6 Common Myths about Forex Trading

Forex markets are extremely popular with day traders, with hundreds of thousands of websites, videos and blogs offering advice, tips and “sure-fire” techniques to get rich without leaving home. At the other extreme are forex experts who give part-time traders the impression that investing in the currency markets requires a PhD in economics and is way too complex to be attempted. The truth about the forex markets is somewhere between these two extremes – here are six forex myths to watch out for.

1. It’s Easy to Get Rich Trading Forex

The internet has made many things easier, and investing is no exception. Affordable online brokerages, access to real-time market data, and trading software have certainly made it easier to trade from home – but getting rich is about as challenging as it ever was. Having access to information and analytical tools is great, but using them and interpreting the output they produce takes a skilled eye and some trading experience.

The first step any forex trader should take is to educate themselves about how the markets function, what strategies tend to work well over time (they tend to be the simplest and most conservative ones) and what kind of returns are reasonable. Once you’ve got that knowledge on board, you’ll switch your focus from getting rich quick to slow accumulation, and that’s the real secret to lasting wealth.

2. Forex Markets are Too Large and Complex for Regular People to Understand

The financial media sometimes do a great job of portraying the forex markets as large, complex, and intimidating. Despite the simple nature of buying and selling at favorable price points (that anyone who’s been to a fresh produce market or dealt with a second hand car dealer will understand), financial shows bombard us with graphs, charts, and scary jargon. The truth is that the markets can be complicated to understand if you try to analyze every detail, but forex traders can focus on the big picture and still make a healthy profit – especially on longer-term trades.

Another issue with charts and technical analysis is that they are good at explaining market movements after the fact (when it’s too late to make a trade), but often fail to predict movements before they happen. In fact, technical analysis sometimes predicts the opposite of what ends up happening in the markets, resulting in losses for traders who base their buy/sell decisions solely on charts.

3. Forex is a Day Trader’s Game

There are certainly a lot of day traders in the forex market, tracking events in the news and analyzing technical charts to make marginal gains when a currency pair moves to their advantage, but this isn’t the only way to trade forex. Like equities, it’s easy to take a long position on a currency pair or short a currency months or years in advance, and with a good stop loss system in place, you won’t have to keep too close an eye on the markets either. This strategy also comes with its fair share of risk and requires you to have quite an in-depth understanding of the markets and how they are shaped by geopolitical events, but if you’re more of a long term investor, this may be the ideal approach.

4. Forex Software is Impossible for Beginners to Use

Some first-time traders have an image of forex traders as number crunchers who spend their days analyzing the markets using software so powerful that it could run the International Space Station. The truth is, if you use a reputable retail platform like the one offered by Stern Options you should be able to master most of the relevant functions in the course of a day. While there’s definitely a learning curve when you start trading forex, most of the skills you need have to do with reading charts, interpreting data and understanding the markets, not using software.

5. Successful Forex Traders Can Predict the Future

Famous investors are often thought of as people who can see the future, buying top-performing shares and currencies at super-low prices and cashing them at their peak. The media does its part to reinforce this image by describing successful investors as “gurus” or “oracles” who possess some kind of mystical ability to predict the future. In reality, most top investors are totally grounded in the present. They analyze companies, currencies, and geopolitics and identify entities that they think are likely to become more valuable over time. Since good companies and dynamic countries tend to weather future challenges well, the value of their shares and currencies often rise over time. Of course, knowing this may not help you make a few dollars on a margin trade tomorrow morning – but it may inspire you to become a steady long-term investor.

6. You Need Thousands of Dollars to Trade Forex

There was a time when forex was the reserve of institutional investors and high net-worth individuals, but those days are long gone. Some brokerages will allow you to start trading with under $100, and small trades may be the perfect way to get a taste for the forex markets and see whether they suit your temperament and investment style. Patience is important when you attempt anything for the first time, and trading forex is no exception. If you stick to smaller trades at first, you won’t feel disheartened if some of your early trades turn negative, and you’ll be more likely to stay in the market long enough to learn how it works and gain some unique insights of your own.

Conclusion

Forex trading offers individual investors an exciting and potentially profitable way to access the world’s biggest market – and it’s possible to make a good side income or build your portfolio’s value by trading forex strategically. Learning how the markets work, setting reasonable expectations, and approaching your first few trades with patience and a spirit of curiosity are great ways to get into forex. Once you’re an experienced trader, you may find that forex forms an important part of your portfolio and contributes to your wealth creation strategy. We hope you have a great time learning – and earning – on the forex markets.