No doubt you’ve heard a variety of stories, some good and some bad, about foreign exchange (Forex) trading. To help you decide if this market is right for you, we’ll dispel some of the most widespread misconceptions here.
Myth 1. More money is always better.
Forex trading can be done with a small investment.
Formerly, only the largest international banks and financial institutions could participate in the foreign exchange market. These days, all you need is a fast internet connection and some money to start trading foreign exchange, or forex.
You can trade foreign exchange (FX) on Deriv with very little money. You can also practice with virtual funds before committing real money on any of the platforms by opening a demo account.
The second myth is that dealing in foreign exchange is equivalent to gambling.
Trading foreign exchange, or Forex, is a game of probability rather than chance.
Through the use of technical charts and fundamental analysis, forex traders can predict how the market will act in the future. You can make money trading currency in the same way you can trade stocks or futures: by anticipating the best time to buy or sell.
The outcome of a bet is completely random. The house has the advantage in gambling because it pays more for losing bets than winning ones. The odds are more heavily weighted in favor of the house because some gamblers do win the jackpot, but most do not. Foreign exchange trading doesn’t have this problem.
Market manipulation is real, myth 3.
This is perhaps the most common false belief concerning foreign exchange. While governments and major banks may have sway over currency supply and demand, this does not necessarily translate into market manipulation. The foreign exchange market (Forex) is the largest financial market in the world, with daily transactions of over $6 trillion US dollars, making it virtually impossible to manipulate.
Since the foreign exchange market operates on a global scale, the effects of major economic indicators can be felt instantly and have a profound impact on currency trading. These phenomena, combined with the erratic behavior of traders, produce a highly volatile and liquid market that is difficult to manipulate.
Myth 4: You can’t compete with seasoned traders.
You can win if you don’t play their game, but it is possible to do so. Even if more established traders have more money and better tools, that doesn’t make you any less of a trader. Differentiating yourself from the competition is all about identifying and capitalizing on your niche.
Keep in mind that some professional traders focus on holding large positions, while others specialize in making trades several times a day. Finding an underserved market segment that you can then exploit is the key to financial success.
Forex trading is simple, myth 5.
Trading is difficult in general, and the foreign exchange market is no exception. Dealing with leverage presents an especially high risk. A higher degree of leverage carries a higher degree of risk.
High-leverage trading carries the risk of incurring large losses; however, these losses can be mitigated by employing various risk-management strategies. You can leverage CFDs, options, and multipliers to trade foreign currency with a Deriv account. Stop-loss and take-profit orders are available in CFDs, allowing you to control your risk. Options allow you to speculate on market movement and potentially profit from it by receiving a payout at a predetermined point in time. There is a built-in stop out feature in multipliers to safeguard your bet.
Successfully diversifying your trading portfolio through exposure to forex requires sticking to the facts and not being influenced by the myths that surround the market. Do your homework and stay current on market reports so you can make educated trades.
