Debunking forex trading myths

This post was originally published by Deriv on 4 August 2022.

You've probably heard many things about forex trading — some good, some bad. But not everything you hear or read about this financial market may be true. In this blog post, we'll debunk the most common myths to help you decide if this market would be a good option for you to trade.

Myth 1: You need a lot of capital to trade forex. 

Fact: Most forex brokers, including Deriv, allow you to start trading the forex market with minimal capital. 

In the past, the foreign exchange market was only accessible to major international banks and financial institutions with large capital. Nowadays, anyone can trade forex thanks to modern electronic trading and a fast internet connection.

On Deriv, you can trade forex with minimal capital. What’s even better is that you can create a free demo account that’s credited with virtual funds to sharpen your trading skills risk-free before trading with real money.

Myth 2: Currency trading is the same as gambling.

Fact: Forex trading is based on probability, whereas gambling is a game of chance.

In forex trading, you study how the market moves through technical charts and fundamental analysis and, from that, make an informed decision on how an individual currency is likely to perform in the future. Like other markets, you predict the best time to buy or sell it to make a profit.

In gambling, the outcome depends on pure luck. As a gambler, you play against the house, which always has the upper hand as it sets higher odds for losing than winning positions. Some gamblers may sometimes win the jackpot, but many fail, so the odds are heavier in the house's favour. Forex trading is free from this flaw.

Myth 3: There is manipulation in the forex market.

Fact: Thanks to the highly liquid nature and huge transaction volume of the forex market, it is almost impossible to manipulate forex currency rates.  

This is one of the most notorious misconceptions about forex. Although governments and large banks control currencies, it doesn't necessarily mean they manipulate currency trading in the market. 

Instead, the forex market is almost impossible to manipulate due to a few factors, including the sheer volume of daily transactions that happen in the market, totalling over 6 trillion US dollars in 2023. Additionally, as forex is a global marketplace, macroeconomic events, as well as the unpredictable nature of the traders who trade forex, heavily influence currency prices, making it a highly volatile and liquid financial market. 

Myth 4: You can't beat seasoned traders.

Fact: You can. Just remember not to take them on at their own game. 

Seasoned traders may have more capital and superior technology, but that doesn't mean you are any less of a trader. It's all about finding and establishing your niche, which will separate you from them. 

Professional traders have their own trading strategies that work for them — some hold significant positions, while others focus on intra-day trades. The key is to find a trading niche that is underexploited by other traders. This will give you an opportunity to gain an edge and potentially make more profits.

Myth 5: It's easy to trade forex currency pairs.

Fact: Generally, trading is not easy, which applies to all markets, including forex. 

A high level of risk is involved, especially when you trade with leverage. The higher the leverage, the higher the risk level.

Though it's possible to experience significant losses when trading with high leverage, you can use risk management features to minimise these losses. With a Deriv account, you can trade forex with CFDs, options, and multipliers. CFDs allow you to limit your potential loss by using stop loss and take profit orders. Some types of options let you earn a predetermined payout if the market moves in favour of your prediction. With multipliers, you can protect your stake with automatic stop out.

Tapping into the forex market is a strategic way to diversify your trading portfolio. To be able to do this successfully, you have to stick to the facts and not be influenced by myths — do your research and keep up with the market reports to make the best possible trading decisions.