If you’re a novice to the world of Forex, one of the first things that might have caught your eye is all the terminology that’s thrown around by traders. Some speak in languages foreign even to other trading professionals, while others make statements that sound like common sense but later turn out to be completely wrong. In this article, we’ll discuss the most common misconceptions about the Forex market, and hopefully, open your eyes as to what goes on behind those scenes.
Forex Is Extremely Risky
Most people will look at a chart of a volatile asset and assume it’s riskier than something with an ever-so-slight trend upwards. The truth is, nothing could be further from the truth.
The Forex market has extremely low volatility in comparison to other markets such as stocks and commodities. The reason for this is quite simple: when you trade in the Forex market, you’re not trading in a single asset like stock or gold; rather, you’re trading currencies. Given that these assets are less prone to a single economic factor, their volatility is much lower.
Forex Is a Zero-Sum Game
The term ‘zero sum’ means that any gains made by one party are equivalent to the losses of another. In other words, everyone can’t win at once – there must always be a loser. This couldn’t be further from the truth when it comes to Forex.
While traders are, naturally, looking for a profit, there is no pre-determined winner in any trade – both parties leave the market with either an improved or lesser position than they entered with. All participants can be winners at some point during their time in the market.
The Price of a Currency Is the Same Worldwide
One of the grandest things about Forex is its scope. Unlike stocks, where one must adhere to a single country’s regulations and financial institutions, traders can buy or sell any asset from anywhere in the world at any time. While London might have been closed for trading hours ago, there are other markets open somewhere in the world that you can trade with.
One of the things that makes the Forex market truly unique is its exchange rate. In most markets, a price change will occur as a direct result of economic factors – inflation or interest rates, for example. With the Forex market, currencies don’t have an inherent value; rather, they have a price.
This is why you sometimes see the price of an asset rise or fall when there have been no market changes – a trader in Russia, for example, might have finished his day and placed a sell order on USD/RUB for 23:59 Moscow time. When your broker checks rates just after midnight, the Russian trader’s order placed the price of USD/RUB at a much lower rate, and your sell order would be filled for that price. You didn’t see any changes in the Russian economy, but due to events beyond your control, you’ve made a profit regardless.
Fraudsters Come Out Mostly During Public Holidays
One of the most frustrating things about Forex is its 24/5 nature. Unlike the stock market, which shuts down now and again for holidays, there are no breaks in the Forex market. While you might be able to take time off once or twice a year, if you don’t trade over that period, you’ll find yourself at a loss upon your return.
Unfortunately, this is also what makes the Forex market so appealing to fraudsters. Because they know that your broker will never stop trading, it’s easy for them to string you along with fake statements and lies without being caught. The best way to avoid these lies is to educate yourself thoroughly before committing any of your funds – if it seems too good to be true, it probably is.
Don’t get your hopes up too much, though – these five myths are just a handful of the many that exist in Forex. By arming yourself with knowledge, you can avoid being scammed by fraudulent organizations and learn how to trade without putting all of your eggs in one basket!