Forex Trading Misconceptions: 12 Most Common Forex Myths

Unmasking some of the most common Forex trading misconceptions can help enhance the skills of Forex traders. You do not need to be a financial guru or expert to discover them, all you need is the unwavering will to learn, and the continuous zeal to make money. The truth about the forex market is that it can be highly exaggerated and misinterpreted sometimes.

As you read on, we are going to debunk the 12 most common forex trading misconceptions. These forex myths are so common that about 80% of Forex newbies subscribe to them.

Most Common Forex Trading Misconceptions

Forex Trading Misconceptions
Forex Trading Misconceptions

There are numerous forex trading myths among forex traders. We will now list and debunk these myths below. These misconceptions are

  1. Forex Trading Is an Easy Way to Make Money
  2. Forex Trading Is Gambling
  3. You Must Be an Expert in Economics to Trade Forex
  4. There Is A Plan That Can Always Make You Money
  5. You Need A Large Capital to Start Forex
  6. The More Trades the Better
  7. You Must Trade Without Emotions
  8. Forex Trading is only for Men
  9. You Must Monitor Your Trades 24/7 To Be Successful
  10. Forex Trading is not Taxable
  11. Just Copy What Other Forex Traders Do, It’s Easier
  12. Technical Analysis Will Always Make You Profits

These myths are debunked below:

Myth 1: Forex Trading Is an Easy Way to Make Money

Forex Trading is Easy
Forex Trading is Easy

This is a wrong mindset. It is the same thing as saying that starting up a regular business is easy. The methods of making profits in Forex are similar to those of any other type of business as they involve adequate research, strategic planning, and proper risk management systems.

In addition to this, the efficiency of any risk management system depends on how disciplined, patient, and diligent the forex trader is. And just like every other business, your trading plans will need to be modified with time and experience. So, the idea that the Forex market is a quick and easy place to make money is nothing but a myth.

Myth 2: Forex Trading Is Gambling

Forex Trading is Gambling
Forex Trading is Gambling

This is simply untrue. Forex trading has its inherent risks just like every other form of investment. It applies the same supply and demand factor, and as opposed to gambling, forex trading is speculative in nature. Meaning that it involves making calculated predictions about the movement of currency pairs.

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Do you see the difference? Every good decision made in the forex market is meant to be calculative and not subject to emotions, as It is supposed to be backed up by adequate technical and fundamental analysis. Forex trading only becomes gambling when you open or close trading positions based on mere guts.

Myth 3: You Must Be an Expert in Economics Before You Trade

This is another misconception. The truth about forex trading is that you do not need to go through years of financial training before you can venture into it. Basic knowledge of economics is needed, yes, but that’s all there is.

You can easily start your trading journey by opening a demo or practice account, developing your trading strategies, or going through the vast content on the internet to understand the basic terms. Here is a concisely written article explaining the basics of forex trading.

Myth 4: There Is A Strategy That Can Always Make You Money

Before you thought about jumping into the forex market, you must have seen various forex traders advertising one course or the other, promising constant profit returns in capital… Some of them even go as far as showcasing the fancy foods they eat, the luxurious cars they drive, and all whatnot.

And yes, this big-boy lifestyle can be achieved through trading the Forex market, but the idea of a magical formula making consistent returns is nothing but a myth. Every trading plan or method has its flaws, and even with the best trading strategies, there is still no 100% guarantee.

There could even be a period during which a highly experienced forex trader may trade without making any profits. This period is what we call a Losing Streak.

Myth 5: You Need A Large Capital to Start

You need Large Capital
You need a large capital to trade forex

Unlike other financial trading markets, you do not need huge sums of money to start trading currencies in forex. With prop trading firms, you can procure as large as a $100,000 account using less than 200 dollars.

Besides trading with prop firms, there is something called leverage. Leverage is simply a forex trading concept in which forex brokers allow you to enter a high trade position with no or a tiny amount of your own money.

It is an excellent option for aspiring forex traders with limited funds, but still, there are resounding risks to any leveraged trade you enter.

Myth 6: The More Trades the Better

This particular forex trading misconception is common among many forex traders, and it appears sensible in a way. Come to think of it, you can choose to open various positions and out of those positions, you can make more profits, right? Well, absolutely not.

The truth about the Foreign exchange market is that you have a better chance of success only when you trade quality and not quantity.

In other words, your chances of success do not depend on the number of currency pairs you choose to trade, but on the quality of research, backtesting, and analysis carried out on each of those trades.

Myth 7: You Must Trade Without Emotions

Trading without emotions can be very beneficial, as most losses made in the foreign exchange market are due to emotional drawbacks. But it becomes a myth especially when you consider the fact that we are all humans and unless you are a robot, you cannot just put your feelings aside when trading.

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Understanding your emotions can become a trading asset and not a liability. Here are two questions you should ask yourself when trading forex:

  1. How do my emotions affect my trading?
  2.  How do I develop the needed trading skills alongside these emotions?

Myth 8: Forex Trading Is Only for Men

It is laughable to think that people believe this forex trading myth in this present age, but at the same time, this thought of theirs is justifiable.

A recent survey by zippia.com shows that about 92% of currency traders are men. However, this high percentage of male forex traders is not enough to conclude that forex trading is only for men.

Many forex trading firms now employ more and more female traders.

