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The foreign exchange market is where you exchange one currency for another. The market allows traders to buy and sell one foreign currency in exchange for another with ease and liquidity.
Forex traders make money by buying currencies at a low price and selling them at a higher price. With the proliferation of online Forex brokers, this type of trading has grown in popularity. On the internet, there is a wealth of forex information. However, there are several myths about the foreign exchange market.
In this post, we'll debunk forex myths that have recently gained traction, particularly among retail traders who lack professional or academic expertise. It will concentrate on myths that either have no present basis or appear to be based on sporadic incidents that are out of the ordinary for the currency market.
Myth #1: Forex Trading is Easy
Several people want to get into the foreign exchange market who feel that it is easy and that they only need to read a few books and will then be able to make daily profits trading for only 2-3 hours per day.
Others believe they can buy a profitable strategy that will make them wealthy. That is, however, merely a myth. It takes time, money, and plenty of practice to master forex, just like it takes time, money, and a lot of practice to master any other profession.
Myth #2: Forex is a Short-Term Strategy
Macroeconomic factors influence fluctuations in the foreign exchange market, and often, these variables don't change very quickly. So, while the daily news might generate unpredictable swings, many currency pairings still have long-term trends. This suggests that maintaining a consistent cash flow when operating a global business requires a currency strategy that considers these long-term trends.
Myth #3: You Need a Lot of Money to Start Forex Trading
Surprisingly, this is one of the more modern-day forex trading myths that used to be more prevalent. When online forex trading was unavailable, retail forex traders had little access to the Interbank forex market. This was unless they had high net worths with the ability to trade amounts greater than $1,000,000 and were creditworthy enough to be granted a credit line by a financial institution.
With the arrival of online forex brokers, forex trading is now accessible to almost anybody with a computer, Internet connection, and little money to risk.
Myth #4: If You're Successful in Stock Trading, You Can Make Money in Forex
Success in the stock market does not guarantee success in the Forex market. There are several differences between trading equities and trading currencies.
- Because the forex market is open 24 hours a day, 7 days a week, it takes a great level of dedication and hard work. You can't just be in front of your computer all day and night, so the ideal approach is to figure out when the ideal times are to trade.
- In the forex market, the “buy and hold” strategy does not work.
- You don't have access to as much information on currencies as you have company reports and statistics.
Myth #5: Forex can Make You Rich Quick
Many short-term traders enter the forex market in the hopes of making quick money with minimal effort. Unfortunately, even in the world's richest market, instant success is uncommon.
To learn to trade, you'll need a lot of effort, as well as a lot of patience and perseverance. In the world of foreign currency, a gambling attitude rarely works.
Myth #6: Forex is a Scam
The exchange of one country's currency for another is what forex trading is all about. It's no different than buying food at your local supermarket. Nonetheless, just as in any unregulated market, some people may try to profit off others' ignorance.
Naysayers and frustrated traders believe that forex is just a new craze designed to defraud people of their hard-earned cash. Although many frauds hide behind the forex name, it does not imply that forex is a scam. Amongst those that can be trusted include:
- institutional forex brokers
- reputable companies in the industry
- regulated forex account managers
You can identify a scam by simply reminding yourself, “if anything looks too good to be true, it probably is.”
Myth #7: You Need a Degree to Trade Forex
It's undeniable that foreign currency trading requires some knowledge of global economics and that having a basic understanding of economic concepts is beneficial. However, you do not need a degree in economics or a thorough understanding of all economic principles to trade currencies.
Many forex traders have a variety of educational backgrounds. All you need to be a successful trader is:
- a good understanding of numbers
- the instinct to help you estimate where the market is headed
- the ability to respond fast to market-moving events
Myth #8: Forex is Similar to Gambling
There is no guarantee in forex, as success in this market is based on your abilities, expertise, and strategy rather than luck.
Applying well-established market analysis tools like technical and fundamental analysis can significantly boost your odds of winning as an FX trader.
Another critical method to increase your chances as a forex trader is to use smart money management strategies.
Essentially, while you can trade the forex market blindly like an inexperienced gambler, if you truly want to be a great forex trader, you must learn to take smart risks rather than blind ones.
Myth #9: You Need Complex Strategies to be Successful
This is a common misconception that many would like you to believe. Self-discipline and money management are the most important aspects of forex success. Several traders profit regularly using simple and older strategies.
Myth #10: You can be Successful Following Someone Else's Signals
The blind signal-following strategy has ruined a lot of new traders. It's as if you're abdicating all responsibility for your behavior to someone else. Although it may sound incredible, you'll end up losing a lot of money. Instead, depend on your own skills and knowledge and remember that no financial market has ever had great signal-followers.
Because knowledge is power, it's in your best interest to learn how to identify some archetypal myths from what's real. Don't be fooled by the illusions of quick profits in forex, but also don't be scared of the market because people believe it's impossible to make money there. And lastly, be logical. This characteristic will benefit you whether you plan to trade forex or not.