By becoming a trader, a beginner becomes a part of this world. The concluded deals generate income, but at the same time they also bring losses. Not every trade is successful and not every time the trend moves the way we would like it to.
But as soon as the ice breaks and you start trading like a pro, Forex trading becomes a dream job. A beach in Thailand, a Roman coffee house, a mountain resort in Switzerland – all these places become your new office.
A number of obstacles stand in the way of novice traders. The first is to understand how the market works. And in this he is actively hindered by the Forex myths. They are born from ignorance, are the result of someone’s long-standing mistake, or even pure fiction.
Let’s try to deal with the misconceptions that await a trader at the very beginning of his career. Seven myths for newcomers to the foreign exchange market: one for each day of the week.
Forex: deception or truth
Monday: “Forex is deception, gambling, financial pyramid”
An unusually tenacious myth that every beginner will surely encounter. You will hear that trading in the foreign exchange market is like playing in one of the Las Vegas casinos. That Forex is a kind of roulette game, the choice is between red or black. That the currency market is like a game of poker, where some win millions and others lose the last dollar.
In reality, the financial market is far from a game. The details are similar, but the principle is fundamentally different. Forex is not a casino or a game of chance. This is the same market as the market for cars, real estate and food.
The negative associations arose thanks to scammers flooding the market. This is not surprising – a large source of funds always attracts a lot of scammers.
This myth presents a major hurdle for those who have just learned about the foreign exchange market. It is hard to decide when the Internet is replete with statements like: “ Forex: a scam or not? “,” Forex is a financial pyramid and the cream is skimmed by the one who entered the market earlier. “
Let’s try to figure it out: what is the advantage of a trader from Singapore who came to the market a month earlier than a trader from Australia? How does he get more? Absolutely none. Comparison with a pyramid is fundamentally wrong, since Forex is a market. With the same success, the pyramid scheme can be the nearest store or website where you order tickets.
Illiterate statements give a person false beliefs and can turn him away from Forex forever. At the same time, do not forget that trading in the foreign exchange market is a risky financial speculation.
Trading requires training and experience. Thinking of selling and buying currencies as shopping is not a good idea.
Tuesday: “Either Forex or Work”
So, you have decided, weighed all the Forex pros and cons, and now you are planning a chart. The question arises before you: how to find the time to trade? It is good if you have enough funds and a free schedule to devote maximum time to trading. But what about those who have a standard working day? And you still need time for yourself, family and friends, not to mention the constant training and practice.
Here is another popular myth that will never die: a trader must sit at the monitor for days on end.
In part, this misconception arose due to trading strategies for short periods of time, when maximum attention and concentration is required from the trader. But these trades usually last no more than 10 minutes. When trading on long periods, it is not at all necessary to sit at the monitor every second, moreover, it is harmful. Here’s something for you to think about: traders shared their experience on the popular Forex forum – 90% of traders combine regular work and trading.
Since the trader is not tied to a location, he concludes deals anywhere, even while traveling around the world. To the myth of the constant tracking of quotes, we add one more thing: sitting at the monitor 24 hours a day does not guarantee a profitable trade at all.
If you are not a fan of short-term trading, go for long-term trades. Do not try to scalp from your first days in Forex. Provide yourself with maximum access to trading: install the trading platform on your phone or tablet.
Wednesday: “Any broker wants to cheat a client, whether he has a license or not”
Choosing a broker is the first step for a trader. It is impossible to trade profitably without a normal broker. In almost every country there are special organizations that regulate financial markets and the work of brokers in particular. They are actively supported by the governments of these countries.
Organizations representing countries (non-exhaustive list):
|Belize||International Financial Services Commission (IFSC)|
|Great Britain||Financial Conduct Authority (FCA)|
|Hong Kong||Securities and Futures Commission (SFC)|
|India||Securities and Exchange Board (SEBI)|
|Indonesia||Futures Trading Supervision Agency (CoFTRA)|
|China||Securities Regulatory Commission (CSRC)|
|Latvia||Financial and Capital Market Commission (FKTK)|
|Malaysia||Securities Commission (SC)|
|Russia||National Association of Stock Market Participants (Naufor)|
Commodity Futures Trading Commission (CFTC)|
Financial Services Regulatory Service (FINRA)
National Futures Association (NFA)
|Switzerland||Financial Market Supervision Authority (FINMA)|
If problems arise, the client has the right to contact these organizations. They can be roughly divided according to the degree of “severity” of regulation. The top line is occupied by US organizations (CFTC, NFA and others) – they provide the strictest regulation. UK and Australian organizations have weaker start-up capital requirements, but more stringent reporting requirements. However, a broker will need $ 35,000- $ 50,000 to obtain a license.
