The forex market has been a centre of attention for the past few years as people become more aware of the trading opportunities in the world’s largest financial market. The high liquidity and decentralized nature of the currency market makes it easily accessible to anyone and everyone on a global level as all they need is a trading account with a forex broker. It is possible to start trading with a small amount of capital as you just need to meet the margin requirements for placing the trades based on your lot size and leverage. The trading platforms also provide tools like margin calculators to help traders estimate the required margin before placing trades.
But one thing you should know before joining any trading platform is the truth about the myths and misconceptions that you see and hear about forex trading. This article is written to educate you about the same, so you can start your trading journey with the right mindset.
Introduction to Forex Trading
Just as the name suggests, forex trading is related to foreign exchange as the trading instruments in the forex market are international currency pairs like EUR/USD and GBP/USD. Here, the value of the first currency (base currency) is quoted against the 2nd currency and as a trader, you will open positions to buy or sell the pair based on the direction in which you expect the prices to move. You can trade a currency pair in both uptrends and downtrends by going long and short based on your analysis.
However continuous learning and planning are essential to make profits as a forex trader. Since forex trading is all about conversion rates, you should use trading tools like a currency calculator to understand the concept of currency conversion before getting into trading. With a currency calculator, you can convert the amount to any currency and this makes profit and loss calculations easier.
Now, we can move on to the common forex trading myths and misconceptions that are spread through social media and unfortunately, many people tend to think they are true. But they are far from the truth and knowing the facts is necessary for navigating the market with ease.
Forex Trading is Easy For Everyone
The first misconception that many people have about forex trading is that it is easy and anyone can do it. Well, it is quite easy to access the forex market and open a trading account but if you want to become a successful trader, you should not think of forex as something easy. There are a lot of things that you need to learn before pursuing forex trading as your career. The learning process will be the same for a part-time trader too. You should not trade forex for easy money and the trading journey is different for everyone.
Forex Is for Short-Term Investors
Forex trading is very different from short-term investing as there are different trading styles that you can follow to attain your goals. Scalping and day trading are popular strategies among forex traders but there are medium-term strategies like swing trading and long-term strategies like position trading which can work for those who don’t want to watch charts all day. You can also try strategies like carry trading where you simply earn from the swap and won’t be bothered about exchange rate fluctuations. Hence, forex trading can be suitable for all types of people whether they want quick profits or want to open positions for a longer duration.
Forex trading is a scam
Those who are unable to make profits in forex often call it a scam as they are not ready to accept their incompetence. Many people think that the currency market is manipulated and they can never win as a retail forex trader. This is a misconception as the forex market is one of the most transparent trading places with deep liquidity and decentralization. The market is driven by fundamental factors and it is unlikely that someone can manipulate the prices when the trading volume is in trillions. There are scammers and fraudsters in every market and if you trade with an ethical broker on a secure platform, you won’t have to worry about price manipulation or other issues.
You Need To Win All Trades To Be Profitable
Many beginners are constantly searching for the perfect strategy with a 100% win rate and they think that they need to get it right every single time to become a successful trader. This is a myth as no trader can win all trades even with years of experience and expertise. No strategy is perfect; you just need to minimise the potential losses instead of trying to avoid losses as a whole. If you have a favourable risk/reward ratio, you will be able to make profits even with a lower win rate. A profit calculator can show you the possible result of a trade and you just need to plan your trades with a cautious approach.
News Trading is the Best Strategy
Another misconception that many beginners have about forex trading is about news trading. Since the forex market always reacts to news events and economic data releases, trading the news is a popular technique among traders. However, this may not be the best strategy for everyone as trading when there is sudden volatility also increases the risk which is not suitable for those with lower risk appetite. Hence, those who don’t have a high tolerance for risk should avoid trading during a news event.
More Trades Means More Profits
This is the biggest misconception that anyone can have about forex or trading in general. The quality of your trades is more important than the quantity. Executing more trades will not increase your profitability but it will surely lead to a higher risk of losses. Overtrading needs to be avoided at all costs and you should only execute a fixed number of trades during a trading session. If you don’t find suitable trading opportunities, you should not force it and wait for the market to become favourable.
A Trader Should be Able to Predict the Price Movements
Another myth about forex trading is that it is all about predicting the price movements which is not entirely true. Technical analysis is more about analysing and interpreting the market situation. Traders don’t just predict market fluctuations as they wait for the market to move until a price pattern is formed, and they will be opening trade positions based on the next possible price change. Fundamental analysis is done to assess the impact of various economic events on the market. Still, you cannot predict until the market responds to the event giving clues about what will happen afterwards.
Complex Strategies Give You an Edge
Another myth that many forex traders believe is that they need to follow an advanced or complex strategy to gain an edge. This is quite the opposite of reality as complex strategies can leave you confused and lead to losses if you are not skilled enough to execute them with perfection. Simple Strategies are the best as you won’t have a hard time implementing them. Keeping it simple makes the trading process easier and following a simple strategy that suits your skill level, gives you more opportunities to make profits.
Just stop trading and it’s money management
Many traders don’t have much knowledge about money management and they think that they just need to stop trading to manage their funds. But the truth that you need to know before trading is that you will never be able to make consistent profits and become a successful trader if you are not focusing on money management. Money management is about preserving your capital by limiting the risk per trade and not using excess leverage. There are a lot of things that you should know about money management and being good at it is essential to grow your account.
Just Do What Everyone Else is Doing
What works for other traders may not work for you and blindly following others will not yield any results if you are unable to manage your own risk. You need to be very diligent while choosing your strategy. You will see many people sharing forex signals or forex influencers advising on how to make huge profits in trading. But you need to be sure about what you are doing before jumping into a trade.
Final words
Finally, one thing to remember about forex trading is that the risk cannot be fully avoided and it takes time to make profits as a beginner. You should always do some research and prepare well before taking your first step in the forex market. You can learn a lot from demo trading alone and don’t forget to backtest your strategies for detecting any issues and optimizing the performance of your trading system.
