The information age has revolutionized finance in many ways, including making forex trading accessible to individuals outside of the traditional banking and investment industry. While this has had an overwhelmingly positive impact on the lives of individual traders, it has also caused a widespread problem of misinformation. In a $5.3 trillion a day market[1] consisting of governments, multinational banks, corporations, consumers and over 4 million retail traders,[2] it’s not always easy separating fact from fiction. Below are five common forex myths you’re likely to come across several times in your trading career.
Myth 1: Forex trading is gambling
This myth is usually propagated by people who have a general disdain for financial trading. While any form of investing can devolve into a game of chance if you do it haphazardly, successful forex trading requires significant skill, patience and risk management. In this sense, it’s the furthest thing from gambling. The most successful traders have an advanced understanding of technical analysis, charting techniques and the broader economic and financial climate influencing the currency market.
Myth 2: Forex trading is a scam
The forex market is not a scam, but there may be scammers in the market trying to sell you on the holy grail of forex trading. These people exist in virtually every market and it’s up to you to steer clear of them. If you want to make your forex trading experience as seamless as possible, start out by picking a reputable broker with more than ten years’ experience in the market.
Myth 3: You can’t make money in forex trading
Is it reasonable to think that there is absolutely no money to be made in a $5.3 trillion a day market? There’s a reason so many people choose to trade forex. The market’s deep liquidity and relatively few asset classes makes it ripe with opportunity. Additionally, its delocalized and decentralized structure makes it possible for anyone to enter the market. People who complain about the odds being “stacked against them” or about it being impossible to make money in the forex market are probably failed traders who didn’t stick it out long enough to improve their skills. Forex trading may be hard, but it is certainly doable if you’re committed enough.
Myth 4: Forex trading requires a full-time commitment
Finding the time to trade may not always be easy, but that doesn’t mean you need to quit your day job just to trade forex. Quite the contrary, actually. Retail forex trading is designed specifically for everyday people with regular 9-5 jobs who would like to build wealth through the markets. Given the global nature of the market, forex trading is available 24 hours a day, five days a week. This makes it possible for you to trade before work, during lunch or after work.
Myth 5: Forex trading is too risky
There is no question that forex trading (or any other type of financial trading, for that matter) is risky. But what exactly makes it too risky? It’s only when you trade without a strategy and neglect basic risk management that forex becomes too risky. Most traders may reduce their risks by performing basic technical analysis, using stop-loss and take-profit orders and allocating a smaller percentage of their total trading capital to one trade. When you put all of this together, you may not lose that much money even when you mess up. Remember: don’t let people who failed at trading take you away from a potentially rewarding opportunity. No financial market is inherently too risky if you approach it correctly.
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[1] Bank for International Settlements. Foreign exchange turnover in April 2013: preliminary global results. Triennial Central Bank Survey.
[2] Stephen Gandel (January 16, 2015). “Individual investors lose more than $400 million on bad Swiss currency bets.” Fortune.
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