Forex scam
Scam
A forex scam is nothing but the model used by cheaters with an intention to misappropriate traders’ actives by offering them fast and significant profits earned by the trading at the high-risky foreign exchange market (Forex). According to experts opinion the business related to earning money on the difference of currency quotations is a deception today. On the other hand a great number of cheaters squeezing money from those who are unsuspecting are a common situation at the financial market. The Wall Street Journal released report according to CFTC records providing us a data that the amount the usual Forex trader loses is about $ 15.000. The OFEX system (dealing with stocks not registered at the London Stock Exchange) is a highly risky system to deal with, and according to several experts it is nothing but the fraud.
Usually the scam model implies really great profits estimated at tens of thousands of dollars that the investor will gain in quite short period of time invested only few thousands of USD. In reality these money appear in the swindler’s hands or banking account but not at the market.
The Forex market is a place where money goes from one to another. In case there is a trader gained some profit then there is also a trader who bore losses estimated at the same amount as the first trader’s profit with the exception of certain percent of brokerage commissions and transaction costs.
Such schemes as making deals for the client account to increase the broker’s commissions, the sale of software useful when earning money at the Forex, false advertising and Ponzi models are also related to the scam schemes. Moreover any Forex broker convincing the risks of Forex trading are low is a part of scam scheme.
The US Commodity Futures Trading Commission, the body regulating forex market in the United States of America announced the growth of the dishonest activity at the non-bank forex field.
According to the National Futures Association official the volume of the retail trading at the forex increased throughout the recent years as well as the volume of forex fraud. The CFTC examined over 80 cases related to illegal activities at the forex trades in the period between 2001 and 2006. The total amount of defrauded customers was over 23,000 and the amount of the money they have lost $350 million. In the period between 2001 and 2006 the number of defrauded customers came to the point of 26,000 and they have lost $460 million. According to the president of Financial Market Association the bank’s task to do is to provide protection to their customers and be sure that the customers know what they do. But, on the other hand there is no possibility to provide such protection when customers use online services or non-bank portals.
Are retail traders able to win?
The Forex market is often called as zero-sum game. It means there are many professional traders whose business is trading. In comparison to them any newcomer trader services will be less demanded.
Usually it is not a problem for several traders to work at the market and gain quite huge profit but it may be difficult to do the same for a great number of traders. The matter is that there is a definite amount of the pool from which the arbitrages are drawn from and in case the information about how to make a deal is a nonrival good, the deals themselves are rival good. For instance, here is an analogy, there is no matter how many pirates have the copy of a treasure map, the amount of the treasure buried is always the same.
Retail traders are quite limited in assets. Therefore in case we have only 2 traders with different capital amount there is high possibility that the trader with low assets amount will go bankrupt sooner than another one. The trader with low capital will almost certainly become bankrupt as he is limited in his assets.
Moreover the retail trader is to pay so called bid due to which the possibility of his win is quite less then the possibility in a fair game. There may be also some additional costs like margin interest and the trades may last for more then one day and thus the trader will have to pay the bid every trading day.
The article in Wall Street Journal says that those dealing with trades always warn the customers about the risks when trying to time the market as there are usually less then 15% of traders who get any profit.
Financial Times issued the statement of the Paul Belogour from Boston based forex trader concerning the investments into the forex. He advises not to invest the money you can not afford yourself to lose.
Financial Leverage
High leverages cause the traders to trade great positions. Due to this not only the trading volume received by the market maker grows but also the risk of getting so called margin call by trader (margin call is a broker’s requirement to invest additional assets as a additional maintenance due to negative prices shift). Retail customers are usually have to work with 50:1 and 200:1 leverages meanwhile banks leverage commonly doesn’t increases 10:1.
The National Futures Association always warns newcomers at the forex about the risks they will face when trading currency. And gives the advice to invest only those assets that trader can lose without any negative consequences to himself i.e. to invest so called risk capital funds.
