7 Common Myths about Trading

Whether you're a seasoned trader or new to the forex market, the myths about forex trading are always swirling around you. These erroneous ideas can potentially affect anyone, no matter how long they have been trading. By knowing some of the major misconceptions, traders can avoid unnecessary frustrations.

PC: Seven Capitals

I have been in the financial services for more than a decade now, I see people stereotyping trading. Let’s discuss COMMON MYTHS WITH TRADING.

1. Watch the market 24 hours a day to be successful

The common mistake you tend to do as a beginner is to always hasten up the trading pattern. Don’t treat trading as a hobby or a job to hurry up and make money. To be successful, there should be a commitment, a commitment to always learn. If you treat trading as a job, you might get frustrated because there is no regular paycheck. But once you start monitoring your moves and set your goal, you can greatly increase trading performance. Observe and manifest the market, stick to your plan and trust yourself.

2. You need a large sum of money to trade in the forex market

To trade on a financial market, you need capital. Capital is used to buy an instrument if your analysis shows that its price could increase in value, eventually leading to capital gains and a profit for the trader. The amount invested has a direct impact on the number of profits you can make, as larger trading accounts can open larger position sizes than smaller trading accounts (given the same amount of leverage).

So, how much money do you need to trade? The minimum amount needed to trade Forex depends on a variety of factors, such as your trading style, available funds, average Stop Loss level, the required minimum deposit for your broker, level of experience, and so on. In any case, you should never invest more than you’re comfortable losing. Trading financial markets involve a high risk of losing your funds, and you don’t want to invest your entire life savings into trading.

3. Don’t Invest in Gold

There are many benefits of choosing gold as an investment as it is well known to protect your investment in the long run. People across the world believe in this theory and everyone depends on gold when other assets do not offer stability. For this reason, you can see a steep price hike in gold whenever there is turbulence in the global equity markets or when there are political tensions between powerful countries. There isn’t really a better way to invest in gold than to have the physical gold itself in your possession. Another way to invest in gold is through ETFs (Exchange Traded Funds). These are similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than that of physical gold.

When compared to other options in the market, the gold price is rather stable and it does not go down by a huge margin even during a crisis

In fact, whenever there is a crisis in the financial market, people turn towards investing in gold and the prices soar in no time.

If you compare this with the equity market, the price of any stock can even come to a zero when there is negative news about the company. This can never happen with gold and it will always have its value in the market.

With its consistently increasing demand, investment in gold can be a very wise long-term investment to make.

4. The market is rigged

When too many bad trades are made, some traders often complain that the market is rigged or that the brokers are corrupt. While it is true that a country’s currency can be controlled by governments and central banks to a certain extent, forex, as a market, is not a scam.

5. You need a degree to trade

To be a successful trader, what you need is a good head for numbers, and intuition to help you guesstimate where the market is heading and the ability to react quickly to market-moving events. Nevertheless, it is not necessary to have an advanced degree in economics and understand every economic principle to be trading.

6. The More Trades the Better

While it would be nice to think that if a trader makes money trading once per day, they can make 10 times as much trading 10 times a day, this is generally not the case. Trading less and focusing on a few currency pairs that the trader understands will be beneficial to most traders. Unless a trader is skilled and focuses on scalping strategies, the majority of traders will benefit from being patient, focusing on something they know, and waiting for the best opportunities—few as they may be.

7. Get Rich Quick

Advertising has rapidly expanded the foreign exchange retail market. This has brought many people into the arena who are on a quest to get rich quickly (or with little effort). This unfortunately is very rare indeed. Trading takes patience and there is no final destination. Traders do not make some money and then walk away; rather they make trade after trade, even if there are time gaps in between. Therefore, trading requires consistency, not a gambling-like, throw-it-all-at-a-couple-trades mentality.