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Foreign Exchange-Myth and Reality

January 9, 2006

Professor Robert M. Solow of M.I.T. says, “It ain’t the things you don’t know that hurt you, it’s the things you know that ain’t true. Many of us ‘know’ such things, and sometimes act, or urge our representatives to act, on our mistaken beliefs.” One thing is for sure: the foreign exchange market (FOREX), can be very tricky. Many people have ideas about the international market that are nowhere near the truth.

One of the main myths involving foreign exchange is the idea that investors will get rich quick. People often invest with completely false expectations of the profit potential of the market. Short term trading is not a get rich quick game and is usually not a good idea for amateur investors. If this were true then everyone who trades of the foreign exchange market would be millionaires. You can’t expect to make great gains without taking high risks. Because of there being different currencies many traders believe the basic rules of finance and logic are not the same: not true! Traders must realize that trading on the foreign exchange market is an art that takes years to master, and even then you may incur losses. The FOREX market is the same as any business; success comes in the long haul. There are no shortcuts in foreign exchange.

Many people have the misconception that trading is the same as investing. Investing is more saving long term, whereas trading is more buying and selling in a shorter time period. In other words, trading on short one or fifteen minute charts is in no way ‘investing for the future.’

Many people think that knowing the indicators with the regular charting software will lead to being a successful trader. However, indicators are just a tool to help traders create a trading plan. They are not a replacement for the skill and discipline that are essential to perform a trading plan. Another myth involving indicators is that many indicators are needed. This is not true as professional traders usually just use one or two of the simplest kind of indicator. Use the principle of KISS: keep it simple, stupid.

Probably the main myth involving the FOREX market is the risk involved. Many investors stay away from foreign exchange because they feel that the risks are extremely high compared to other investments. If the investments made in the FOREX market are compared to common investments like equities or fixed income on a risk/reward basis, the result will show that foreign exchange investments provide respectable returns. For example, last year an investment in major currencies was comparable to 30 year bond futures. While there are risks involved, such as exchange and interest rate risks, but foreign exchange trading is not any more risky than investing in the stock market.

Written by HYIP Network · Filed Under Articles 

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One Response to “Foreign Exchange-Myth and Reality”

  1. Stock Market Information on September 19th, 2007 11:59 am

    Stock Market Information…

    I couldn’t understand some parts of this article, but it sounds interesting…

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