5 Mitos Forex Trading

5 Myths about Forex Trading

1 – If I know how to trade stocks, I know how to make money on Forex:

If you have experience trading stocks and think you can simply apply your knowledge on Forex and make money, you’re going to be disappointed. The Forex market is much more complex. Firstly, the Forex market is open 24 hours a day. This may not seem a big deal but it’s a significant difference in relation to the stock market. As the Forex market is open 24 hours a day, this brings more complexity to a trader. If in the stock market you have periods of higher and lower volatility, in the Forex these differences are even higher.

Many stock traders think the Forex market is easy because it is open 24 hours a day. They think they can trade whenever they want and make their quick bucks. Truth is you can make money in Forex. But for that, you need to have a deep knowledge about this market.

The indicators that work in stocks don’t always work in Forex. The Forex market is more complex and, this way, the indicators that you use on stocks don’t work so well here.

Brokers are another huge difference between stocks and Forex. In the Forex market, due to the lack of regulation, a lot of Forex brokers don’t act in their clients’ best interest. It’s a lot more difficult to find a good Forex broker than a stock broker.

2 – Since the market is open 24 hours a day, you can make money anytime you want:

Once again, this is not true. In order to make money, a trader needs volatility. Although this market is open 24 hours a day, in the majority of the time there isn’t enough volatility to make good trades. This is a big challenge because volatility can appear at any time of the day and the trader can’t be watching the market all the time. He has to adjust his strategy in order to trade only in high volatility periods.

3 – Commission trades are free on Forex market:

You don’t pay a commission fee when you place an order. Although, you pay the spread, which is the difference between the bid and the ask. This way, the more you trade, the harder it will be to make money in Forex because you’ll have higher fees. In the Forex market, as in any other market, a trader must avoid the overtrading at all costs.

4 – You need to predict what will happen in order to make money in forex:

In order to make money in Forex, you need to react to what is happening. This is not the same thing as predict. A good trader simply reacts and respond to whatever the market is telling him. He analyses charts, reads the news and all information he has at his disposal in order to react as fast as possible to market movements. A good trader is always looking to evolve and learn.

5 – The more complicated my strategy, the best:

This is another myth that has nothing to do with reality on Forex trading. The truth is that usually the simple strategies or systems outperform the complicated ones. So, there’s no need to use plenty of different indicators at the same time. Study the market, find your favorite system or strategy, and stick with it.

As you may or may not know, the free-floating exchange rate system officially started in the late 70s. Back in those days, certain banks, government institutions, and other big financial institutions were able to participate in this market. The main reasons these institutions participated in the Forex market, was because they needed to manage risk in certain investments through hedging and others to speculate on the exchange rate movements for a gain or a profit. The forex market is a very liquid and growing market. Recently, with the advancements in computer technology and the Internet and other trading platforms, retail traders can participate on the forex market. However, retail traders do not have access to the interbank rate as most banks and other institutional investors do. Most retail traders can participate in this market through a retail broker commonly known as FDMs or FCMs in the USA. There are possibilities to speculate in the off-exchange retail foreign currency market and make a profit; however, due to the high volatility of this market, traders can suffer substantial losses including all funds.

The most heavily traded currencies, also known as the majors, are the EU/USD, GBP/USD, USD/JPY,USD/CHF. However, other currencies can be traded. For example, there are currency pairs that do not involved the US Dollar; these are commonly known as the Cross Pairs, however, the spreads on these currencies tend to be wider that the other ones. The forex market operates 24 hours a day 5.5 days a week. In the US it opens on Sundays at 6:00 PM EST and closes on Fridays at 4:00 PM EST.

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