Advertising
Advertising

10 Myths About Forex Trading

10 Myths About Forex Trading

With an average turnover in excess of USD 5.3 trillion per day (according to the preliminary global results from the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity), forex (FX) is the largest market in the world in terms of volume of trading.

Like any other trade, forex trading isn’t without its fair share of myths. These myths can potentially affect any trader, seasoned or novice; so knowing and steering clear of these myths can save them unnecessary frustrations.

Below, we look into some of the most common myths about forex trading, which will be helpful for those who are thinking about trying their hand at currency trading.

1. Forex trading is easy

This is the most common of the myths about forex trading. “Read a book or two, set up a brokerage account and you are ready to make daily profits in the forex market.” Well, if you are thinking about jumping into trading forex, it takes a lot more than just reading a book or two.

Understand that trading is anything but easy. If you are dreaming about a quick buck trading the forex market, you’re in for a rude awakening! Some might suggest, “Download and set up an Expert Advisor Software and you’re sure to make big money trading FX.”

Advertising

Installing a piece of software may be easy, but being able to use the program effectively to for maximum profit requires a certain level of understanding of the market. The successful traders in forex not only put a lot of effort into what they do, they also have acquired years of experience to be able to place winning trades.

2. You need a degree in economics to trade forex

It is true that foreign exchange requires an understanding of world economics to a certain extent and that having a general idea of economic concepts is helpful in trading forex.  Nevertheless, it is not necessary to have an advanced degree in economics and understand every economic principle to be trading currencies.

Many forex traders come from diverse academic backgrounds. To be a successful trader, what you need is a good head for numbers, an intuition to help you guesstimate where the market is heading and the ability to react quickly to market-moving events.

3. You need to predict what is going to happen in order to make money in forex

Since geopolitics has a big influence on the forex market, the traders who make money are the ones who are quick to react to the things happening around the world, rather than the ones making predictions.

Trading predictions can sometimes be made. This may be possible by analyzing the charts and recognizing certain patterns that have occurred in the past and assuming they might occur again. But for the most part, it is rather the quickness of reaction that makes a trader money instead of novice predictions which may or may not come true. A good trader is always alert, reads and interprets the news and is always willing to learn and evolve.

Advertising

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

There was once a time when only larger international banks and financial institutions could access and trade in the foreign exchange market. Thanks to the advent of electronic trading, those days have come and gone. Instead of launching a full blown and costly brokerage firm or bank, a small organization can simply launch a forex white label and be able to run a forex trading business very economically.

Furthermore, now that the forex market has become accessible to small traders through forex brokerage accounts, anyone with a reliable internet connection and a relatively small amount of money can trade currencies online. Nowadays, a brokerage account can be opened with as little as $25.

Of course, trading with $25 will probably not bring in as much profits as trading with $25,000. Nevertheless, a novice trader can hone his/her trading skills with smaller amounts first.

 5. You need to watch the market 24 hours a day to be successful

The forex market is open 24 hours a day and requires a lot of commitment from traders who want to succeed. But that doesn’t necessarily mean that you need to watch the market 24 hours a day to make money.

Some traders even have regular jobs. They manage to allocate a little time from their daily schedules to trading, which allows them to execute some trades at the end of the day – and still make a good income doing so. You don’t really need to sit in front of a computer staring at charts all day long.

Advertising

Besides, there are automated software packages available in the market that do a lot of the work for you.

6. Being unconventional improves your chances of success

Being conventional or unconventional does not have much to do with a person’s chances of success trading forex as much as one’s understanding of the FX market, its drivers and the factors that influence foreign exchange rates.

Rather than trying to be unconventional, good traders learn and adapt to the changes in the market, which improves their chances of success.

7. The higher the leverage, the better

Trading forex on margin carries a high level of risk. A good trader knows that the higher the leverage, the higher the level of risk because the multiplicative effect of the trades is higher. Trading with relatively smaller amounts of leverage reduces the possibility of losing all your funds, while trading with high leverage could lead to large losses that even exceed your invested capital.

It is true that you can get lucky and have higher leverage work in your favor, but the reality is that you have an equal chance that it can work against you. Why take that chance?

Advertising

8. You can get rich quickly in forex

In Forex, there are quite a few short term speculators who jump into the market hoping to get rich quickly with very little effort. Unfortunately, quick prosperity is rare even in the world’s richest market.

Trading takes a fair amount of effort to master, as well as significant patience and consistency. The impulsive gambler mentality seldom works in the realms of foreign exchange.

9. The more complex the strategy, the better

Complex is not always better. Although complicated trading strategies may sometimes bring you big returns quickly, it rarely ever happens. In fact, complex strategies in trading often prove  much more difficult to execute and earn a profit with.

Good traders often stick to simple strategies; strategies that make them money. In forex, even the best trader wins only a few more times than he loses, making a profit from the difference. Consequently, tweaking strategies to make them more complex may be detrimental and only increase the overall risk.

10. 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.

The truth is that forex is too liquid and volatile to be rigged. Forex rates change often and disciplined traders are there to take advantage of the fluctuations using winning strategies. If you are making too many losing trades, think about the most likely culprit: that you need to spend more time learning to trade rather than the market is rigged.

Featured photo credit: Pixabay via pixabay.com

More by this author

Nabin Paudyal

Co-Founder, Siplikan Media Group

20 Spaghetti Squash Recipes For Anyone Who Is Looking For Delicious, Healthy Comfort Food Benefits of Sauna: 8 Ways It Makes You Healthier and Happier 25 Websites Other Than Social Media To Upgrade Your Life Think That Positive Mantras Help a Lot? Try Value Affirmation Instead 6 Successful Entrepreneurs Who Struggle Through Dyslexia

Trending in Money

1 How to Invest for Retirement (The Smart and Stress-Free Way) 2 How to Nix Your Credit Card Debt in Less Than 3 Years 3 Top 5 Spending Tracker Apps to Manage Your Budget Smart in 2019 4 How to Use Credit Cards While Staying Out of Debt 5 How to Use Debt Snowball to Get out from a Financial Avalanche

Read Next

Advertising
Advertising
Advertising

Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

Advertising

A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

Advertising

Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

Advertising

Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

Advertising

More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

More Articles About Making Wise Investment

Featured photo credit: Matthew Bennett via unsplash.com

Reference

Read Next