In some cases, it’s clear that “forex trading” is nothing more than gambling and a case of speculation.
For example, many forex traders use offshore bank accounts and shell companies to place buy and sell orders. They may claim to be trading securities for a fee, or be required by governments to report their profits to the IRS.
But is anything really “forex trading,” anyway?
The Forex “Scam” Mythology
One common trope around the world is that all forex trading involves “making money” based on the movement of currencies or commodities.
For example, on the popular and often viral website, Reddit’s forex currency and gold buying sub-reddit, the forum user ‘lobsters’ once claimed, “It’s really a form of gambling.” In response to a post by another Reddit sub-community, ‘gold,’ titled, “Is this a form of gambling?”, lobsters provided a quote from an article by the Wall Street Journal’s Michael Lewis called “The Forex Gamble: How Forex Brokers are Hijacking the Stock Market.”
“When an investor puts an order into a trading position, they should expect a certain amount of profit from that trade,” wrote Lewis. “But the nature of that profit means there is no such thing as a guaranteed gain per unit of an underlying asset. In this case, the currency that is being traded is called a ‘forex market basket’ and it has its fair share of ‘exchange spreads’.”
To be fair, it must be said that this quote is misleading. The forex market has numerous exchange-traded funds called exchange-traded notes that are traded not on government exchanges, but are managed on the open market.
“Forex, unlike equity,” wrote Lewis, “is an investment where the ‘investment’ lies within an exchange.”
If the forex markets are not truly an exchange-traded fund, then the “forex” part of the quotation should be understood as the implied cost for such an investment. The currency “exchange spread,” by itself, is not an appropriate measure of the actual value a forex trade will yield.
Lewis was correct, in fact, that the “forex” part of the quotation is misleading. While the currency markets may be a good investment opportunity, they are not an exchange. And, as shown above, using the “forex spread
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