Forex trading – Myth and Reality

I guess you should start getting to know the market from learning the myths associated with Forex. If you are new in trading and aspiring to become a professional, you will want to know what’s real and what’s not. If you happen to believe in the myths I’m listing below, you are akin to a meteorologist who is naïve enough to think that weather is created by a big guy with a white beard sitting on top of a cloud.

I’ll probably start with the tales that the newbie traders believe, and that I myself once used to believe. It’s those tales that serve as a bait for someone to allure them to Forex.

Myth #1: The market will get you rich at once.

Reality: to receive a hefty amount within a short time you need to either win a lottery or come into fortune. If you are serious about trading, I’d suggest you to stop dreaming right away. In trading business, the earnings are often measured not in the currency of the bank (such as USD or EUR), but in the percentage of its growth over a certain period of time (return on investment, ROI). Often over a month or a year. Now, many successful traders think 50–100% in a year a fabulous ROI. You could of course try earning more, but in that case, in order to drive up your winnings you will probably have to “overload” your bank, which in turn increases the risk of losing it (bank management is going to be the topic for a separate article). “Is that just 100% a year?” But don’t despair! Let’s just calculate what it means for your wallet to double your bank over a year. I will make an example with a 100% reinvestment, which means all of the earned capital will remain in the account and will be used for trading next year. So, a 100% profit is, simply put, doubling up the investment. Let’s assume you opened an account and deposited $1000 in it, and then over the next 10 years you’ve been doubling up the bank annually. The result is:

$1000 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 * 2 = $1,024,000

That’s clearly an eye-popper. I am not saying you will necessarily earn a million in 10 years. I’m just saying this is real, and by going down this path for a lengthy period of time (such as 10, 20 years or longer) you can make a small fortune. But you can’t possibly earn it within a short time!

Myth #2: Trading is easy.

Reality: It is, at least physically. It’s way easier than toiling in the fields. But it is quite hard from a psychological perspective. Trading is like fighting with yourself. It’s hard to explain. When you start trading with real money, you’ll get it. In one of my future articles, I’m going to tell you how to keep you mind sane (well, I might be exaggerating a little bit here) and learn to stay on top of your emotions.

The following myths make Forex look like true evil. I can bet these tales were made up by people who either had lost their money in the market (of which they are guilty themselves) or had never traded in the first place.

Myth #3: Forex is a scam. Other variants of this myth are as follows: Forex is a roulette; Forex is a lottery.

Reality: the adopters of this myth will foam at the mouth trying to persuade you that you can’t predict the way the price is going, like you can’t predict the number that will come out on roulette. They are also 100% sure that “winnings” in the market are random, just like winning a jackpot after buying a lottery ticket. In reality, both statements are false! The movement of the price obeys the law of demand and supply, and is not chaotic. To that end, your “winnings” (I don’t like this word and instead prefer calling it “earnings”) in the market do not depend on your luck. At any rate, not by 100%. I often compare being lucky with crossing the street: with any luck, you can get run over by a car while crossing with a green traffic light, or you can be lucky enough to safely get to the other side against a red light.

Myth #4: most people lose in the market.

Reality: they do. There are no precise stats, but it is considered that about 90% of those who come to Forex lose the money they deposited. The reason for that is the excessive overconfidence of newbie traders who don’t have the slightest idea of the real market picture, but who dream of “earning a million by the end of the week.” Anyone who is sane, has a head on his or her shoulders and possesses an adequate habit of thinking is capable of becoming a successful trader.

Myth #5: Market trading is a big risk.

Reality: trading, like any other business, inevitably involves risk. But don’t forget you can control it.

Myth #6: To be good at trading, you have to have a specialized training, which isn’t cheap.

Reality: specialized training is indeed necessary. Any trade (no pun intended) requires training. But I’m not saying you necessarily must have a degree in economics or finances. As a matter of fact, you might have no formal education at all. Today, virtually in any large city it is easy to find trading courses, often quite affordable ones. Yet, speaking from my own experience, I can tell you that during such a course you will only obtain the market information and the skills that you can easily and completely free-of-charge get from the Internet. You will not learn anything unique at the course. And that’s really because your tutors will be just that — tutors, not successful traders. I’d also like to point out that in order to master trading, it is good enough to be disciplined, develop analytic capabilities and steel nerves.

Myth #7: To start trading, you need plenty of cash.

Reality: you remember the first myth and the calculation of the bank doubled annually? You can earn a million by investing just a thousand. $1000 is not such a big amount. But your first bank should not be very large, let’s say it should be around $100. I’m saying “first bank” because you, like many other traders, will most probably lose it.

Myth #8: Even if I do earn, I will probably have trouble withdrawing the cash.

Reality: today there are numerous companies providing online trading services. It is not that difficult to find a respectable broker with a long-term background in the market. Unless you open an account at some dodgy place, you will hardly have any problems withdrawing your earning. First, take care of earning, and only then — of withdrawing. Those seem to be the basic myths that online trading is veiled in. Let me stress that again, I think the people who made them up and keep them going are either ignorant about Forex and have never traded on it, or have lost their bank and blame it on the market, when in fact nobody’s to blame, but themselves.

Leave a Reply

Your email address will not be published. Required fields are marked *