No matter one's level of experience in the market, the myths surrounding forex can have an impact. Traders can save themselves a lot of hassle by being aware of the most common misunderstandings. People tend to be afraid of things they don't fully comprehend, and unfortunately, forex has a reputation for being associated with a lot of scary things. We look at the most popular Forex myths that have been debunked.
14 Common Forex Myths Debunked
Get Rich Quick
Advertising has significantly broadened the retail foreign exchange industry. This has attracted numerous individuals seeking rapid wealth accumulation with no work. This is, regrettably, exceedingly unusual. Trading requires patience, and there is no ultimate destination. Traders do not earn a profit and then disengage; instead, they engage in successive trades, regardless of intermittent pauses. Consequently, trading necessitates consistency rather than a gambling-like, all-or-nothing approach to a few trades.
Brokers Are Scammers
There are brokers who profit by trading against their clients. The percentage of corrupt businesses is small, as it is in any industry. The main idea is that Forex has been there for a long time and is the biggest marketplace in the world, but everyone is wary of it because of the failure of some retail brokers. The following indicates why this conception is wrong:
- Brokers are unable to engage in fraudulent operations due to licensing and regulation. You may rest assured that your funds are safe from fraud when you trade with a broker who has a valid license.
- Brokers in the foreign exchange market earn a living by taking advantage of price differences between buying and selling, a strategy known as the buy/sell spread. Simply put, they can generate profits without defrauding you.
Today, it's easier to identify scam brokers, which is a relief. You should be OK if you choose a legitimate one that has been in business for some time.
Forex Is for Short-Term Traders
While short-term forex trading has become popular due to high leverage, this does not necessarily have to be the case. Traders can trade the fundamental variables that determine long-term currency patterns. Traders who focus on the long term tend to overlook daily fluctuations and instead focus on tracking the larger trend.
Traders are more likely to refrain from making impulsive trades in the short term and pay lower spreads (the trading equivalent of a commission) if they keep a longer time horizon, which could be advantageous for some traders.
Diversifying or hedging buy-and-hold portfolios using currencies is another possible investing strategy.
Trading And Gambling Are the Same Thing
Forex trading is not a casino just because it involves some degree of speculation. You can increase your chances of winning in the foreign exchange market by using techniques and tools for managing your money.
Indeed, traders can approach trading carelessly by simply "betting" at random, but dedicated traders can improve their performance by learning techniques and understanding the logic behind market dynamics.
Forex offers a certain level of logic and mastery, whereas gambling involves taking uncontrollable risks. This is the most important distinction between trading and gambling.
The Market Is Rigged
Many unsuccessful traders blame a corrupt broker or a rigged market for their losses. Forex is not a rigged market, despite the common misconception. Although fraud does happen, it does not prove that the market is rigged.
Every day, hundreds of thousands of transactions and millions of inputs influence the world's largest market—the foreign exchange market. Because of this, it is highly probable that one of the other astute traders would swiftly detect whether someone is trading in an unprofessional manner; this is true in all markets.
Only Professionals Can Succeed in Trading
Look at the countless success stories of ordinary people who started with no financial knowledge and went on to achieve incredible things; this is the easiest point to demythologize. Ultimately, a degreed economist is no match for a smart 7-Eleven salesperson when it comes to trading.
But it doesn't mean you shouldn't familiarize yourself with the inner workings of the forex market. You might join the market without any prior experience, but if you wish to be successful, you will most certainly require training and education.
You Can Make Money Trading News
It's simple to get greedy for some quick cash when you notice a currency rise following a major news announcement like the U.S. Nonfarm Payrolls (NFP) Report.
It can be quite challenging to trade real-time news events, unfortunately. The lack of liquidity for most of the action in the initial seconds following the announcement is something that the charts don't indicate. This means that traders are unable to enter a profitable move once it begins or exit a losing trade once they have begun.
Setting up a trade in advance of an announcement is feasible, but executing it correctly necessitates analysing the provided facts to ascertain the market's impact. Competition from other traders using the same indicators means this analysis needs to happen quickly. Consequently, trading news necessitates a methodical approach, and consistently obtaining fast money is rare.
