5 Famous Myths about Forex Trading
If you’re a newbie in the world of Forex trading and you’re looking for information on how to get started, know that you’ll most likely encounter a lot of false and inaccurate information.
Throughout your trading career, you’ll keep perfecting your skills and probably also search new information and tips on the internet.
Keep in mind that not everything you find on the internet has value and a lot of information is either misleading or purposely worded to benefit someone else and not you, a new and inexperienced trader.
The Forex environment is associated with many myths, which are popular especially among retail traders. Their trading levels differ, and it is generally rookies who tend to believe those myths or even pass them on. They often come from their lack of knowledge about the Forex environment and insufficient understanding of the field as a whole, precisely because they have not received proper education.
Some myths come from way before online Forex trading was a thing and retail traders could take part in it as well. Other myths are purposely made up and spread to discredit Forex altogether. Last but not least, some myths are created by traders themselves because of them not understanding the basic principles of the market and not having quality education.
Myth No. 1 – Forex Trading Is Easy
New traders we meet often believe that trading and making money on the Forex market is easy. But nothing could be further from the truth. Trading currencies successfully, especially consistently and long term, is quite possibly the hardest challenge as far as making money goes.
Admittedly, opening an account and downloading the trading platform is relatively easy. But being a consistent, successful trader is a completely different story. Sure, there are talented traders who learn navigate through the trading environment fairly quickly, but you should always double check that you actually know what you’re doing and that you have sufficient knowledge to keep you going in the right direction.
One of the reasons traders think that trading is easy are marketing strategies of the gurus and brokers out there. An inexperienced trader can conclude that making money on Forex is a piece of case and that the only thing he has to do is “open a real account”. Traders who fall for this nonsense often give up trading for good because the market isn’t what they imagined. If there wouldn't be these hoaxes or people who believe them, the percentage of unsuccessful retail traders would definitely be a bit lower.
Myth No. 2 – Brokers Make Money off of Traders’ Losses
This myth is half true, but it all depends on the type of broker. Every time you want to make a trade on Forex, you need someone to close the deal with you, a counterparty, just like with any other kind of transaction.
Some brokers forward their clients’ order to the interbank market, to the so-called liquidity providers. That is how they find a counterparty for your trade, for which they charge a fee, which makes up their profit. Their goal is to make sure you are a successful trader long term, because only then will you keep trading and pay the fees that make up their salary.
Other brokers work alone as market makers and they are in charge of your counterparty. They then may or may not hedge the position on the interbank market or at a liquidity provider, it is up to them. If they do so, their main profit source is trading fees, just like in the previous case. If they decide not to hedge their position, then they profit from your loss and the other way around. Considering the fact that hedging comes along with certain expenses and that 90% of retail traders lose money on the markets, it is no surprise that these brokers don’t have any incentive to actually hedge their positions.
Myth No. 3 – You Need a lot of Money to Trade on Forex
Though once true, it became a myth when online trading was born. However, you can still hear this myth on occasion today. Before online trading came about, it wasn’t easy to start trading currencies unless you were rich and could trade millions of dollars and also acquire a license from the relevant institution. This is not the rule anymore, and anyone with an internet connection, a trading platform, and some capital can trade on Forex.
You can trade with a couple thousand dollars, but don’t expect to be able to live just off of trading in that case. You can get relatively good results, but it won’t be too much in relative terms. It is worth trading even if you don’t have a large capital. If you are a successful trader long term, you can even under certain circumstances provide your strategy to investors and generate some extra income.
Myth No. 4 – You Need an Academic Education to Trade on Forex
If you know someone who trades professionally, whether alone as a full-time trader or on one of the funds, you might suspect this to be a myth as well. One of the most interesting facts about this field is that most professional traders don’t have a college degree, or at least not from an economic or a finance major. For example, the longtime successful trader and director of our Representative office in Prague (Czech Republic), Jaroslav Tupý, has a chemistry university degree.
It’s possible for a person with a specialization in the hospitality industry to get better results than someone with analytical thinking with a doctorate from a prestigious university.
Myth No. 5 – Forex Trading Is just like Gambling in a Casino
It all depends on your approach and it is true that we have seen traders gamble away their money on the Forex market. However, even though a big part of trading is speculation and you put your capital at risk, another part of it is applying a coherent strategy, and that’s what separates it from gambling .
On Forex, your chances of success are much higher than in a casino if you manage to analyze the market well. Methods like fundamental and technical analysis give you an advantage that you don’t get in a casino, and that is why you should learn these methods well and realize what information they provide you with.
Your chances of success are higher if you master money management and also thanks to the possibility to monitor your losses and to manage your winning positions as long as you want. Long story short, to have better chances of succeeding on the Forex market that you’d have in a casino, and not everybody does, you need to learn a few things about risks and strategies and gain an advantage over the market.
You need to realize that trading on forex can be a lot of things, but easy isn’t one of them.
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
For more information on the risks of trading, click here .
P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.