With over five trillion US dollars being traded every day, the forex market is the single most liquid market on the planet and attracts traders big and small the world over. With it comes a variety of misconceptions and half-truths that could affect any trader, no matter what their level of experience.
These myths could eventually lead to frustrations and affect your perception of the market as an outsider. But by dispelling these myths, you’ll be able to have a clearer understanding of how forex works and what it is exactly. Here are some of the most common myths and misconceptions about forex trading.
It’s a get rich quick scheme
This is probably one of the most pervasive and frustrating myths about the forex market. There has been a lot of advertising around forex, which often sets unrealistic expectations among new traders. Those newcomers then became disillusioned when they realize they can’t get rich overnight trading on the currency markets.
However, there are tools that can help you accelerate your profits, like social and copy trading, for instance. Brokers like CMTrading allow you to copycat trades from other seasoned traders and duplicate their results.
However, that doesn’t mean that you should forget about expanding your knowledge on currency trading and leave everything on autopilot. This should be used as a support tool so you can get a better understanding of the markets by seeing what works and what doesn’t.
Forex is a short-term game
High leverage is one of the reasons why short-term trading has become so prevalent. But you can play the long-term game as well. Currency trends are affected by a wide number of fundamental factors, which can all be monitored over time and help you form a clear trajectory. Long-term traders do not look at daily gyrations of the market but focus on larger trends instead. Both methods have their virtues when trading forex, but know that you can choose which one fits your preferences the best.
You can make easy money trading the n
This is one of the factors that gets so many beginners interested in the market. They think that they can just look at a few major news events and predict their effect on currencies.
While in hindsight it’s easy to see how certain financial news have had a direct effect on currencies, they can be much more difficult to monitor in real time. What charts don’t show is that there is sometimes little traction following the announcement, so traders may not be able to get in a favourable position before the move or get out before they realize they just entered at the bad time. Proper execution demands a lot of analysis of the different statistics presented and it cannot rely simply on guesswork, so be prepared for that.
While the foreign exchange market is a great way to get started and it does have its merits, you should make sure that you understand what it is and what it’s not before you get started. This will save you a lot of disappointment and increase your chances of success once you get in.