The More Trades the Better
The notion that a trader can increase their daily profits by 10 by trading 10 times may seem appealing, but this is rarely the case. For most traders, the key to success is trading less and sticking to a small number of currency pairs they are familiar with. The bulk of traders, barring exceptional expertise and a concentration on scalping tactics, would do well to exercise patience, stick to what they know, and wait for the greatest opportunities, however rare they may be.
You Need Lots of Money to Make It in The Forex Market
This misconception is based on an old wives' tale: in the past, only the ultra-wealthy could afford to trade in the foreign exchange market, which meant that the typical person couldn't participate. The invention of internet commerce changed everything.
For example, several brokers now have minimum deposits as low as $1, making Forex trading accessible to anybody. Additionally, brokers provide newcomers with welcome bonuses and exclusive services to ease their transition.
All you need to get into the market these days is a reliable Internet connection, a good laptop or smartphone, and a little bit of cash.
You Can Predict the Market
Although most beginners attempt to predict the market, doing so can lead to a trader's downfall. Because it alters our rational judgment and creates a psychological predisposition toward a position, making predictions can lead us astray. Successful traders are quick thinkers, follow a strategy, and can weather adverse deals just as well as winning ones.
Decisions about what to buy and sell should be based on the ever-changing market. The trader should patiently await the currency's movement to validate any predictions.
Depending on the chart you're looking at, it can appear that way for a brief period. But if you look closely, you'll notice that the currency rates follow patterns, and those patterns aren't arbitrary. With the help of technical analysis tools, you can assess the situation, identify the trend, and trade in tandem with it to reap the benefits.
Predictions cannot be accurate in every instance due to the inherent complexity and multiplicity of variables affecting the global economy. Conversely, whether your trading activities improved your bottom line is the one metric that counts.
You must quit your job and do Forex full-time
A lot of people find forex intimidating because they think it will require them to completely alter their careers, leave their jobs, and venture into uncharted territory.
You can experiment with trading as a side gig. You don't have to quit your day job to keep up with your trades thanks to many resources. For instance, you can automate your trading with Expert Advisors (EAs), operate from anywhere using apps, or mimic the orders of professional traders with Copy Trade.
Indeed, many individuals throughout the world think of trading as a secondary source of income and only transition to full-time trading when they feel confident enough.
The More Complex the Strategy the Better
When traders start out, they usually only make a little profit using a simple strategy. They reason that by including additional factors into their system and continuing to tune it, they might potentially boost their returns. It is rare for this to be the case.
Instead of focusing on more fundamental factors like price movement, which is the ultimate determinant in making a profit, and market range, the trader overly focuses on finding precise reversal points and increasing the number of trades.
Making money in trading is all about the margin; no trader is ever truly profitable. Therefore, pay attention to money management and don't change a system if it's making money.
Money Management Just Means Stopping
Once a trader has mastered the art of producing consistent profits, money management (MM) becomes the most crucial component in determining success. MM refers to more than just putting a stop order on a trade; it also includes the amount of the entire account that will be risked on each trade, which is typically less than 1%. Ask the following:
What is the maximum number of open trades?
If there are several positions, do they have to hedge each other or can they be highly correlated?
A trader can take their trading to the next level by focussing on money management. If you don't take money management seriously, no amount of planning will save you from financial ruin.
Just Follow Others
Numerous pieces of advice concerning when, what, and how to trade are constantly making the rounds. Still, the trader gains or loses the most from the transaction. Thus, rather than depending only on the counsel of others, traders should strive to improve their own abilities and draw their own judgements.
New (or even seasoned) traders can benefit substantially from the guidance of seasoned experts, but it is important to filter and examine all information thoroughly before acting on it. Since no one else cares as much about the account's success as the trader does, the trader should have the most say in the matter.
Conclusion
Traders should educate themselves and gain experience so they can fully grasp the ins and outs of currency trading. Proper money management is essential, but knowledge gained from reading up on the subject is also crucial.
There are several misconceptions or myths in the currency markets that could hurt a trader's performance or even cause the loss of money. By creating and following a well-researched trading strategy that you have personally put into action, you can mitigate or eliminate the impact of the myths.
