New to the Forex trading? You likely have the same misconceptions as most novice traders. This article explores the most common misconceptions new traders have about trading Forex and helps you learn the truth.
For years, Earth was believed to be a “flat square.” But, then, Columbus proved that this concept was a misconception, causing a revelation across the entire globe.
Likewise, new traders in the Forex market tend to get false ideas about what trading on this market is like. These ideas are either misconceptions or myths they find online on questionable resources or hear from their peers.
Now, here’s the thing: believing such misconceptions can potentially affect your trades. So, knowing the truth about each of them can save you a lot of poor trading decisions, unnecessary frustrations, and a lot of money.
Here are the six most common misconceptions about Forex trading all novice traders tend to have when first joining the market.
Trading forex makes you rich fast
Blame it on marketing, but Forex trading isn’t the get-rich-fast recipe like most people tend to believe.
Advertising has fooled people into believing that trading forex helps you make a lot of money really quickly and with minimal effort involved. Sorry to dash your hopes, but this is only a misconception.
Earning a lot of money with forex trading takes patience, consistency, and a lot of experience, which you only gain over time. The impulsive gambler mentality seldom may only work for a few trades, but it will definitely not make you rich overnight and might also bring you more losses than winnings.
So, if you want to be a successful trader, you need to see trading as a long-term activity with no final destination because no successful trader walks away after winning some money.
Those who win predict the market
Although Forex trading certainly has speculative aspects, there are many things that you can’t control or predict about the Forex market. The Forex market can be influenced by lots of factors, including politics, extreme weather events, and, obviously, economic factors. So, it’s almost impossible to predict how the market will move.
Thus, here’s the trick: those who are fast to react as the market moves based on the things that happen around the world make money, not the ones making predictions.
Now, this doesn’t mean that there are no predictions to make when trading Forex. You can make predictions by identifying trends, which you can do by analyzing the charts and recognizing certain patterns in them. You can analyze how certain patterns moved in the past and determine whether or not they may occur again. However, you need to gain some trading experience before you are able to make accurate predictions.
You need to be an economic expert to trade
Since there’s money involved in trading, a lot of people believe that they need a degree in economics to be a successful trader. But this isn’t true. Although it is essential to have some economic knowledge, since you’ll handle money and deal with many numbers, you don’t need to know everything about world economics.
Many successful traders come from various academic backgrounds, not just economics. You won’t use every economic principle when trading Forex, but you do need a good head for numbers.
Brokers who offer the best deals are the best ones
Once again, good marketing can make you believe that flashy offers and deals are the best things you are going to find out there. There might be brokers that offer a 100% bonus or low fees. But by no means do these benefits mean that they are the best option for you.
Like in every other industry, there might be people who take advantage of inexperienced traders. Novice traders tend to get excited by low fees or bonuses. Still, by doing so, they neglect other more relevant aspects such as the reliability of the broker or the customer service it offers.
Low fees are great, sure. But as a novice, you should be more interested in benefits like a demo account so that you can learn how to trade without losing money, trading tools, study materials, and, most importantly, the broker should be reliable and provide 24/7 support. What’s more, as a novice trader, you should do your research and learn the difference between A-book and B-book brokers to know which one is more suitable for your trading needs and experience.
You should pay attention to many other things when searching for a broker besides the fees and bonuses it offers.
You need to dedicate 24 hours a day to be a successful trader
Although the Forex market is indeed open 24 hours a day, it doesn’t mean that you need to stay in front of your computer every single minute of a day, staring at the charts. Many traders have regular jobs, and they only trade Forex during their free time as a side gig. You do need to allocate at least a small part of your day to trading if you want to be consistent with your trades. Yet, it’s up to you and your daily schedule how much time you invest in trading foreign currency.
Plus, thanks to technological advancements, you can now use an automated software package to do most of the trading work for you if you are a busy person.
You should focus on a single currency pair
Novice traders tend to think that focusing their trading efforts on a single pair of currency they are familiar with is easier and minimizes the risk of making poor investing decisions.
Yet, in trading, and all types of investments in general, experts recommend not “putting all your eggs in the same basket.” You need to diversify your trades because this helps you minimize the risk of losing money if one particular currency or pair of currency performs poorly.