Whether you’re a forex pro or amateur, you may have come across a lot of information around forex. Unfortunately, a great deal of that information is myths and misconceptions.
Here is a quick look at the truth behind some of the biggest myths in the world of forex, so that you can make an informed decision about your transfer.
Myth: Forex is a short-term strategy
Several macroeconomic factors affect movements on the foreign exchange market. And these factors don’t change too quickly. So, while you may witness great swings due to the day to day news cycle, long-term trends still exist in many currency relationships. This means having a currency strategy based on these long-term trends is important, especially if you are operating a global business and want to maintain a stable cash flow.
Myth: Forecast to win
Behavioral economics shows that when you’re forecasting, you are more likely to notice only what you want to see rather than looking at what’s happening in the market. Forecasts can make you to lose sight of what’s truly happening due to cognitive bias.
However, a forecast or a level in mind is not a bad idea, if you do not become too emotional about your prediction or plans. If you want your forecast to work, detach from emotions, keep reevaluating your strategy and walk away if it stops working.
Myth: Forex market is highly risky
Many people have the false impression that the forex market much riskier option than other markets. The fact is that the risk in any market, investment, or trade needs to be evaluated, and contained to achieve the best results. More growth usually comes by accepting more risk whether you’re trading in the forex market or any other.
Myth: Risk mitigation is expensive
This is a common misconception. Many people consider it expensive to implement a currency strategy to mitigate risk, but that isn’t necessarily true. Managing foreign exchange exposure can ensure that your business can maintain a stable cash flow in the event of currency volatility.
Myth: The trend is your friend
There are many complex factors that influence exchange rates. Most professionals make the most money from focusing on specialized pairs and gaining a solid understanding of those key relationships.
While historical data and long-term relative exchange rates generally hold true over the long term, forex is also heavily influenced by what’s going on right now. Things like new governments and trade policies, political and military turmoil, and current economic conditions always beat historical data when it comes to currencies in real time.
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