9 Common Misconceptions About Forex Trading

‘Earth is a flat square’ — a concept that haunted the mankind for years. But, when Columbus proved that it was a misconception, trades flourished and the world blossomed. It was a revelation and revolution. Likewise, new entrants of the forex market get acquainted with certain false ideas which are either misconceptions or myths. And when you get enlightened, your trades are going to flourish as well. So, here’s your shot at enlightenment.

1. Easy to double the money

It is certainly possible to double your money in many avenues, say business, real estate. In forex trading, it is certainly probable.

Intrigued, why is then a misconception? It is not the ‘double your money’ part; instead, it is the ‘easy’ part, that beckons attention.

Forex trading is like any other domain. You got to learn, garner experience and then build a strategy. Further, you got to develop the mental stamina since the emotions eat you up during the long haul.

So, the part ‘easy’ gets defined with 3E’s: Experience, Exposure and Emotional quotient.

Don’t fear; forex trading isn’t difficult either. It just has its share of ordeals.

forex trading misconception easy to double the money

2. I can use all the leverage to make more money

Yes, you can. But you shouldn’t.

Leverage is a double-edged sword like a credit card.

You need it in your system to reap profits.

But, if you overuse it, you end up being bankrupt.

Also, when you try to punch above your weight, emotions spike up which notches up your stress level too.

One of the better ways to keep your emotion in check is to lessen the amount in play. It helps you think straight and be confident.

Always remember the phrase brokers advertise, “Losses can exceed capital”. It’s not a spoof or prank. It’s a risk to your capital and more importantly, your confidence.

So, don’t go down that road because there is no rewind button in real-time.

3. Brokers who offer 100% BONUS are the best one

Although, it’s a misconception, it’s a good thing. Because, it means, as mentioned in misconception #2, you understand the risks with forex trading. So, instead of using leverage, you are trying to play with the broker’s money. Your attitude is in line with the pros, so give a thumbs up!

But, here’s the thing.
There are strings attached to the bonus. Not one, but plenty. And it’s hard to pull it off.

No-one is going to donate you their hard-earned nickels benevolently. You need to earn it.

Remember, broking is a business. And to do their business, brokers want you to trade more. But as a trader, you don’t fall prey to the vicious overtrading syndrome.

Don’t let the glamorous bonus sideline the priorities while choosing a broker — security, reliability, faster execution of orders and state of the art technology.

Note: Bonus is not bogus. To survive in the market, every broker is now offering a bonus. But, it shouldn’t be the linchpin in your decision making.

4. The market is in my Control

It’s more of an illusion than a misconception.

The market is like your wife.

You feel you’re in control of her. But you never are (no pun intended).

And, when you’re more confident that you’re, that’s the very right time you’re going to be ambushed. It’s the curse of trading.

You got to accept the uncertainties and unpredictability. It prepares you for what is to come.

For instance, you are long in a trade. The asset skyrockets from your entry price. So you feel the market is under your control and place a 1000+ pips target and doze off. The next morning you see the market below your cost price. Had you accepted the fact that the market is NOT in your control, you would have booked partial profit.

Accepting the problem can only help you resolve it. So, accept it and then find ways to circumvent it.

forex trading myth market is in my control

5. I will not trade with a STOP LOSS

Well, who hasn’t had this misconception, at least once in their forex trading career?

When market clips your stop loss, and then races to your target, it certainly is heart-wrenching. If it happens in repeat mode, then you got to believe stop loss is the culprit that is holding you back. But, the irony is, if you’re a victim of this misconception, then what you save in 5 trades, you lose it in just one trade.

Remember, when you don’t trade with stop loss

  1. Your capital becomes vulnerable.
  2. Your risks are boundless.
  3. In turn, you are exposed.

On the contrary, when you predefine your stop loss, your emotions are at bay.

So, define your stop loss before you enter a trade.

6. My system works 100% perfectly

Unless you’re a time traveler, from far future who has every knowledge of the past, you can’t make a 100% perfect system.

Even then, it is still not viable to create a holy grail because you never know the ripple effect of your order size.

This attitude is nearly the same as the misconception#5; only this time it is based on logic.

However, here’s the thing: Data and charts do not move the markets. It is the traders, their emotions that drive the market. For example, we have seen double tops and bottoms fail often. Why? Because the traders are ready to do so despite the pattern. Although it is not a day today phenomena, it still happens from time to time.

No system is fool-proof, default as well as custom. So, let go of this misconception and get hold of the nitty-gritty of forex trading.

7. No one can earn money in trading

When you ride out misconceptions #5 & #6, you get the wisdom that ‘profitable forex trading’ is by itself a myth.

Well, there are professional traders who earn their bread and butter from the market.

And there are institutions who earn their significant share of income from the markets.

If they can make their survival with the market, why can’t you?

Yes, they have an edge. The edge is not the fancy tools they’ve; it is the knowledge. The wisdom gained after years of grinding the market.

Of course, you can acquire the know-how as well, but it takes ample time.

So, if you want to have a fancy tool up your sleeve until you gather the wisdom, here’s the best thing for you. Check it out.

Money making requires effort. It is not as easy as you imagined when you are at the shore. It is not difficult either as you believe after testing the waters. The bottom line is forex trading needs effort.

8. Trading is Gambling

This is a school of thought that exists among outsiders for 3-4 decades. And it is the threshold that prevents many ambitious individuals entering the market.

But there is a subtle difference between trading and gambling which you ought to know once you sign up for trading.

Trading is a form of speculation where you take up a calculated risk with a possibility of loss whereas gambling is betting on a certain outcome without any logical backing.

Anyone can gamble without any preparation or knowledge and can even win at times, provided luck be on their side. And a gamble can be done on the markets too — buy or sell an asset without due preparation.

But trading demands knowledge of either technical or fundamental analysis to have any sort of success.

They have the same destination — wealth creation — but with different itineraries.

So trading is never gambling!

9. Brokers who offer low spreads or 0 spreads are the best one

The broker is the custodian of your funds and intermediary for your liquidity.

Their predominant revenue stream is through the spread or commission which they charge for your orders.

Obviously, it is impossible to run a business without charging a dime to its customers.

If a broker bloats on offering ‘no spread’, then it is either a temporary stunt or simply means they are charging you a fixed amount under a different head.

So, look out for a scrupulous brokerage service and irreproachable credibility from the broker rather than a phantasm.

Conclusion

The myths and misconceptions addressed here are only a few of the many floating in the forex world. As your career runs up, more myths creep into your forex trading system. And some misconceptions can cost you dearly. So, never trust in anything which you can’t chalk it up in drawing board. After all, you’re playing with your hard earned money. Bank on logic rather than myths!