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Quick Definition

In a game, farming means to do an action repeatedly in order to acquire a large amount of something that you gain from said action. For example, a character who is a blacksmith might forge several hundred of an easily made item simply to gather a lot of forging experience, and thus become a skilled blacksmith in a short amount of time.

Players may also opt to "farm" a type of enemy. In this context, this means they will be hunting down and killing a large number of that enemy type, either because they want the experience they earn for the kill or because they want the loot the enemy leaves behind.

Although farming is basically the same thing as grinding, it's usually done for fun or profit, while grinding is more of a requirement (and thus frequently an annoyance).