Investment myths about Forex

The Forex market is known to deal with large volumes and hence myths about Forex associate themselves with these volumes. High liquidity, volatility and powerful currency movements make Forex trading special for those who wish to double their bank balances within a short span of time. Presuming that these factors give good wealth, traders jump into Forex trading with many expectations as well as assumptions. But are these warranted?

Investment myths make the traders ignore the bitter facts of Forex markets. While beginning with Forex trading, traders generally track the profit potential, ignoring the trading discipline. Forex trades are mostly about short-term games and no position is held for a longer time. Short term trading is not a kid’s play. Volatile currency movements can entice anyone to get into a trade, but a trade lasts for short-term till the spread between two currencies is wide. As the gap narrows down, traders need to call it shots quickly. Any delayed decisions can get one’s riches into rags.

Leverage is another word that can create magic as well as play havoc in Forex markets. Dealers usually entice traders, who don’t have much know-how of the market behavior for margin trading. Higher the margin, higher the leverage. Many traders get pulled into these trades to extract higher leverage and thus more profits. Looking at the currency’s positive movements a trader may tend to deal with higher margins, in the greed of making large profit. But a sudden twist in the currency movement can get the whole calculation go awry. The margin spread may not be well within the abilities of the trader to settle off, in the event of losses. A $10,000 trade can be extended to $1,000,000 with 100 times margin. But, if the market goes opposite the loss may be as good as $1,000,000! In short, a 100 times margin is equal to 100 times risk! And in such cases even the fittest lose their endurance.

A good point to learn in Forex market is “never imitate”! Because a trader is dealing 100 times of his margin, you don’t need to do the same. His risk appetite & capacity to offset the same may be higher than yours. So take only that much risk that can fit your accounts. Another lesson to learn is that “don’t believe all the words of your dealer”. Use market analysis tools to understand the market. If your dealer asks you to take a position, analyze yourself if this is the right time to do so. Don’t get carried away with “leverage”, it has it’s gray side too! Keep your volumes low and increase it gradually when situation favors. Don’t trade high because returns can be high. Play safe and be sound in your investments. More than assumptions and myths, analysis and safe game is all that helps you to do well from Forex trades.

2 comments

  1. I just wanted to say I like your blog, I think it looks great.

  2. Thanks Allison, we are very happy with it. Let me know if you (or anyone else) has any feedback to make it *even* better.

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