Cyprus, Malta and New Zealand guarantee a certain level of protection for clients of Forex companies. To obtain a license, a company is required to own a free 20 million (not including customer deposits). Traders prefer to work with brokers who are registered in the EU countries – usually this is an indicator that companies have been working in the financial market for a long time. For example, novice brokers are registered in Latvia aimed at working with European and post-Soviet countries.
One of the most problematic issues in Forex is fraudulent brokers from countries with weak regulation or from countries where there is no regulation as such. Your task is to choose a company registered in a country with an operating organization.
Despite the impressive volume of daily transactions, Forex remains unregulated on a global scale – there is not a single international organization that oversees currency trading on the interbank market.
Check if your broker’s license has expired.
Thursday: “Trading on a demo account is required”
You have already chosen a broker you trust. The next logical step is trading on a demo account. Traders have different opinions about trading on a demo account. Some advise it as part of a must-have practice. Others are categorically against it – when trading on a demo account, the trader does not feel responsible for the money and then transfers this carelessness to a real account with real funds.
Theoretical knowledge will help you understand the mechanism of the foreign exchange market, but practice will turn your skills into a tool of earning. Forget the thick tomes of economic theory, practice is what you need. It is important to find a middle ground: start with a demo account , practice opening and closing deals, watch the indicators.
trick in Forex is not to stay on the demo account for a long time. As soon as you feel the strength to trade on a trading account, start trading and get real earnings on Forex.
Major currency pairs
Friday: “You need to trade one or two major pairs”
The popular myth is to focus on one or two major currency pairs. It’s not obligatory. Currency pairs are divided into:
majors are the most traded pairs. Contain US dollar.
Example: EUR / USD – Euro / US Dollar
Minors (also known as cross rates) are less popular than majors, but are still widely used in trading. Does not contain US dollar
Example: EUR / GBP – Euro / British pound
exotic pairs – contain the dollar or euro bundled with the currency of developing countries
Example: USD / SGD – US dollar / Singapore dollar
Pairs with strong negative correlation (strong versus weak) provide an opportunity to catch strong and clean price movements.
An example is the “triple arbitrage” (or “ring of currencies”) strategy. The point is to transfer one currency to another, then to a third, and finally back to the first. This happens very quickly. This opportunity is rarely provided and lasts for seconds. Traders usually use the most advanced hardware and software to catch it and automate the process.
To summarize: for many, exotic couples are uncharted territory. Traders are stopped by their relatively low liquidity and sometimes high spreads.
It doesn’t matter which currency pair you choose. But, having tuned in to trade a certain pair, it is useful to be aware of the news of the country that issues this currency. If you trade USD / JPY, follow developments in the US and Japanese economies, for example, the S&P 500 and Nikkei 225 indices.
Saturday: “You cannot deviate from the chosen strategy, even if it does not bring income”
Changes in strategies are called a common reason for the failure of novice traders. In practice, a trader tests a strategy long enough to realize that it is profitable. But if the method is ineffective in the market, then clinging to it is simply stupid. The practicing trader must try different systems until he finds one that suits his trading style and personality.
Golden Rule: Trade seems difficult to those who make it difficult themselves.
Newbies like to overload the platform with dozens of indicators that do not agree, contradict each other, and even jeopardize capital.
If you have a strategy, make sure you can explain it even to a child. A strong system suits you personally and does not create any problems. Use multiple strategies at the same time. Perhaps it is the combination of several systems that will “shoot”.
Any strategy, approach or concept is considered powerless until proven otherwise.
Sunday: “Forex is only suitable for short-term trading”
It is not known why, but many traders do their best to avoid long-term trades. Beginners are also afraid of long-term trades, believing that they bring profit more slowly than short-term trades.
In reality, long-term trading has its advantages: it is less risky and more profitable. It is worth remembering that in any financial markets, including foreign exchange, the price follows the main trend. No wonder one of the commandments of a novice trader says: do not trade against the trend. The price keeps a tendency to move in one direction for a long time, so having identified the trend, you will understand that it is real to make money on Forex.
Short-term price movements do not have serious consequences and, as a rule, will not bring you much income. Of course, a trend reversal is possible, but for this you need to carefully monitor the market and notice the trend reversal tendencies. A number of indicators, such as Japanese candlesticks, will help you identify the upcoming reversal.
Over time, you will form your own personal Forex trading myths. This may be a professional advice, which turns out to be complete nonsense. Or an advertised strategy that is completely unprofitable. Or an expensive advisor not working well. As you become an experienced trader, you will learn to recognize these myths and not fall prey to them.