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Forex myths about the chaotic movement of the markets

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Such forex myths are wrong. The movement of the price of certain shares occurs under the influence of various economic factors due to the state of affairs of the company, industry, sector or the economic situation as a whole. The rest of the actions carried out on the stock market are already the emotional aspect.

The foreign exchange markets are completely different. They have the ability to reflect the image of supply and demand for a product. The position of one currency relative to another currency characterizes an economy. Therefore, the emotional impact on the currency is absolutely excluded.

 

 

Technical market: the truth about forex

So the whole truth about the forex markets is this: they are more technical than the stock markets. In them, the price movement on the charts is much more reflected in support and resistance levels than in the stock markets. Forex markets only provide supply and demand information for decision making based on price level charts. They respond better to tools like Fibonacci, trend lines, support/resistance levels, etc.

When trading the spot forex market, the truth about Forex is that there are certain difficulties for traders as there are no indicators to track their mood. Economic news and reports have a direct impact on the foreign exchange market in the form of changes in the interest rate of the exchange rate. Stocks are an indicator of a certain sector of the economy or company. Currency is, above all, a commodity. Supply and demand correspond to the movement of prices in the technical analysis of the foreign exchange market.

 

Myth about forex: a complete scam

Forex myths are very common that exchange rates are the result of manipulation by big traders and banks. The status of the price relationship of a particular currency pair depends on many factors. Currency futures are primarily a derivative of the actual spot market price (spot foreign exchange market). What complicates the picture is the fact that, at any given time, there is no specific place for the global price of exchange rates. In this matter, the sources of information are the trader data provided by the broker and other important data providers. As it turned out, the difference between the data obtained from three sources will be zero.

However, sometimes you may come across unscrupulous brokers, and this also reveals the whole truth about Forex. Since the forex market is the least regulated, there are certain types of scams from unscrupulous brokers who are hungry for quick profits.

However, you should not assume that absolutely the entire market is a complete scam. First of all, you should carefully approach the choice of a reputable broker. Do not trust suggestions that automatic systems do not allow losses and only lead to enrichment. Remember that the truth about forex lies in great patience, discipline, the ability to perceive losses as an integral part of gains, and a structured approach to creating favorable risk/return parameters. To do this, you need to have some experience and spend a lot of time to acquire it.

 

Forex Brokers Trading Against Clients – A Forex Myth?

Still, considering the myths about Forex, there is often an opinion that brokers deliberately take actions that lead to the loss of money by their clients. That is, successfully trading at the expense of his broker, the trader risks losing his funds with the help of him.

It all looks like this: a forex broker’s terminal is designed to trade against his “order book” – this is the sum of all clients put together. The actions of a broker are comparable to the role of a croupier during a game of poker. In fact, the truth about forex is that traders in any financial market suffer losses, naturally. Therefore, the dealer terminal simply sides with the majority of aggregate transactions to hedge against risk. The effective trading of the dealer terminal according to the system “against the total amount of the “order book” can be expressed in another way.

This picture is seen when a broker who does not value his reputation is interested in the individual success of the clientele. This involves losing money for most traders.

In general, no trader will track the actions of any of his traders to establish control over him, this is from the area of ​​forex myths. What are the distributor’s actions? Perhaps offsetting the GBP/USD exchange rate by 30 pips from the actual price to trigger a well-placed stop order? Such actions would bring profit to nine losing traders. After all, when analyzing any market, 9 out of 10 traders, as a general rule, lose. It turns out that such a scenario, applied by the broker, would bring a profit to nine traders, if only one suffered losses.

It is not possible for a big broker to move the entire market too far from the breakeven price to go after individual traders. Such an assumption is illogical. These forex myths are often propagated by competing companies, particularly brokers looking to increase their commissions and clientele.

Therefore, the trader does not have to fight the broker, but simply be on the winning side of the market. Although this is not always possible.

 

Currency futures are better than forex: a myth?

This assumption is also largely false. Here, first of all, personal preferences play a role: the spot market (forex) or currency futures. Any market has its advantages and disadvantages, this is the whole truth about Forex.

In the forex futures markets, traders can easily track volume and bid and ask quotes. Both futures and other contracts traded on the CME (Chicago Mercantile Exchange) go through the same broker. The need to find another broker, find new trading platforms or software, etc. disappears To switch to currency futures trading from any other market, simply change the characters on your computer monitor.

