So you’re ready to start trading Forex, but it seems like everyone around you has a great reason for you to stay out of the market. There are a lot of myths about investing, especially when it comes to Forex. So today, I’m helping you break down the top 5 Forex myths traders hear.
The Forex market is similar to the stock market in every way
A common misconception that many new traders to Forex have is that the success they’ve had in one type of trading will automatically translate to success with Forex. It’s simply not true. There are many differences between Forex markets and other financial markets.
The fact that Forex is open 24-hours a day (except on weekends) is the most significant. While this aspect of Forex allows for more access to the market by traders, it makes trading a more intricate process. Consider the peaks and valleys of the US Stock Market, which is open for only six hours a day. Now multiply that volatility four-fold, because that’s the effect of having a market open all day and all night like Forex.
Besides the hours of operation, another major difference between Forex and the other markets are the brokers. Unlike stockbrokers, Forex brokers aren’t regulated. They are trained to place their own priorities above their clients’. In other markets, if your broker is successful it probably means you’ll be successful. That’s not necessarily true in Forex.
With the Forex markets’ all-hours approach, you can make money whenever you wish
Many traders fall into the trap of thinking that because Forex is open 24-hours, easy money can be made by trading during off-peak hours. What they forget is that if it’s a down time in their time zone, it’s the height of the trading in another. You have to remember that when it’s 3 am in London, it’s noon in Tokyo.
During the course of a typical day, it’s nearly impossible to predict when the market will rise or fall and a trader can’t be following the market every second of the day. So, they must study the market closely to determine when the volatility most commonly occurs for the currencies he’s interested in.
Regardless of when or where you trade, you need to be sophisticated and savvy in your knowledge of the Forex market. One of the first things to learn is that the indicators from the stock market don’t necessarily apply to the Forex market. The market has many experts in many places making trading a far greater challenge than the other markets.
Forex market trades are commission-free
While traders don’t pay the commission fee for their traders, they do pay the spread. The spread is the gap between the bid and ask. And since there is a spread on every trade you do pay a fee for every transaction. And since the spread can be different on every trade, your fees aren’t fixed.
You have to be good at making predictions to succeed in Forex Trading
It is far more important to be good at reacting to what is happening with the market than it is to be good at predicting currency values. The best traders call upon all their available information, in the form of charts, news items, and background to make the best possible play at a particularly moment. The best traders learn quickly that they have to be reactors as opposed to predictors and the way to do that is to never stop learning.
The most sophisticated Forex strategies are the best
While it’s important to acquire knowledge about the Forex market, there’s a danger in making decisions based on a complex set of factors. The fact of the matter is, easily understandable strategies are more successful in the long run than the complicated ones. Perhaps the most important strategy is to have a strategy that you are comfortable with, that you have researched and that makes sense to you. Everyone has access to the same information; it’s all in how you use it.