The Catch of Forex Trading...
The number of times I have cast my privacy-disrespecting eye over to someone’s phone (most often a dude) and he passes through his apps screen, chances are I see Metatrader 4 and/or 5. And if you don’t know Metatrader 4 or 5, you are either a girl or a pocketically-blessed dude.
The subject matter I want to talk about doesn’t need you to have any forex trading knowledge because I will keep it as generic as possible. So let’s dive into the catch of forex trading.
Ever heard the statement that the hardest thing to cook is an egg? And it’s because so easy to cook. Doesn’t make sense right?
We are used to eating eggs that are either overcooked or overcooked-er. They are always way to crispy on the outside if they are fried, some to the point of qualifying as biltong. Worse even, try making a sunny side up egg without browning the edges. What about boiling an egg without making the york into a rubbery, minature ‘zadza-dama’? I won’t even mention poaching.
The point of the overly-drawn joke above is that making a perfect egg is hard because the way to make an edible egg is easy to understand and do. It’s just frying in oil, boiling in water etc. That’s simple. The barriers to making an egg are so low and that’s what makes it hard. Contrast that with making a insert some complicated recipe I will search on Google that only Gordon Ramsey can make. The fact that you need the skills of Gordon Ramsey to make it stops you from even daring to make it.
Forex trading is like making an egg.
It’s so easy to put in $10 to start trading with. All you need is to make a broker account, download Metatrader and start getting your losses because you probably have no idea what you are doing. The barriers of entry into forex trading are extremely low hence anyone can sign up to do it.
Much like making a perfect egg, the average Joe who has entered into forex trading will fail. And does fail. No wonder you hear so many people saying “forex trading is a scam” or something to that effect.
And I don’t blame people for signing up to trade. All the other potential
legal ways of making money either need some skill, quite a bit of capital and more effort than that which is required in forex trading.
But that ease of entry into trading is also the downfall for many and it is the catch.
The effects of the catch
Trading, like any other business, needs capital. - More likely than not, if you deposit any amount below $100, you are going to lose it because when trades are still in red, your capital can’t handle it. And for you to make sensible money from such a low amount, you’d have to over-leverage your small capital (essentially trading more than you can). So in the end, you’d be at a disadvantage.
I never understood it while starting out while some brokers said their minimum deposit amount was $500. But now that I have gained the experience I have, anything below $100, you are probably going to lose it. This is another blog post on it’s own explaining this more.
There is no selection criteria - You just can’t be a doctor. There are many exams over the 5+ years of training that make sure you are up to scratch with your skills and knowledge to treat patients.
Not with trading though.
The only person stopping you from risking all you own is you. No one evaluates your skills and knowledge about trading or the market prior to trading except you. Hence anyone who wants to trade, can. And that is ultimately bad for them as they will end up blaming the markets for their lack of experience when they lose everything.
Side note though. People go get degrees so that they trade for big banks and sometimes fail to make profits even with tens of millions of dollars to trade with. What makes us think that watching YouTube videos for a weekend and armed with $10 of capital, we are going to buy a Ferrari and lift the whole family out of poverty?
I wish all brokers had $500 as their minimum trading amount. I was angry about it when I started learning how to trade but it helped me not lose more than I did as I was learning. And it’s only from losing money that I learnt this lesson, hard. If someone asks me for advice on trading, I immediately tell them that if they don’t have $500 or more to trade, leave it alone.
While I understand that trading might seems like a low-cost option of a side hustle, because it’s so easy to get into now, that should not be mistaken for ease of execution. Starting to forex trade is easy. Forexing trading itself, a totally different beast on its own.
Don’t be fooled by how easy it is to start trading. And that is the catch of forex trading.