Download an app and you can start trading from your phone in minutes. The catch? Around 80 per cent of these accounts lose money, according to this report by forex training site Babypips. I found out the hard way how easy it is to lose on forex earlier this year. Most retail forex trading is done via contracts for difference CFDs and spread betting, which let you speculate on rising and falling prices without actually owning what you are trading. This means betting on whether one currency will rise in value or fall in value against another.
It sounds simple enough, but both CFDs and spread betting are complex financial instruments.
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Predicting moves in the forex market is high risk, even if you know what you are doing, and all platforms have to carry warnings stating that the majority of their customers lose money. This is particularly true of the UK: our , online traders outnumber any other European country. And this year, as more of us have been sat on our arses, furloughed or unemployed, trading volumes have gone through the roof.
IN A HURRY?
Brokers IG reported record revenue in the fourth quarter of , while IronFX has reported a per cent increase in new forex accounts this year. As with other online get-rich-quick schemes, like sneaker raffles, dropshipping and multi-level marketing , forex has developed a murky side industry of people that profit from selling the dream via social media. Influencers and reality celebrities advertise services that offer tips on when to enter trades, known as signals. They also promote trading groups and education platforms that promise to teach you the secrets of success for a monthly fee.
Many Instagram posts show off supercars , luxury brands and the Dubai skyline , creating the illusion that forex is an easy way to make money. He started it after seeing more-and-more influencers and D-listers posting pictures of complex-looking charts and professing forex trading as a way to lead a lavish lifestyle. While there are talented traders that tend to learn very fast, novice traders should dedicate a good amount of time and effort into practicing and developing strategies that they can later implement once they have tested them in a forex demo account.
One reason some people have the impression that trading in the forex market is easy, is that the marketing strategy used by some unscrupulous gurus and forex brokers infer that money can be made with ease as soon as you have opened and funded your live trading account. Nevertheless, the inherent volatility in currency pairs can make trading forex difficult even if the trader has accurately predicted the direction of the exchange rate.
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In other words, just because the trader has accurately predicted which way the exchange rate is headed in a certain time frame, does not mean that the currency pair will not trade significantly against the predicted direction. Reducing risk in this situation means that the trader must be very careful where they enter a stop-loss. If the trader enters a stop loss too close to the original position, then they are very likely to be filled on the order and taken out of their position, only to see the rate resume its original trajectory.
In addition to the everyday volatility in currency pairs , there is also the fundamental aspect, which can drive a currency up or down depending on a major news release , central bank announcement or geopolitical event, making the exchange rate even more volatile.
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Compared to trading stocks, bonds or commodities, trading the FX market is probably the most challenging given all the factors involved in the valuation of currencies. Trading in the forex market is therefore not as easy as some online forex brokers and others would have you believe.
Most professional traders have spent years learning the ropes of forex trading either through mentoring with another successful trader or educating themselves and subsequently developing a strategy that works for them. Basically, this statement is both true and false depending on the broker model.
When a trade is executed in the forex market, there has to be another party taking the exact counter trade at the same time. Some brokers will place your order with another broker, however, if another broker is not available to offset the trade, your broker will most likely take the other side and offset their risk subsequently with another party to minimize their exposure.
Among trading myths in the forex market, this one is quite prevalent. This statement is mostly spread by advisors that have a vested interest in selling you market related products, since that is how they make their living. The reality of forex trading is somewhat different however, since a trader with a viable trading plan can time the market according to their technical or fundamental trading strategy.
Another reason that fund managers and advisors with vested interests say that you cannot time forex trades is that from their point of view, they have difficulty timing trades since they have large positions under management and can move the market trading even a small portion of their assets.
Truth or Lie: Traders Need a Financial Background
Interestingly, this myth is one of the modern-day untruths about FX trading that used to more commonplace. Happily, with the advent of online forex brokers, forex trading is now available to just about anyone with a modern computer, an Internet connection, and a modest amount of money to put at risk. If you have ever worked in or visited a professional foreign exchange trading floor, even at the most prestigious financial institutions, then you will already know that this myth is not entirely true.
Perhaps one of the more interesting facts of trading currencies is that many professional practitioners do not necessarily have advanced degrees related to this field. Please enter your comment!
Myth And Reality In The Wild World Of Forex Trading
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