Beginners, beware! Here are the 3 major misconceptions about Forex (FX)

For beginners who are just starting FX, three typical misconceptions are commonly held by those who are new to the field.

＜The Three Major FX Misconceptions＞

■ Misconception 1

'You will get better if you practice with a demo trade'

■ Misconception 2

'High leverage is dangerous'

■ Misconception 3

'You can win with 50%'

First, regarding the first misconception, no matter how much you practice and accumulate experience with demo trades, you won't become proficient. In other words,no matter how much time you spend gaining experience on a demo, it is wasted time. Why is that?

Because it does not train your mindset at all.

FX is all about psychology. With a demo, since the funds are virtual, there is no mental pressure at all. Moreover, you are trading under conditions that do not affect your psychology, yet the market movements are real. The fact that market movements are real is troublesome and the source of misconceptions.

When you make a profit, you may mistakenly think you have become skilled because the market moves are real, even though the funds are virtual. Demo trading is best used only to confirm the operational method.

Next,Misconception 2is that many people think high leverage is dangerous in general, but properly it is dangerous to hold a high-leverage position for a long time. Shorter time frames are not dangerous.

FX is an investment that profits by either increasing leverage or extending position duration. Holding a high-leverage position for a long time involves taking both risks, making risk control impossible and leading to ruin. Conversely, if you take neither high leverage nor long holding time, you won't profit. By choosing which risk you can control more easily, you reveal your trading style.

Finally,Misconception 3is that people tend to think you can win just by predicting whether to sell or buy, but in reality that’s not the case. A simple way to understand it is that there are three states: the winning state, the losing state, and the draw state. If you close a position in a draw state, you hardly make a profit, and considering the spread, you even incur a slight loss. In other words, there are three states: winning, losing, and slightly losing.

From this, if you were to gauge the probability that an absolute beginner with no knowledge or experience can win in FX, it would be 33%, and 66% would lose. To be blunt, that is harder than flipping a coin. However, unlike a coin flip, your chances of winning can be increased with knowledge and experience.

After reading this article, you should have increased your chances of winning by understanding the three misconceptions.