Forex is a market where exchange of one currency with another currency takes place. It is the market that provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.
Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the spread of online Forex brokers. There is a lot of information available about Forex on the web. However, there are also many myths surrounding the foreign exchange market:
- Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality, that's just a myth. Succeeding in Forex isn't easier than mastering any other profession — it takes time, money, and a lot of practice.
- "I will make money in Forex if I can trade stocks successfully." Success in stock market doesn't imply that you will be successful in the Forex market — there are many differences between trading stocks and spot currencies. First of all, the Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, a buy-and-hold strategy simply won’t work in the Forex market same as it works in stocks. Third, you don't have that much information about currencies as you can get from the companies' reports and statistics.
- "I can make profit whenever I want if the Forex market is open 24 hours a day." Once again, you won't be sitting in front of your PC for the whole day to be able to trade 24 hours. You will have to develop automated trading software to get the advantage of 24 hours a day working schedule.
- "I can be a successful Forex trader just following someone else's signals." Many beginning traders get burned by the blind signal-following. That's like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality, you end up with huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
- No commission is to be paid in the Forex market. You only have to pay the spread, but you don't have to pay the commission. And what is spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker's hands if you plan to rely on the short-term trading.
- Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard-earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn't mean that Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers, and other solid companies in the market to whom you can trust.
- "I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not a game of certainties; it is a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
- "I need to use a very complex strategy to be successful in Forex." It is a popular myth, in which many online sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
- "I need to have a lot of starting capital to get profit in Forex." Big capital investment won't help you in Forex. You don't need a lot of money to diversify in currencies and you cannot move currency rates with your trading orders (you would need billions of dollars to do that). Actually, you can trade with very little capital, because Forex trading is almost always leveraged with the broker's money.
- Forex is gambling because it is completely random. Although there is no certainty in Forex (as in any financial market), it doesn't mean that it is completely random. And it is certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.
Knowledge is power — so it is better for you to learn distinguishing some stereotypical myths from the real thing. Do not fall for the promises of getting some easy profits in Forex, but don't be afraid of the market just because some people think it is not possible to earn there. Be rational — this quality will help you either if you are going to trade in Forex or not.
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