You’ve probably heard many things about forex trading — some good, some bad. In this blog, we’ll focus on the most common myths and debunk them to help you decide if this market would be a good option for you to trade on.
Myth 1: The more capital you have, the better.
You don’t need a large capital to trade forex.
In the past, the foreign exchange market was only accessible to major international banks and financial institutions with large capital. Nowadays, anyone can trade forex thanks to modern electronic trading and a fast internet connection.
On Deriv, you can trade forex with minimal capital. Additionally, you can create a free demo account on all platforms, allowing you to sharpen your trading skills before trading with real money.
Myth 2: Trading currencies is gambling.
Forex trading is based on probability, while gambling is a game of chance.
In forex trading, you study how the market moves through technical charts and fundamental analysis and, from that, make an informed decision on how it’s likely to perform in the future. Like other instruments, you predict the best time to buy or sell the currency to make a profit.
In gambling, the outcome is dependent on pure luck. As a gambler, you play against the house, which always has the upper hand as it sets higher odds for losing than winning positions. Some gamblers may sometimes win the jackpot, but many fail, so the odds are heavier in the house’s favour. Forex trading is free from this flaw.
Myth 3: There is manipulation in the market.
This is one of the most famed misconceptions about forex. Although governments and large banks control currencies, it doesn’t necessarily mean they manipulate the currency trading in the market. The fact that forex is the world’s biggest financial market with daily transactions totaling over 6 trillion US dollars makes it impossible to manipulate.
As forex is a global marketplace and macroeconomic events heavily influence currency prices. These events and the unpredictable nature of traders result in a highly volatile and liquid market, making it difficult to rig.
Myth 4: You can’t beat seasoned traders.
Yes, you can by not taking them on at their own game. Seasoned traders may have more capital and superior technology, but that doesn’t mean you are any less of a trader. It’s all about finding and establishing your niche, which will separate you from them.
Remember that professional traders operate differently — some hold significant positions, while others focus on intra-day trades. The trick is to find the niche that most traders don’t pay much attention to, which you can tap into and take advantage of.
Myth 5: It’s easy to trade forex.
In general, trading is not easy, and this applies to all markets including forex. A high level of risk is involved, especially with working your way around leverage. The higher the leverage, the higher the risk level.
Though it’s possible to experience significant losses when trading with high leverage, you can use risk management features to minimise these losses. With a Deriv account, you can trade forex with CFDs, options, and multipliers. CFDs allow you to limit your potential loss by using stop-loss and take-profit orders. Options let you earn a predetermined payout if the market moves in favour of your prediction. With multipliers, you can protect your stake with automatic stop out.
Tapping into forex is a strategic way to diversify your trading portfolio, and to be able to do this successfully, you have to stick to the facts and not be influenced by the myths. Be informed through research and keep abreast of market reports to make the best possible trading decisions.
Options trading is not available for clients residing within the EU.