Foreign exchange trading (forex trading) is an international market for buying and selling currencies. It is a global decentralized or over-the-counter market conducted electronically between traders through computer networks.
At $6.6 trillion, the forex market is the largest and most liquid asset market in the world. In fact, it is 25 times larger than all the world’s stock markets. Currencies trade against each other as exchange rate pairs e.g. EUR/USD exchange rate currencies rise and fall because of varying factors in economics, and geopolitics, etc
If you are new to the forex market and wish to learn the basics of trading, one thing to put in mind is that there are a lot of myths about forex that have risen over the years. Most of these myths arise because of exaggeration by some traders or for misunderstanding of the basic trading principles.
In this article, I will spell out these popular myths.
It is easy
The largest myth about forex trading is that trading in the forex market is a simple task. Well, this is so true, yet so wrong. Trading currencies successfully can be one of the most challenging moves one can undertake in the FX market. Some traders have made people believe that as soon as you fund your live account, it can make money, but that’s too simplistic. Forex trading involves taking risks and requires a significant amount of time and effort put into practicing and developing strategies.
These risks can, therefore, be reduced by being very careful when entering a stop loss, entering a stop loss too close to the original position means you are likely to be filled with an order only to see the rate resume to its original direction. Besides the volatility in currency pairs, there are the fundamental aspects that can drive a currency up and down, it depends on central bank announcements, major news releases, geopolitical events, etc making exchange rates become more volatile.
Trading in the forex market is therefore not as easy as they have made it to look. Nevertheless, it can be learned, because most professional traders have spent years learning the skills of trading either through mentoring with another successful trader or by just developing strategies that work for them.
FX trading is like casino gambling
This is yet another misconception about forex trading. Some people believe that trading forex is like gambling, but that is not the case. Gambling involves making blind bets while forex trading involves taking strategic risks. As a forex trader, you can make use of money management practices to trade currencies; using sound technical and fundamental market analysis methods increases the odds of trading successfully in forex. Forex trading involves speculating since we put an amount of capital at risk, but it is more strategic and different from gambling.
Forex trading requires a lot of money
This is one of the most popular myths about forex trading. Back when forex trading wasn’t available online, the retail traders did not have access to the interbank forex market; this is the wholesale currency arena, where traders from large banking institutions trade amongst one another. Access to this market was not possible unless you have a very high net worth and can trade over $1000000 but ever since introducing online forex trading, anyone could be a forex trader just by having a computer, internet connection, and a modest amount of money to invest.
Traders should watch their screens all the time
This is another great fallacy about forex trading. I do not expect anyone to watch the forex market all around the clock. This myth was derived because the market trades on a 24-hour basis. Professional traders follow the 24 hour market timing by leaving orders with fellow traders working in different time zones to watch the trades for them. As a retail trader, there is no need to watch the market constantly especially if you use bracket orders, which is why it’s advisable to automate your trade, plan market analysis to identify trading opportunities for you so you need not monitor the market yourself but monitor your system’s alerts.
Forex trading is a scam
One false belief that has been going around is that forex trading is a scam. As defined at the beginning of this article; forex trading is the buying of one currency and selling another simultaneously. This does not differ from buying a new cloth or shoe at a fashion boutique around you. But some people have tried to take advantage of others who are unsuspecting and ignorant.
Despite being one of the world’s largest financial markets with over $5trillion every year, the forex market has been hit with negative reviews at different times because of dishonest people who involve in Ponzi schemes to make illegal profits and claim to be making high yields by engaging in forex trading.
This takes us back to the common “forex trading is easy” line. They tell you that will make fast money in a quick time by investing a particular amount with them to help you trade. And that’s how many people get scammed of their hard-earned money.
There’s just a rule to it; trading in the forex market is difficult and requires a lot of patience, willingness to learn, and mastery and application of logical and trade strategies which I have used since I started trading successfully in 2008.
Would you like to know more about forex trading? I have an ongoing training called The Forex Money Machine where I help many people make money daily. Book a free 30 minutes call with me if you’re interested.