The forex market has certainly become a lot more accessible to home based investors than ever before, however it’s still very much misunderstood. The pros, the cons, the dangers, the potential, the risks… Let’s start to create some clarity right now by dispelling five of the more popular myths about this market.
1. You’ll Get Rich Quick
In a word, no. Currencies rarely have aggressive price changes. 1% in a day is a big change, for example (ignoring when the Swiss Frank dropped 40% in a day, that really is a one off, and we’re unlikely to see anything like that ever again, even if we live to 100). You can make small profits again, and again, and again, which add up over time. But unless you’re on the right side of a big move, and have a lot invested, it generally won’t come to much.
2. Foreign Exchange Trading is Only Short Term
Since price moves in forex are generally small, you either need a lot of money invested, or significant leverage. And this leverage is why retail traders tend to focus on the short term. However, currencies do move in specific directions over time, and over a year or two, a 20% change in value (or even more) is more than possible. So buying and holding, and being on the right side of such a bet can work out great. If you’re not familiar with how to do it, you might want to learn how to spread bet so that you can take a very flexible approach to trading currencies.
3. The Market Isn’t Genuine
Look, it’s no secret that governments are heavily involved in the forex markets, trading to help them reach economic and political goals. This often doesn’t work, but it makes clear the fact that you’re up against the biggest of the big players. Some people take this to mean that all the activity in the currency market is fake, and that the outcomes are predetermined. But frankly, with so many players and with so much money involved, that just isn’t possible.
4. Trading On the Latest News Is Easy Money
Trying to get on the right side of a currency move when major economic or financial news comes out is great in theory, but it’s just like trying to get on the right side of any financial news:
One – you might have guessed wrong.
And two – you’re up against thousands (at least) of others who have done the research and think they’re right too.
Generally, in any business, and in any market, if there’s easy money, it gets discovered quickly, and rarely stays easy money for long. So put the idea out of your head immediately that any particular tactic in the multi-trillion dollar forex market is a guaranteed winner, because if that were true now, it wouldn’t be true for long.
5. The Money’s in the Predictions
Many a trader more experienced than you has lost money attempting to predict what’s going to happen. It’s a common and understandable mistake that works because of emotional bias and attachment to decisions, and bias is the enemy of sound and impartial investing. So bottom line – don’t try to guess the future.
These are just five of many myths still worryingly common about forex trading. Hopefully however, this short list has helped to clear some of the confusion you may have had around foreign exchange trading, and allows you to decide whether this market is right for your risk level and capital.
Categories: Stock Market