There are a lot of misconceptions that many people have about trading foreign currencies. This post will identify few of them and help to “straighten” things out for those that my not have completely clear picture about forex marketplace.
Difficulty level
It’s very easy. For those that jumped into forex without full training and maid money on their trades, it may all seem so easy to do. IN those trades, they may have made huge returns on their account, maybe a multiple of what they could earn in the bank for a whole year. And they may possibly not even know who the FED is and what it does, or what is a Moving Average and how to draw a trend line. For many of them, market seems to be made of “idiots”, and money is flowing in the streets ready to be picked up with the least of effort.
This misconception of easiness stems from very dangerous characteristic of the forex which is that you do not need to have any skill what so ever to have a winning trade, even a whole series of them. The markets can be very random and its results can mimic workings of of gambling roulette. But unlike gambling where outomce are always random, markets – just like people that form them- have a lot of structure and patterns inside of them. So, for those that do not recognize these patterns and employ good strategy, they are forced learn really swiftly how difficult getting money out of forex can get.
It’s impossible to do. This is exactly what people think if they experience heavy loses. Some people may shift from previous misconception to this one in a matter of days after they have suffered account equity wipeouts. For them, the easiest thing is not to learn why their losses have happened. That may bring pain in the way of having to look into their own mistakes and consider that they were wrong. The easiest thing to do is to say that their losses happened because markets are useless, and that nobody can make money in it. They also consider market participants as “idiots” because they just can not see how anyone can think they can make money in it when their own accounts were completely destroyed. They may consider forex as a gambling game - which in a lot of ways poses a threat to be just that especially to many forex uneducated people.
Yet, if you spend any amount of time on this web site, you can get a feel that there are a lot of skills a person can and should acquire in order to put odds of success on his/her side. That way, it does not make trading any different than any other profession, and although difficult to master, it certainly can be profitable and rewarding in the long term.
Capital Requirement
In our previous post we looked at a wrong idea people may have concerning how difficult it is to trade successfully…here we will explore contradictory misconceptions about capital requirements that are needed for trading.
Many new traders have an idea that they can success by starting with only few dollars.
This idea might have been put inside their heads by heavy advertising by brokers who let clients open accounts with credit cards, and let them deposit less capital than it would cost them if they purchased few burgers. Then, there are all these ‘advisors’ and market ‘gurus’ who are ready to show you how to get rich if you only pay them $100. None of them will make you rich fast! If they could, they would be enjoying a beach and exotic travels (a lifestyle many advertise you can achieve easily through their program), instead of fighting and struggling to get your $100.
It’s not to say you can not and should not start with few dollars. But, don’t expect to do anything other than learn at first, as those few dollars, regardless of your trade outcome, can only serve to show you the ropes. If you decide to risk $100 on forex, then it makes sense to divide it in three to four parts. So, if you lose first $25, you will still have capital to trade while your past mistakes can serve as a learning lesson so you do not need to repeat them again. This will not get you rich fast, but you will learn and that will help.
Contrary to that “only a few dollar” idea, is a belief that you need huge amounts of capital to succeed.
Many traders, especially after they suffer margin triggered losses, engage in unproductive thinking that they really did not need to lose if they only had large enough capital so they could last through loosing period until markets did not come back and recuperate their losses. They think that they could be successful if they only had so much capital that they never had to take a loss. That misconception has been proven wrong on many occasions, some which made news headlines about traders that lost millions for banks and their clients.
So what is a bottom line truth here? When I first started to trade, many said not even to bother with trading if you do not have at least $25k. I do not think that is the case, and actually consider that a nonsense. However, you do need capital, both in a way of money you do not need so you can loose it, and in a way of acquired knowledge about how to trade without which no amount of capital is sufficient.
Also consider these two points:
No.1 'No skills needed' – This wrong attitude may stem from number of false and misleading advertising about trading programs that can make you rich without really teaching you anything. Those ‘few minutes a day’ programs sound very interesting and they would almost be completely right, except one thing, you still need to know to take a loss.
No. 2 Hard work, and everything will work out fine just like in any other job.
In all honestly it is not true that only someone ‘super’ intelligent and some who always stays cool under the pressure like professional gambler can be successful in trading.
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