Futures trading is only available during trading hours. But work on the spot market is guaranteed by brokers for the entire working week, and the whole truth about forex says that this significantly limits and even eliminates slippage situations.

This state of affairs is undoubtedly one of the strengths of the spot market and allows traders to keep trades open outside of futures trading hours. Changes in the exchange rate can be significantly influenced by various news on a regional or national scale. This results in the possibility of slippage or even non-execution of a pending order in the futures market. However, some brokers assure that the stop order will be executed in any situation.

Forex Myth: High Costs Compared to Futures

Taking into account the myths about the foreign exchange market and saying that the costs in the spot markets are supposedly higher than in the futures, the foreign exchange market can be characterized as having a bid/ask spread structure. That is, the profit of the brokers makes it available to retail traders. It is the presence of such a margin that suggests trading in the spot market, since forex brokers do not require a commission. Trades that are rolled over to another day have a small charge (swap) as opposed to commission and spread.

Forex futures trading already takes place when traders pay from their personal account for each completed transaction. Any trade, whether winning or losing, again involves a commission. There is also a fixed cost for currency futures for absolutely any transaction.

Comparing these two markets, the truth about forex is that there is no real cost involved in trading the spot market. For example, you made the same transactions in currency futures and in the spot market. Let’s say EUR/USD is traded in futures and spot markets. The contract in the futures market contains a bid/ask spread of 1 pip worth $12.50, while in the cash market it contains a bid/ask spread of 2 pips of $20. It may seem that a futures market contract is cheaper than trading a spot market contract. However, let’s not forget that the commission for a futures trade will be $4 per contract. There is no such commission in the forex market.

The truth about forex in real examples of transactions

Let’s consider three specific, similar transactions for the spot market and futures.

  • Trade 1: $250 contract loss, closed on arrest warrant;
  • Operation 2: closed based on a stop loss at the breakeven point;
  • Trade 3 – closed on the basis of a limit order, the contract profit was $500.

As a result, we get the following total for the cash and futures markets:

  • Trade 1: Futures costs -250$ and -5$ commission on/forex -250$;
  • Trade 2: Futures cost $0 and -$5 commission / Forex $0;
  • Trade 3: Futures returned $500 and -$5 commission / Forex $500.

It can be stated that the whole truth about forex and futures looks like this: in the futures market, transactions were accompanied by commission costs, unlike in the spot market. The bid/ask spread is not actually paid in both cases. In general, the concept of a margin lies in creating a profit between both parties while paying for the trade at the same time. Therefore, neither party pays this margin from your account.

Establishment of a stop order by traders is done based on the dollar value of the risk or trading tactics. The value of the bid/ask spread is shown by the distance between the entry actually executed and the stop order, narrowing or widening depending on the width of the spread. When closing trades on a stop order, the trader does not make payments from his account. However, in such a situation, it can be argued that a losing trade could reduce the loss. Although there are no specific actual payments withdrawn from the account.

When the trade wins, the spread is absorbed by price action outside the trade’s exit zone. In other words, the whole truth about forex is that when you exit a deal in the spot market, there is a result of $500 per lot, with the maximum price movement. In particular, 640 positions before the reversal. In such a situation, the spread is absorbed when a profitable trade is closed due to the price moving far beyond the exit point.

For example, opening a long GBP/USD position from 1.9950 or 2.0000 and if the price exceeds 1000 positions, then a profit of $500 would result in closing the position at 2.0450 or 2.0500 respectively. In both cases, the cash market profit would be $500, excluding any commissions. The size of the spread, even if it were 10 pips, would not matter as the trade triggers from the entry point to a certain set profit target.

The importance of the bid/ask spread will be when a trade is exited at an extreme price value, at a minimum for short positions and at a maximum for long positions. In this situation, the spread is considered a real loss and this is another truth about forex. In other situations, it is simply absorbed by normal price action, both on winning and losing trades.

 

A few words in conclusion about forex myths

So the truth about forex is that foreign exchange markets are a great alternative to many other markets. Anywhere in the world you can choose an available currency pair to trade with normal liquidity. At the same time, forex charts almost always mark a certain movement that has a correlation with the dynamics of other markets. Therefore, a trader should choose between forex and forex futures based on their own preferences and certain advantages, and not rely on common myths about the forex market.

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