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Myths of Online Forex Trading

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By Abiola Akinyele, General Manager of FXTM Nigeria

Over my decade-long experience of trading the forex market, I have met many individuals with different ideas of what the market is. This includes both people with firsthand knowledge, as well as those with only a limited understanding of how the market works. It is not only beginners who believe in the myths of the market- surprisingly, some experienced traders do too. In this article, I will share and unravel some of these myths.

 

The myths are all those rumours that you usually read in online forums. Although it is a golden rule not to believe everything you hear, these types of myths can often take root in a trader’s mindset and can generate fear or distrust of the forex market. Some are misconceptions stemming from mistakes made by beginners who have most probably misused the trading platforms and who therefore spread exaggerated stories based on specific cases. For obvious reasons, they are not representative of how the forex market works. So, let’s explore these myths.

 

Myth #1: Trading is extremely easy

This is the quintessential myth par excellence and one which many new traders tend to believe. The process of downloading and opening the software to start operating is relatively easy since you can start practicing on a demo account using virtual money.All you need is a computer, internet access and a desire to start. However, earning a lot of money quickly is another story. Although there are some lucky traders who succeed as soon as they start trading, this kind of beginner’s luck does not apply to everyone.

 

Successful forex trading requires practice and a lot of invested time.You cannot expect to be profitable as soon as you start trading, even if you have been practicing for some time. It is one of the reasons why I would strongly recommend that anyone who intends to start trading or has a desire to learn about the forex market should attend forex training seminars, such as the onesheld in our various offices in Nigeria.Another useful source of information is the FXTM website, where you can join any of our webinars and checkout our online educational materials.

 

Myth #2: Forex trading is gambling

Although it is quite easy to compare gambling and trading because of the risk factor, they are not the same. Forex traders have access to a lot of macroeconomic information to help them make informed trading decisions. This is why education, understanding the markets and having a suitable trading strategy are so key. While there is always risk involved in trading, these factors make it significantly different from gambling.

 

Myth #3: You need an economics or finance degree to trade

This myth is one of the most wide spread and it is, of course, false. It is not necessary to be a university graduate or have many degrees to be a trader. The only technical barriers to entering the markets are the need for a computer, internet connectivity and a strong desire to succeed – however, the willingness to learn is vital for anyone interested in forex trading. It’s essential to explore well-grounded education courses before beginning to trade, and I strongly recommend visiting the education section of the FXTM website.

 

Myth #4: The more complex the strategy is, the more profit it produces

Normally traders start with a simple strategy and only see little performance. Therefore, they assume that if they continue to make an adjustment to their system, taking into account some other variables, they will increase their profitability. But what they do not understand is that this is not how trading works. A winning strategy adapts to both your type of trade and your trading personality.In short, it is not something that depends on how complicated the strategy you use is. In fact, if you use a very difficult strategy that you do not know how to manage, it is likely that you will simply lose money.

 

Myth #5: Forex is a scam 

It is true that there have been cases where individuals have had very negative experiences in the forex market, either due to the broker they have chosen to work with, due to lack of education on the forex market, or due to the wrong trading strategy. But this doesn’t mean that forex as a whole is a scam. Forex is a real currency market where anyone can trade for themselves and also be responsible for their own trading decisions and their losses. Individuals also need to be careful of people who are looking to defraud traders, whether that be by including them in pyramid-scheme businesses that seek to take away profits, or due to them being unreliable and disreputable brokers. However, it is necessary to emphasize that the market itself is NOT, by nature, fraudulent.

 

Myth #6: Following what other traders do leads to success

DO NOT ever follow what other traders do just because they look like they know what they are doing. A trader must develop their own skills and learn from their mistakes.They can listen to other traders, of course, and even follow the strategy of a trader they trust through copy trading, but keep in mind that every individual’s experience of forex trading is different. You should take your own trading style and goals into account and always carry out your own research before committing your capital. Experienced professionals can greatly help new traders; however, this should be part of an informed and educated decision.Do not simply believe in everything people say, no matter how experienced they may look.

 

Myth #7:You need to watch your computer all the time

It is humanly impossible for a person to focus on one thing all the time, especially to constantly watch their computer screen. Most professional traders monitor the market movements before closing their positions. Traders could also leave standing orders with forex brokers which automatically close the order for them.

