Thinking about starting to trade Forex but have no idea what is real and what is not about it? Here are six common misconceptions you’ve probably heard about trading Forex explained:
1. Forex trading is easy
Trading currencies shouldn’t be that difficult, right? Well, it isn’t rocket science, but it’s not really safe to say that it’s “easy”.
Everyone, or at least everyone except professional traders, says that you only need to read a book or two about trading, set up a brokerage account, and you can jump right to making profits in the Forex market. Well, sorry to disappoint you, but understanding trading isn’t that easy, and if you’re in for a quick turnover, you’re in for a rude awakening.
Understanding Forex trading takes getting educated on the market, strategies, risk management, active forex trading times, technologies and tools, and Forex market jargon. Plus, you’ll also have to acquire a few years of experience to be able to place winning trades that will bring you a considerable profit.
So, if you are a beginner, spend some time getting educated on everything related to the market and trading currencies.
2. You need to have a degree in economics to trade
As mentioned above, understanding how to trade Forex is anything but easy. Yet, on the flip note, you also don’t need to have a degree that says you are an economics wizard to understand how trading currencies works.
Now, there’s no doubt that the more you know about the world economics and economic concepts, the easier it’s going to be to trade foreign currencies. Yet, it isn’t an imperative factor that will decide whether or not you can be a trader. In fact, many forex traders come from various academic backgrounds, not only economics.
Yet, to be a successful trader, you’ll need to have a good head for numbers, an intuition to help you estimate where is the market heading, and the ability to react and make critical financial decisions depending on the market-moving events.
3. You don’t need to start with a demo trading account
Like we mentioned earlier, you’re in for a rude awakening if you think you can start trading and make profits immediately as a beginner.
Even after you learn the basics of the Forex market and trading, you still need to test your trading skills out before you jump into the market. Or, at least that’s what you should do if you don’t want to lose money. Understand that learning about Forex is one thing, actually trading on the market is an entirely different thing.
And, what better way to learn how to trade by actually applying everything that you have learned than by using a demo trading account? Plus, you also don’t have to worry about losing money.
Take demo trading as an indicator of your trading skills. You’ll avoid putting your capital at risk, familiarize yourself with the trading platform and broker, and learn a thing or two about the psychology of trading, meaning that you’ll learn how to manage your emotions when trading.
4. Forex trading makes you rich overnight
This misconception about Forex trading is entirely the result of a little bit of false advertising.
Who doesn’t want to get rich overnight or with little effort? So, this “get rich quick” advertising line has brought many people into the arena who are looking for easy or rapid returns. Unfortunately, this may not be entirely true, or at least it is a quite rare scenario.
Building wealth with trading takes patience as for the average trader, it’s rarely an easy road to riches but instead can be a rocky highway that can also involve losses and potential penury. You’ll have to trade consistently, avoiding the gambling-throw-it-all-at-a couple-trades approach. Over time, as your trading skills improve, so will your trading decisions and your returns. But, once again, it all takes time to happen.
5. Forex is an unregulated market
Another misconception about the Forex market is that there is no authority out there to say what is right and what is not correct to happen during trades.
Now, technically, the Forex market is one of the biggest and most liquid decentralized markets in the world, meaning that there’s no single global body to police this market. However, read that again, no SINGLE global body because some market regulators are covering the jurisdictions where most of the world’s forex brokerage businesses are located.
For example, in Australia, you’ll find Forex brokers regulated by ASIC. In the US, brokers are regulated by the CFCT regulator, while in the UK, they are regulated by FCA.
These regulators are essential to make the market safe for traders because there are massive amounts of money passing the market every day, which makes it very attractive for all sorts of scammers and white-collar criminals. So, these regulators ensure that those qualified to do Forex brokerage are legit and trust-worthy.
Thus, it is imperative when you’re choosing a broker to check whether or not it is licensed by the Forex market regulator in your location.
6. Forex trading is a low-maintenance, passive income
Another misconception about Forex trading for which you can put the blame on exaggerated advertising is the fact that Forex trading is a passive income that requires very little of your free time.
However, although Forex trading can be a great side hustle, as it gives you the flexibility to trade when you have the time, the fact that it is a 24/5 market is both an advantage and a massive disadvantage if you only trade in your spare time.
Being a 24/5 market allows you to trade during any part of the day that suits you best. Yet, it also means that the market might be moving when you are not in front of the computer.
Yet, no matter if you are a full-time or part-time trader, you shouldn’t stress too much on keeping an eye on the market. Instead, you should, however, keep an eye on the global news for important events, be it economic, political, or natural disasters. Over time, the more experienced you are as a trader, the easier it will be to spot events that will influence the market and require you to take action.