and other countries this isn’t the case. But if you are seriously making a lot of money then you might want to consider one of the tax havens, that goes for any investment earnings. Paying less tax is something I have been looking into for years. Originally having a business and paying 20-50% tax on earnings was hard enough. Nowadays with investing its down around 18%. But with sports betting you pay 0% (in the UK at least).

Gambling Vs Forex Trading Platforms

More hands off – It’s a lot less time intensive than forex trading. Sports betting is more geared around value for specific odds. However you calculate that value, whether you have a hunch (not recommended) or do statistical analysis and back-test results based on previous data (recommended). Once a model is created this is very hands off. You can simply bet where you see value and leave the results to play out.

Gambling Vs Forex Trading Forex

“Inside Information” – In other types of trading inside information is illegal. People go to prison for decades for trading with inside information. It is a crime. BUT when it comes to sports betting, it seems the more you know the better. Why punish someone when all they have done is found out a start player isn’t playing before the bookies adjust their prices? Or that there is going to be a storm in the middle of a football match, making it much more likely that less points are scored and hence the under total points becomes the best play. But the most important element is that individuals “tipsters” (I hate that word) can give you plays in return for cash. Now you have to be incredibly careful with these people! BUT if you follow the most reliable tipsters you can make 500% ROI per year and that’s no exaggeration!

Sports Betting Cons:

Regulation – There are lots of regulations around where you can place bets. For example in the UK I cannot use Pinnacle or a number of other large sportsbooks. In the USA as previously mentioned I believe you have to pay tax on your winnings too and in some states sports betting is straight up illegal, so check the regulations before you get started.

Low Limits & The dreaded “exceeds maximum bet” – Unlike forex trading, when you make a bet/trade you are making it with the bookie itself. This means that as your bankroll grows you are more likely to be flagged as a very good sports trader. This means you are more likely to have limits on how much you can bet per event. This depends on the size of the event. For example the maximum bet on the superbowl is over 1 million for almost all sportsbooks. But the maximum bet for a small soccer game in league 2 would probably only be £500 in most places. Bigger events have higher limits as the lines are more carefully calculated, meaning the bookies have a higher degree of confidence and hence will accept larger bets. If you are with a sportsbook or bookie that says “exceeds maximum bet” for a specific result then it is probably time to move. This means they are on to your smart betting and don’t want you to take any money from them!

Conclusion

Gambling Vs Forex Trading Strategy

Personally I love both sports and forex trading. I will never stop one for another and I will be doing them both for years and years to come. But spreading “risk” and having some diversity is great. Back-testing sports betting strategies to see how much you would have made in a season is very similar to back-testing a forex trading strategy to see if your strategy is profitable. My biggest piece of advice would be don’t just rush into any type of trading. Build a strategy. Build your bankroll. Decide your bankroll management strategy. Good luck. Remember to check out our beginner ultimate guide and our free ebook for your forex trading introduction.

Gambling Vs Forex Trading Platform

Tom is the owner of Elite Forex Trading. A website that provides beginner tips, trainings, reviews and strategies to help newbies get started making money in the forex markets.