 

So, no;in order to be a forex trader, you do not have to be stuck onyourPC24/7, but you should be able to devote a considerable amount of time to watching the markets.

 

Myth #8: Money management means placing a stop

The handling of money is one of the most important factors with regards to the success of a trader. In fact, I consider a proper understanding of money and risk management the most important skill for a successful trader to have. However, money management does not mean just placing a stop order on a trade, it also involves the amount of the total account that will be risked by each trader. When focusing on what money management is, the trader must take his operations to the next level.For that reason, it is something that should not be ignored because if it is done, even using the best strategy, it will fail.

 

Myth #9: The more pairs you exchange, the better

Trading many pairs at the same time may distract you and that could lead to many losses. Trading more pairs does not always mean that you will have more profits;it actually means more work and less time to think rationally.

 

Therefore, the best option is to be patient and wait for the pairs you are trading to bear fruit— especially if you are a new and inexperienced trader.

 

Professional traders already have the currency pairs that they are familiar with and they know how to manage their strategy and their time.

 

Summary

It is important for a forex trader to do their own research to understand what it really means to work with the fast-moving markets. Much of this learning will come from experience since not everything can be taught through courses, articles and guides.

Myths in the foreign exchange market are very dangerous and harmful for traders. Therefore, you should always fact check everything you read or hear and keep an open mind and try things for yourself.


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Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University.

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E-Financial

Banks Fingered in $2trn Dirty Money Scam

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Some of the world’s top banks have been found to be complicit in aiding criminals move $2 trillion in dirty money around the world, according to leaked government files.

Banks Fingered in $2trn Dirty Money Scam

The exposition was done by Buzzfeed News and shared with the International Consortium of Investigative Journalists (ICIJ), a group that brings together investigative journalists from around the world, which distributed them to 108 news organisations in 88 countries.

In the revealing documents, they said: “global banks including JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank, Bank of New York Mellon, among others defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.”

It was also revealed that they kept profiting from these powerful and dangerous players even after the United States authorities fined these financial institutions for earlier failures to stem flows of dirty money.

FinCEN is the US Financial Crimes Enforcement Network. These are the people at the US Treasury who combat financial crime. Concerns about transactions made in US dollars need to be sent to FinCEN, even if they took place outside the US.

Known as the FinCEN files, these are more than 2,600 documents which banks sent to the US authorities between 2000 and 2017 which help show that these banks raise concerns about what their clients might be doing.

They have also been regarded as some of the international banking system’s most closely guarded secrets.

Some of what has been found so far showed that JPMorgan, the largest bank based in the United States, moved money for people and companies tied to the massive looting of public funds in Malaysia, Venezuela and Ukraine, the leaked documents reveal.

The bank moved more than $1 billion for the fugitive financier behind Malaysia’s 1MDB scandal, the records show, and more than $2 million for a young energy mogul’s company that has been accused of cheating Venezuela’s government and helping cause electrical blackouts that crippled large parts of the country.

JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.

It was also revealed that one of Russian President Vladimir Putin’s closest associates used Barclays bank in London to avoid sanctions which were meant to stop him from using financial services in the West. Some of the cash was used to buy works of art.

HSBC allowed fraudsters to transfer millions of dollars around the world even after it had learned of their scam, leaked secret files show.

Britain’s biggest bank moved the money through its US business to HSBC accounts in Hong Kong in 2013 and 2014.

The United Arab Emirates’ central bank failed to act on warnings about a local firm which was helping Iran evade sanctions.

Deutsche Bank moved money launderers’ dirty money for organised crime, terrorists and drug traffickers.

Standard Chartered moved cash for Arab Bank for more than a decade after clients’ accounts at the Jordanian bank had been used in funding terrorism.

The FinCEN Files represent less than 0.02 per cent of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017.

Mr Fergus Shiel from ICIJ said the leaked files were an “insight into what banks know about the vast flows of dirty money across the globe”. He said the documents also highlighted the extraordinarily large amounts of money involved.


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SEC Boosts Investor Protection with Digital Assets

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The Securities and Exchange Commission (SEC) has explained that its Digital Assets and their Classification and Treatment is aimed at boosting investors’ protection in the capital market.

