Introduction

Forex Trading has grown dramatically in popularity over the last several years.

Furthermore, the advent of social media has ‘sold’ the Forex Trading dream to countless numbers of people.

However, this has also purported some myths relative to Forex Trading.

In this article, we will debunk 7 of the most common Forex Trading myths and endeavor to present a realistic view of Forex Trading.

Myth 1: Forex Trading Is An Easy Way to Get Rich

The first commonly believed myth is that Forex Trading is an easy way to get rich.

While it is a legitimate way to make money and grow your wealth, it is certainly not an ‘easy’ way to get rich.

In fact, having this sort of mindset will be detrimental to your trading.

Forex Trading – like any other skill, takes time and patience to learn and master.

Although some people’s personalities and skill sets may be more naturally suited to success in the Forex Market, hard work and diligence are still required.

To be a successful Forex Trader, you must constantly learn, develop, and refine your Trading strategy.

Going into Forex Trading with a ‘get rich quick’ mindset will lead to unrealistic expectations and may lead to chasing unrealistic profits rather than slowly growing your account through patience, skill, and continuous learning.

Myth 2: You Need a Lot of Money to Start Trading in Forex

Many ‘would-be’ Forex Traders think that Trading is out of their reach, as they feel they lack sufficient capital to start trading.

However, the Forex Market is much more accessible than most people realize.

There are three primary reasons why this is the case:

1. Access to Leverage

Leverage is offered by most Forex Brokers and is very common in the Forex Market.

It allows traders to control a much larger sum of money than they would otherwise be able to control.

For example, a trader using 100:1 leverage can control a $100,000 position with only $1,000 of capital.

Low leverage ratios are around 10:1 and 20:1, while extremely high ratios can go as high as 1000:1.

Obviously, the greater the leverage, the greater the potential reward – and potential loss.

2. Low Minimum Deposit Requirements

Contrary to what many people think, most Forex brokers have very low minimum deposit requirements – sometimes as low as $50.

This makes the barrier to entry very low and allows traders who either don’t have access to a lot of capital or traders who want to start small and learn to get started.

Furthermore, because of leverage, a relatively small amount can allow a trader to control a fairly large position.

3. Low Transaction Costs

Unlike many other financial markets, Forex brokers typically do not charge commission fees. They make their money through spreads, which is the difference between the bid and the ask price.

Thus, Forex Trading can be more cost-effective than other forms of trading where commission costs add up quickly.

Myth 3: Forex Trading Is Too Risky

Forex Trading does carry inherent risks. However, there is no reward without any risk.

Furthermore, the risk can – and should be managed.

Like stocks, commodities, cryptocurrency, or other financial markets, there are daily fluctuations and volatility. However, this is what makes it possible to earn profit.

The key is to manage the risk so that one bad trade does not result in substantial capital loss.

There are several risk management techniques that Forex Traders can implement. These include the following:

• Stop-Loss Orders

• Take-Profit Orders

• Position Sizing

• Managing Leverage

Using these risk management techniques should be ‘non-negotiable’ and will go a long way toward mitigating the inherent risk in any financial market, including Forex.

Myth 4: More Trades Equal More Profits

Unfortunately, many believe that the more trades you make, the more profit you earn. This is a myth, and it is arguably the opposite.

When a trade is executed, it should be done because a trading opportunity is clearly presented.

How do you know if a clear trading opportunity is present? You need a clear trading plan in place.

A trading plan should dictate when you trade, what you trade, and how you trade.

When it comes to Forex Trading, it is about quality over quantity.

Traders will sometimes trade too often due to emotions – whether trying to ‘make up’ for a prior loss or getting rich quickly. However, it is a recipe for failure!

Myth 5: The More Complex The Strategy, The Better

When it comes to a Forex Trading strategy, less is more. A strategy that is too complex or complicated can cause overwhelm, stress, and confusion.

While technical, fundamental, and sentiment analysis all have their place, overutilization of them can be counterproductive.

Instead, by using a few indicators and keeping things simple, traders can master a simple yet effective strategy that is likely to yield better results over time.

Myth 6: Market Predictions Can Guarantee Success

The Forex Market is inherently unpredictable, and there are many different factors that influence the movement of currency pairs, including geopolitical events and economic indicators.

Traders use technical indicators to try and gauge what the market will do. However, as the name suggests, they are merely indicators of what the market may do – not a guarantee.

Furthermore, fundamental and sentiment analysis should be used alongside technical analysis to help traders make more informed decisions.

However, none of these tools are 100% guaranteed to predict what the market will do, which is why it is so important to use proper risk management techniques and continually develop your own trading strategy.

Myth 7: Forex Trading is Only For Day Traders

When people think of Forex Trading, most assume it is only day trading—that is, trades are entered and exited on the same day.

However, there are also other forms of Forex Trading, such as Swing Trading and Position Trading:

• Swing Trading

This is a form of trading in which traders keep a position open for several days or weeks, looking for price swings over a slightly longer time period than just a single day.

• Position Trading

Position Trading focuses more on the macroeconomic outlook rather than short-term price fluctuations. Traders hold these positions open for months or even years at a time.

Conclusion

Having the correct mindset and expectations is essential when deciding to venture into Forex Trading. Therefore, it’s essential to understand some of the most common Forex Trading myths.

However, through constant education and practice, you can develop a healthy view of Forex Trading and a consistently profitable strategy.