While some of the reasons for this is the popularity of the gender equity movement, the majority is because of the scientific understanding that women generally tend to make less reckless and impulsive decisions than men.

So, these trading firms believe that a proper balance between genders could enhance their collective decision-making.

Myth 9: You Must Monitor Your Trades 24/7 To Be Successful

“Constant screen monitoring to make more money” is one of the biggest misconceptions in forex trading.

It is unnecessary and can lead you to make drastic decisions like opening unfavorable positions or leaving trades at prices that would have turned out to be profitable. Also, this kind of attitude will give you nothing but an imbalance in your work and social life.

The best way to optimize profits is to choose the time frames most convenient for you. For example, you can decide to monitor your trades every 5 minutes, 30 minutes, one hour, or even daily or weekly–depending on your trading style.

Myth 10: Forex Trading Is Not Taxable

The major reason for this forex myth is the common idea that forex trading is not a business venture and therefore does not provide a reasonable income return. Well, this type of thinking is misleading and may lead people to break tax laws.

An uncommon truth about forex trading is that every country sees it as an active business investment and therefore treats it as such.

No matter the country you trade from, there are certain percentages you are obligated to remit from your wins. So, you should endeavor to go through your country’s tax laws to avoid breaking them.

Myth 11: Just Copy What Other Forex Traders Do, It’s Easier

Is it good to listen to other (experienced) forex traders and learn a thing or two about their trading strategies? Yes. Should you just follow what they do without having your trading methods, performing your analysis, or learning what works best for you? That’s a big No.

The Foreign exchange market is very dynamic, and the principles behind a particularly successful trading strategy may change even before another trader can think about acting on it.

In addition to this, every trader has his or her risk tolerance limits. A trader may feel comfortable losing a particular sum of money when compared to another trader.

So, the conception that copying other traders can easily make you profits is a myth, and it may end up messing up your forex trading account balance.

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Myth 12: Technical Analysis Will Always Make You Profits

Technical analysis in forex trading is simply using historical and statistical price data to speculate the movement of a currency pair. It is based on the belief that if a forex trader can track previous price patterns, he should be able to predict future movements.

The conception that this type of analysis will always make you profits is wrong. Also, as we discussed in the fourth forex trading misconception, there is no such thing as a 100% profit guaranteed. Not even by using fundamental analysis.

However, it is more advisable to adequately combine both technical and fundamental analysis to maximize your chances of winning. You should Learn the difference between the two–(technical and fundamental analysis)–and know how to combine them.

Forex Myths Takeaways

By listing and carefully explaining all 12 of the most common forex trading misconceptions, we have not only exposed the plain truth about the forex market, but we have also highlighted the importance of educating one’s self as a forex trader.

Forex trading is a constant learning process as even the most experienced of traders still have a lot of things unknown to them. And it is a good thing we were able to give you clarity on these common matters.

Now the next step is for you to develop your trading strategies. Practice those strategies with a Forex demo account, advance to a real account, and start Forex trading to gain experience while honing your skills.  

Frequently Asked Questions About Forex Trading Misconceptions

Who Is the Best Trader in The World?

Ranked number one among the majority of experienced forex traders is the legendary George Soros. With a net worth of about $6.7 billion, he came to the limelight for breaking the Bank of England. He made a whopping $1 billion profit, on a day that will be forever known as “Black Wednesday”.

Do People Lose Money Trading Forex?

Yes, people do lose money trading forex. It is a common phenomenon in forex trading, but those losses can be covered. A lot more can also be made with the right risk management systems and trading approach.

Why Do 95% Of Traders Lose Money?

Some of the major reasons 95% of forex traders lose money are Lack of trading knowledge and discipline, emotional trading, refusal to study and learn from previous mistakes, and poor risk management.

What Is the Biggest Risk in Forex Trading?

Various elements constitute a risk in forex trading, namely: leverage, transaction time, the interest rate of the affected country’s currency, and unexpected political and economic changes of the affected currency. And so on. But among all these factors, the biggest forex trading risk is that no trading strategy or plan gives a 100% winning guarantee.

Is Forex Easier Than Crypto?

Cryptocurrency trading is a high-risk as well as a high-reward trading market. It demands a basic knowledge of Blockchain technology. Its high volatility is one of the reasons why traders make or lose a lot of money within a very short time.

On the other hand, Forex trading is more stable and more skill-demanding. It requires good knowledge of global economics and politics, patience, and a lot more discipline. Which of them is easier? It depends on which requirement you can handle better.

Conclusion on Forex Trading Misconceptions

The increase in forex trading misconceptions is not a surprise. It is the least that can be expected of a market as big as the forex market. With its various procedures, rules, and all, these forex myths are bound to continue spreading.

Hence, we researched the most common forex myths and presented them to you in this article. Traders should ensure to avoid taking these forex trading misconceptions to heart. This is because it can lead to disappointment on the part of the Forex trader.

References

Risk management systems – 7 powerful risk management systems by my tradingskills.com

Technical and fundamental analysis

Technical vs fundamental analysis by dailyfx.com

Prop trading firms – Prop firms explained by forextechincs.com

Here – Leverage explained by babypips.com

Backtesting – How you backtest a trading strategy by ig.com

Emotional drawbacks – 4 trading pitfalls according to babypips.com

Zippia.com – Forex gender trading survey

Trading style – Types of traders based on time frames

How to combine them – Combining fundamental and technical analysis for forex success according to dailytrust.com