Most investors can easily understand the stock market, even though they do not understand the complete explanation of how a stock is priced or how brokers and traders, value a stock. Earnings Ratio and P/E are not that important to a beginning investor. He knows he owns a piece of a company something tangible and real.
A beginning investor also knows that his losses though not protected are limited if he only puts his money in big well known companies. So he buys Apple or IBM and he hopes he is buying when they are low and they will go up, but he also knows in time these shares will appreciate it and when they do he will sell. He owns them and he can sit on them for as long as he likes. He can borrow against them or sell them if he needs cash. He knows what is happening because he watches the internet and checks with his broker now and then. His stocks don’t move radically and he sleeps comfortably at night.
Slowly this new stock market investor decides to reach out a bit more, he gambles a bit and buys a 100 shares of a small company that he has read about, their shares are only a few dollars so his total investment is under 1000.00 even if the company goes broke his loss is at a minimum. He watches closely, reads more and slowly learns about the market.
This same investor who slowly waded out into the stock market pool and stayed on the shallow side until he could swim is scared to death to jump into the forex market.
He is scared of intangible items, assets that he cannot hold and values that he does not understand. If I explain to him that the euro is worth $1.30 he doesn’t understand. If I try and explain that that computer that costs $1000 in the US would only cost 630euros in Europe this doesn’t calculate because it doesn’t hold true and European product have VAT tax included also so it just complicates things. If I explain, that a man who has 630 euros in his pocket and is in the US and wants to buy that computer can go to the bank and exchange his money and get 1000.00 and buy that computer, this he understands, but then he asks, how did the bank know what that the euro was worth 1000.00usd and I reply that is today’s currency rate. Again we are back to a difficult and complex explanation.
So this man decides ok, I might put my toe in the forex pool and sit on the side, but tell me why is it so big, if I swim out there how will I ever find my way back. That is what he is thinking when I explain that he has to buy 100,000 worth of euros to make a trade, even though he only has to have a small amount in his account. Know he gets up and runs for his life; he has Forex Fear in his eyes.
The only way to get past this fear is knowledge, understanding and education. You can’t just start the engine and take off. You will crash and burn. You can make money trading currencies but you need education and support. That is one of the reasons most forex companies offer account managers and training.