Emomotimi Agama, Head, Registration, Exchanges, Market Infrastructure and Innovation of the SEC speaking on the guidelines in an interview said: “The first thing the SEC bothers about is investor protection.

“This is no different from what we have been doing. We are looking at investor protection, integrity, transparency and of course we want to make sure that the market is safe and everyone is comfortable with what is going on in the investment climate”.

Agama noted that last year the Commission launched the Fintech Road map and after that was done, it went ahead to set up the block chain virtual financial assets committee.

“These committees are both market wide and principally done to engage the market, to be able to have discussions with the market and get their buy-in into what we are doing.

“What we found out today is that a lot of persons, youths are all involved in this space and it is important that even as far as that is the case, the SEC lives up to the expectations  and making sure that those people that are getting into the business are protected

“Clearly, that is our aim and the market is part of this and indeed the feedback has been wonderful. People are happy with what we are doing, being able to provide some clarity as to where we stand in terms of digital assets regulation.

“Digital assets is the next thing, our idea is not to stifle innovation, but to promote innovation within a reasonable space and that is exactly what we are doing. Section 13 of the ISA empowers us to do this and so we are doing what we have been empowered to do by law,” he said.

On what internal capacities the SEC is developing to meet the challenges of this fast changing digital financial world, Agama said “the SEC is a knowledge based institution and before we come out of this kind of initiatives, we would have done so much research.

“I need to tell you that the Cambridge Centre for Alternative Finance has been partnering with the SEC and up to this point, we have been engaging with them and several of our staff have been part of their programmes.

“The World Bank and other institutions are also working with us on Fintech to see that the Nigerian landscape is not left barren but guided with basic principles, we will not leave any stone unturned, but ensure that everyone within the SEC that has the responsibility to guiding investors and the populace in making sure we have an investment environment that people will be proud of is provided.

“Capacity building is a continuous exercise, we will continue to upgrade ourselves, we will continue to learn because knowledge is for life”.


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Rising Covid-19 Cases Keep Risk Assets Under Pressure

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By Hussein Sayed, Chief Market Strategist at FXTM

Equity markets kicked off Monday on the back foot following three weeks of consecutive declines in US stocks, which marked the longest weekly losing streak since 2019. Investors are becoming increasingly worried about the momentum in the economic recovery given the resurgent numbers of global Covid-19 cases and lack of progress on a new US stimulus package.

Although President Trump signaled his readiness to back a bigger stimulus bill last week, the Supreme Court’s empty seat left by the passing of Ruth Bader Ginsburg is likely to complicate the matter. The fight between the President and Congressional Democrats on whether to fill the vacant seat now or wait until after the election is expected to lead to more delays in reaching a middle ground on a new fiscal package. Hence, we would expect that the much-needed stimulus will be pushed back until after the US elections.

Given that the list of uncertainties is growing, especially on the pandemic front, risk is now skewed to the downside. We have US elections just around the corner, hefty valuations in growth sectors despite the recent correction and the high stakes of possible national lockdowns in the UK and elsewhere all pointing to waning momentum in the economic recovery. All these factors indicate more volatile times for the next several weeks.

Datawise, investors need to keep a close eye on September’s flash PMIs coming out of Germany, France and the UK this week for further indications on how the big European economies are faring following the strong rebound in early Q3. Signs of weakness here will be a strong signal that the economic recovery is indeed losing its way and further action is needed from fiscal and monetary policymakers.

Currency markets are not yet reflecting the risk aversion seen in equities. The Dollar is trading slightly lower against its major peers, with the DXY -0.15% at the time of writing. The Fed is clearly the winner among other central banks in providing the most accommodative monetary policy, which means the long-term projections for the Dollar remain to the downside. However, if the selloff in US equities accelerates this week, expect the greenback to regain some support.

In commodity markets, Brent fell by 1% after trading slightly higher in early Asian trade. The battle between the bulls and bears is keeping prices rangebound between $40 and $45. At this stage, the demand outlook is far more important than the supply side. That’s why oil traders need to keep a close eye on the trajectory of the virus, especially if it’s going to lead to renewed lockdowns. Gold is also another commodity stuck in a narrow range as traders await new clues on the Fed’s policy approach towards inflation.  This could happen later this week as Chairman Jerome Powell may provide new hints when he appears before the Congress on Tuesday.

 


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