Most people who trade Forex do not understand how it works. Trading is usually conducted on non-professional terminals and is perceived by a trader as a casino or a fraud.
Let's consider the main mistakes in understanding trading:
- There is a Current price and then brokers break it down into Ask and Bid prices;
- Forex trading is possible only in lots;
- The prices we see are indicative and are for display purposes only. All trading takes place at the next price;
- The calculation of profit and margin is complicated and takes place according to special formulas;
- There is no real currency supply on Forex.
All these biases do not make the market understandable and lead to losses.
Traders perceive the market through the websites and terminals in which they operate. Most of these terminals are overly simplistic. The functionality has been stripped down. And, in my opinion, this is the main reason for losses in forex.
99% of clients even in some banks trade using Metatrader 4.
This screenshot shows a sample screen that most of you are well aware of. Let's look at the errors in the order.
There is only the current price.
This may surprise you, but this misconception occurs very often. In Metatrader 4, you can see the history of quotes without displaying bid and ask prices. In other words, it is impossible to understand at what prices it was possible to open Buy or Sell orders. If you look at transactions on historical data, then you will not get this information.
Also, you will not see the tick chart. You can only see the minute chart.
In banking terminals MobiusTrader 7, Ducascopy Trader, or SaxoTrader, you can see both the selling price and the buy price.
Displaying only the bid price and the absence of a tick chart allows brokers to cheat clients. They can draw price spikes that will knock down your Stop Loss orders, which is not possible in a real brokerage terminal.
To trade without the intervention of a broker, you must choose a platform that has a tick chart. Only the tick chart shows how the price is formed.
The next mistake is to think that the prices we see are indicative and are for information only. And the trade takes place at the next price.
The most common opinion is that brokers with the MT4 platform offer you their quotes, which they can change and show you almost any price. We're not talking about obvious cases of fraud right now. Although rare, they do occur. We say that the ideology of My Broker - My quotes in itself leads to the fact that quotes are not perceived by clients as a world standard, on which one can trade and earn money.
However, the quotes you see on the platform must be real on the exchange, these are orders from individual market participants. Of course, in the Forex market, small volumes of traders practically do not affect the price, but, for example, in the cryptocurrency markets, even orders of individual traders are visible.
You can open an order and you will see that it is visible in
order book and even moved the price.
Thus, prices are not indicative, but real, and in the real world, you need to trade only on them. Also in a real banking terminal.
Brokers should not interfere with the process of creating quotes, they should not have such an opportunity!
You can only trade in lots.
This is a very strange belief because, in the real world, lots are not found anywhere except for a few terminals and mainly in Metatrader. Perhaps the volume is displayed in lots to simplify internal calculations in the platform, or the programmers simply did not cope with the task of displaying the real volumes of orders.
You can switch in the settings as you want to display the volume in lots or in the real volume of the order.
Nevertheless, lots are badly harmful to clients to understand the market correctly. Few people understand how to calculate the margin requirements or risks on an account when buying 1 lot of EURCHF. Why are the margin requirements for EURUSD the same as for the EURCHF currency pair? The profit calculation is also not clear, what profit will I get if I buy 2 lots of EURUSD and the price rises from 1.12115 to 1.12140?
As you can see, it is not clear what exactly we are buying, and therefore it is difficult to make money. It is much easier if you know that you have 200,000 euros. You can estimate how much it will cost to open an order and what to do next. Also, if you place a bet on 2 lots of EURUSD, you involuntarily begin to consider the transaction as a bet in a casino, and not trading.
Currency exchange in the platform.
When you see real volumes, these are the volumes that you buy. You can understand your purchase, which will lead to an adequate perception of the situation, so you are less likely to lose money and earn much more.
You can also easily calculate the margin requirements for a 1000 EUR purchase. If your account in Euro has a deposit of 1000 euros, then this is equal to 1221 dollars at a rate of 1.2210.
What will be the profit from buying 100,000 euros if the rate increases from 1.22110 to 1.22160? It can be easily calculated. The rate increased by 0.0005, which means that I will sell my 100,000 euros for 100,000 * 0.0005 = $ 50 more. Everything has become simple and clear, and this also makes a profit.
There is no real currency supply in Forex.
This is the most common misconception, which so far serves as an undeniable truth. As we have already said, most do not perceive trading in the market as buying one currency for another, for them it is just a bet. That is, buy one lot of EURUSD, if the rate grows by 100 points, then the rate will double. This is how 95% of traders lose their funds. If you want to make money, you need to know where you work and what you are dealing with!
Forex is primarily a currency exchange market. And your platform should be able to change money. Your order in the Forex market is either the exchange itself or preparation for the exchange of money. Yes, most often you refuse to exchange and place an order opposite the previous one, but these are all gimmicks.
What does the exchange of money look like on a real platform?
Let's say you have an open sell order for EURUSD.
You can select this order and the Fix button appears.
Then you can click this button. The profit from the transaction becomes zero because the open price is equal to the close price and you receive two orders. The first order deducts funds in USD from your current account, and the second credit funds to your account in EUR. You simply exchanged your Dollars for Euros.
Likewise, you can exchange cryptocurrencies.
ECN trading is not possible on the Metatrader 4 platform.
If some broker's representative tells you or writes on the website that you will be allowed to open ECN orders on the Metatrader 4 platform, then you should know that you are simply being deceived. This is technically impossible, no matter how much you want to believe it.
ECN trading requires other technical capabilities and an order book, such as in the Mobius Trader platform and other platforms, as well as connection to liquidity providers.
Expert Advisors / Indicators Programming
I would like to note one more point, if you start programming your indicators or advisors, then use those platforms that require you to know a common programming language, usually Java or JavaScript. If the platform uses its programming language, then this is most likely done to limit your functionality. If you are new to trading, then you better learn a general programming language and thus get an additional profession than learn a specialized language that no one needs, which you can use only on one platform.
