Is Forex Trading a Scam
Forex is not a scam. However, there are entities on Forex that do not act in good faith. With this article, we will explore what Forex is, as well as explain the most common scams currently on the market, as well as how to evade them.
What is Forex
Forex stands for Foreign Exchange Market and represents the worldwide marketplace dedicated to exchanging world currencies. Unlike the stock market, Forex does not have a dedicated centre — just a bunch of major brokers and banks that are interconnected within the Forex network.
The market itself has been working since 1980 when Ronal Reagan abolished the gold standard and made all the currencies fiat. Since their values were now expressed with the rules of supply and demand, there needed to be a new marketplace to trade the currencies — and that’s what Forex was made to be.
Until 1996, Forex available only for the major banks. With the advance of the internet and the development of the trading software, the market eventually opened up to other, smaller participants — local banks, brokers, corporations and even individual traders.
How Forex Trading Works
As with any other asset market, the idea is to buy low and sell high. And since the Forex market is very volatile, it provides a lot of opportunities for adventurous traders. The reason for this volatility comes from the Central Banks maintaining the balance of their country’s currency.
For example, if the value of GBP is high, traders will start selling it, and the price will decrease. The Bank of England will be forced to start buying its currency to increase its price back to where it used to be. Some traders will also buy GBP once it hits bottom, and make money on its recovery too. Once the pound has recovered to its starting positions, the cycle will begin anew. If you want to know more, consider looking up Forex technical analysis.
Why Forex is Full of Scammers
Forex is known by its scammers — a lot of people have friends that got burned by the Forex brokers, or even have tried trading themselves. Unfortunately, Forex regulations for a long time were rather lax. The majority of the EU and the US regulations were updated only after the collapse of an international scam CrownForex in 2008.
And even though the western brokers are now much better regulated, there still are a lot of scammers operating in the Middle East, Asia, and Africa. These regions are largely unregulated, or the brokers themselves control feature regulation authorities.
What Scams Are Popular on Forex
There are quite a lot of different scams on Forex. Some of them are done by the brokers, others — by other traders. This article explains the most popular ones.
Some experience traders earn some side money on signals. They allow the other traders to make the same deals as they do, in exchange for some fee. Unfortunately, some signal sellers are not acting in good faith, and their signals are not profitable. And not only do their followers lose the fees, but they also lose their capital on bad orders.
To avoid the false signals, set up a special practice account and test them there. Also, do not trust signals from unknown sources — use MetaTrader website to gauge their feasibility.
Dishonest Forex Investments Funds
Forex investment funds offer to manage your Forex investments. Unfortunately, most of them are a scam, and you are never going to see your money again since it will go straight to the scammer’s pocket.
To avoid the fake investment funds, join only the percent allocation management modules. PAMM-accounts do not allow the manager to steal your money and make sure that they are interested in its performance.
Dishonest brokers are the biggest issue in the Forex market. Dishonest Forex brokers either fiddle with the quotes, making you lose your money, or straight up refuse to pay out your winnings on the market. And while in the US or the EU there are institutions that will solve this issue, most of the dishonest brokers are registered offshore.
To avoid the dishonest brokers, read the reviews online and check your broker’s license if it is issued somewhere like St. Vincent and Grenadines — nope out of that as fast as you can.
NOTE. There are some decent brokers that have a secondary license there — for example, JustForex — but they also have proper licensing elsewhere (Review of the JustForex).
Forex trading is not a scam, but there are a lot of actors that will try to take advantage of you there. However, if you can take care of yourself and are not too trusting, you will be able to trade on Forex and profit from it. Some Forex trading strategies offer payouts as high as 20% monthly, so even despite the number of scammers, Forex trading is worth it.