By Abiola Akinyele, General Manager of FXTM Nigeria
Over my decade-long experience of trading the forex market, I have met many individuals with different ideas of what the market is. It is not only beginners who believe in the myths of the market – surprisingly, some experienced traders do too. So, let’s explore these misconceptions and the truth behind them.
Myth #1: Trading is extremely easy
This is the quintessential myth and one which many new traders tend to believe. The process of downloading the software to start operating is easy since you can start practicing on a demo account using virtual money. However, although there are some lucky traders who succeed as soon as they start trading, this kind of beginner’s luck does not apply to everyone. Successful forex trading requires practice and a lot of invested time. You cannot expect to be profitable as soon as you start and you should not invest more than you can afford to lose.
Myth #2: Forex trading is gambling
Although it is quite easy to compare gambling and trading because of the risk factor, they are not the same. Forex traders have access to a lot of macroeconomic information to help them make informed trading decisions. This is why education, understanding the markets and having a suitable trading strategy are so key. While there is always risk involved in trading, these factors make it significantly different from gambling.
Myth #3: You need an economics or finance degree to trade
This myth is one of the most widespread and it is, of course, false. It is not necessary to be a university graduate or have many degrees to be a trader. The only technical barriers to entering the markets are the need for a computer, internet connectivity and a strong desire to succeed – however, the willingness to learn is vital for anyone interested in forex trading. It’s essential to explore well-grounded education courses before beginning to trade, and I strongly recommend visiting the education section of the FXTM website.
Myth #4: The more complex the strategy is, the more profit it produces
Normally traders start with a simple strategy and only see little performance. Therefore, they assume that if they continue to make an adjustment to their system, taking into account some other variables, they will increase their profitability. But what they do not understand is that this is not how trading works. In fact, if you use a very difficult strategy that you do not know how to manage, it is likely that you will simply lose money.
Myth #5: Forex is a scam
It is true that there have been cases where individuals have had very negative experiences in the forex market, but this doesn’t mean that forex as a whole is a scam. Forex is a real currency market where anyone can trade for themselves and be responsible for their own trading decisions and their losses. Individuals also need to be careful of people who are looking to defraud traders and seek to take away their profits. However, it is necessary to emphasize that the market itself is NOT, by nature, fraudulent.
Myth #6: Following what other traders do leads to success
DO NOT ever follow what other traders do just because they seem qualified. A trader must develop their own skills and learn from their mistakes. They can listen to other traders, of course, and even follow the strategy of a trader they trust through copy trading, but keep in mind that every individual’s experience of forex trading is different. Experienced professionals can greatly help new traders; however, this should be part of an informed and educated decision. Do not simply believe in everything people say, no matter how experienced they may look.
Myth #7: You need to watch your computer all the time
Most professional traders monitor the market movements before closing their positions. Traders could also leave standing orders with forex brokers which automatically close the order for them.
So, no; in order to be a forex trader, you do not have to be stuck on your PC 24/7, but you should be able to devote a considerable amount of time to watching the markets.
Myth #8: The more pairs you exchange, the better
Trading many pairs at the same time may distract you and that could lead to losses. Trading more pairs does not always mean that you will have more profits, it actually means more work and less time to think rationally.
Therefore, the best option is to be patient and wait for the pairs you are trading to bear fruit— especially if you are a new and inexperienced trader.
Professional traders already have the currency pairs that they are familiar with and they know how to manage their strategy and their time.
It is important for a forex trader to do their own research to understand what it really means to work with the fast-moving markets.
Myths in the foreign exchange market are very dangerous and harmful for traders.
You should always fact check everything you read or hear and keep an open mind and try things for yourself.