Why forex is not gambling and how your trading platform stacks the odds against you
Category likeness to » Forex articles. Added to Authentic Society 44 years ago.
Why forex is not like gambling? Many people say forex is gambling. And I say forex is like gambling. This book called Forex Patterns and Probabilities by Ed Ponsi has opened my eyes on this issue. Certainly forex could be gambling if we used it as a gambler's game like roulette or any of the other coin-operated toys that 99.9% of the time would take your hard-earned money away from you. Such games are designed to make a marginal profit for the owners of the casino. Forex, on the other hand has no design, it has influences, but it is not directly controlled by a single entity. There is not a single person or institution that controls or makes up the rules for the forex market. This is why forex is not gambling. And don't you ever listen to people who say that. For it is only the people who had lost money in forex, or their friends, will often say this.
When we trade forex, we trade the currency markets of the entire countries. In a perfect world, these countries could have complete control over their economy, and everyone in the world would live a properous and happy life in a country that resembled Disney land on crack. But as proven by economical crisises, the greed of people who have some control over the currency market, the inability to control debt and global economies rapidly spinning out of control, there is no single market maker in forex. There is no person sitting behind the veil, making up mathematical formulas that are meant for all traders to fail 99% of the time. And in forex, there are many more potential jackpots, called breakouts. To take advantage of these breakouts we must understand how they work.
Who is making the money?. It is because the owners of your trading platform make money by scraping off the 2 or more pips every time you place a trade, that they want you to feel confident about opening a live account. Let's take a look at a forex trading platform called Dealbook 360, by GFT (GFTForex.com), that I myself use to trade the currency market. Do you ever wonder why a demo account gives you 50K by default, yet to open a live account you only need $2,500? Perhaps this is because not many beginner traders have 50 thousand to invest in an account. And since professional traders know that they never risk more than 2% of their account, this means we cannot risk more than $50, or approximately 5 pips with a $2,500 account! Now, no beginner risks only 5 pips per trade, because they have not yet discovered the importance of Risk Management and it is only shortly after they learn that the amount of volatility of the forex money market takes off most of their trades within minutes, if not seconds. So why does GFT allow this to happen? In a demo account, we do not observe such a phenomenon of violent spikes of volatility taking out our trades. And when we do, it's okay because we have a lot of money in our balance. Therefore, our confidence is building up, preparing us to feel ready for opening a real account where the real money is involved. It is sometimes difficult to imagine that the company whose services we are using is also our part-time enemy.
Let's consider these two examples. You have probably already noticed that when you trade in a demo account, your success rate is much higher than the success rate of trading in a live trading account. In addition a demo account usually starts with a capital of $50,000. There are two problems with this. A demo account cancels out all emotional attachment you have to the balance of your account. In addition, 50 thousand dollars? This further increases the level of condifence one may have as it gives you the illusion of the trader already having that amount of money. So why the 50 thousand? Had it been less than that, the beginner trader would be uncertain about opening a live account because with a $2,500K balance, even in a demo account it is still difficult to earn money. So why doesn't GTF gives us $2,500 as the default amount to start with?
So instead of asking the question "what's the best strategy...?", we should ask something that belongs less in the fantasy world. When your account manager tells you to trade in a demo account for 6 months, are they asking you to do it so you are well prepared for a real-world scenario? Or are they telling you to do that to build your confidence in the market, so you are ready to make more trades in a live account, whatever the outcome of those trades is? In the end, if you don't succeed with a live account, they can always say "you haven't traded in a demo account long enough to become profitable in a live account". So you end up going back to the demo account with a replenished 50K balance, and start building your confidence again. You return to a live account, and once again you are making money for the dealer's desk.
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