Investors need to educate themselves in order that they can do not fall prey to scammers with there being so many currency trading scams on the market. From revealing the the true nature of forex trading to uncovering the strategies that forex scams often use, we highlight strategies that the bad guys use.
There are scammers that market forex trading as an opportunity where anyone can make substantial amounts of money from a small trading capital with minimal risk. While there are gifted traders who’ve made millions after starting with only a few hundred dollars, the fact is that most traders can never attain such success from their own efforts and/or lose even more through forex scams investors face.
A number of you have asked for a glossary of economic and financial terms. We hear you. And we’re going to start building that glossary right now, in this very blog entry. It will live over in the right column, in the list of Categories as ‘Glossary’ — right between ‘Fun With Economics’ and ‘Inside Planet Money.’ After the jump, a starter list of terms we’ll be defining, along with a few starter definitions. Here’s the ever-evolving Planet Money glossary. We …
Contrary to what most brokers will tell you, it’s isn’t always in their interest for their customers to be profitable. This is because they must adopt the other edge of the trade or pass the risk onto a third party once the trader enters a trade; either the trader makes a profit or the agent takes a loss. A forex broker was heard saying on a television report that’ I had this evil grin on my face one day, when a client lost $35, 000 in a quarter of an hour. A guy gets wiped out-I get my commission. A guy comes up a winner and turns a profit-I pay. ‘
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No doubt, there are FX brokers that endeavour to play according to the terms of the contract under which they enter with their customers, but the forex market itself is a highly complex and diverse sector. It requires skill to successfully maneuver. Information to time price moves and avoid unreasonable risk. So while large institutions and governments may consider it necessary to take forex trading positions to hedge against currency fluctuations that may have an impact on the national and business interests, individuals may find less satisfaction from trading forex. This is especially true considering that only a small proportion of traders actually profit from forex trading.
Trading forex does not require any less skill, analytical prowess or luck than any other financial market. In fact, it is equally challenging and even more demanding to trade than other financial markets. This is because of the impact of leveraging, and the prescription of understanding the forces that influence currency prices.
One of the lures that forex scammers use to lure new customers is the fact that leveraging allows the trader to hold positions that are significantly larger that what would usually be possible. For example, with 000, a mere $1, and a 50:1 leverage you can trade 5, 000 units, whereas you’d have been restricted to just 1, 000 units without leveraging. What they do not tell you is that there’s a substantially greater risk of loss when an account is using high leveraging than when it isn’t leveraged. Investors need to know that while leveraging can magnify your gains, it can also amplify your losses as well. In fact, this is among the ways scammers, and the market on a whole, takes money from traders.
Sounds too good to be true – This is a time-tested way of spotting a scam; if it’s too good to be true it probably is.
Promise huge profits with limited risk – Especially in the situation where high leveraging is used, most traders will lose a substantial amount of their trading account within a year of active trading; offers of risk free trading is a lie, so too is the promise of guaranteed gains.
Trading system scam – A popular forex scam involves someone pretending to be a master trader who has made tons of money for his or her clientèle. They may also sell membership for traders to get access to their “unflappable ” trading signals. The scammer may actually give trading signals. However, the actual performance of the trading system may be nothing near the performance that was claimed. When traders complain about not getting the promised results, they may rebut by claiming that the trader didn’t execute the signal as given or simply blame the system’s less than stellar performance on adverse market conditions. What these scammers often do is collect a good amount of money from unsuspecting persons and then disappear.
High priced trading systems – You really should question the legality of anyone who sells their trading system at a very high price. Think about it, if they’re so good at trading, does not it make sense for them to attempt to claim a portion of the more than $1 trillion-a-day forex market than it is for them to try and pry a few thousand dollars out of the reach of gullible investors. Anyone who asks investors to purchase their trading system for thousands of dollars probably does not have the benefit of his investors at heart. This should cause a potential investor to be wary of any lofty performance claims.
Truly, one of the finest defenses investors have against forex scams is education. If an offer is too good to be true, it probably is. It is important to read reviews from past customers on the quality of customer support, and performance levels before investing your money. It is likewise a good idea to check with regulators to check if the entity is registered and is located in good standing before investing your money.
For more tips and strategies, be sure to see the other items in Bright Hub’s Collection of Forex Trading Guides.