Debunking common myths about Forex trading

Forex Trading Kenya: Trading forex is a global phenomenon that reaches trillions of dollars worth of transactions every single day. In fact, the Bank for International Settlements reports that forex trades average $6.6 trillion per day, up from $5.1 trillion three years ago. So, it comes as no surprise that more and more people are starting to trade forex online.

However, there are a lot of misconceptions about how to invest and what forex entails, which could be dangerous for new and even old investors. On that note, let’s debunk a few myths about forex to ensure that you understand all the details.

Trading forex is expensive

Looking at experienced traders, newbies are often led to believe that they need a lot of capital to start — but in reality, an article on Standard Digital points out that you only need a minimum Sh1,000 to begin trading. This is more than enough for beginners to test their skills without risking too much capital. Moreover, plenty of online brokerages also offer mini and micro trading accounts, which allow a deposit of just Sh2,500. Although the money is in the larger trades, it’s not necessary to start big, and there is an affordable route available for anyone interested in forex.

Trading gets you rich — quick

A common misconception about trading is that it can make you a lot of money very quickly — which is not the case at all. This is sort of bravado is often spread by people who don’t actually know how to trade forex. Although there have been some traders who start small and end up with large returns in a short period of time, this isn’t the case for everyone. Like all trading methods, forex requires a lot of time, effort, and dedication to learn the market and get working strategies that can bring in some serious profits.

Forex trades are commission-free

When a broker claims that you pay “zero commission”, you’re being misled. While technically, you don’t pay a “commission fee”, you will end up paying for the spread, which FXCM explains is the gap between the buy and sell price of a currency pair you want to trade. There is a spread on every trade, so you will end up paying a fee for each transaction you make. Also, as the buy and sell price is constantly changing, the fee isn’t fixed either.

More leverage automatically equals more profit

A leverage is the amount of money your broker will lend you in order for you to trade more and get more profit, and all brokerages offer different schemes on this. For instance, a brokerage could offer leverage from 1:1 to 1:400 or more, thus a Sh1,000 investment with a 1:100 could give you up to Sh100,000 in borrowed capital. While the purpose of leveraging is to increase your profit margin, it doesn’t necessarily mean it will automatically raise it. Our correspondent Peterson Otieno explains that leverage is a double-edged sword that can execute investments for new traders, which anyone looking to start forex should be wary of.

As the popularity of forex trading increases, more misconceptions are likely to rise as well. These could mislead new traders and harm their strategies and profits. For that reason alone, debunking these myths is critical in ensuring that you can differentiate fact from fiction the next time you enter the forex market or discuss methods with fellow traders.