“Invest at 1200% per annum with Forex!” “500% profit in 3 days !!!” Did you see such ads? And did you click on them? After all, if they exist, that means that someone clicks on them. And what happens: someone buys into unrealistic conditions and, what a surprise, loses all investments. Of course after all he/she considers the Forex market to be a fraud. Others do not click on such ads – it’s an obvious scam, as the whole Forex. So is Forex scam or not?
Scam is a set of activities aimed at reaping the benefit (usually money) from a fall guy, who is left with nothing. Scam organizers also seek to keep the fall guy from understanding that he is being cheated.
What is Forex?
What is Forex at all? Many of those who confirm “It’s a scam!” do not even know this for sure. Let’s start from the beginning, i.e. from its definition.
In the 70th years of the 20th century the states began to exchange currencies freely. Their transactions have formed the whole market, i.e. the Forex market (abbreviation from FOReigh EXchange) – a market for the exchange of currencies. The market mechanism is simple: to buy cheaper, to sell more expensively. Money serves as goods. At the same time money supply doesn’t take place, transactions have the speculative format.
In the late 90’s individual traders entered the market, the Internet and the first trading platforms occured. Today, your neighbor James or colleague Mary can turn out to be right-down Forex traders.
Forex is an over-the-counter (OTC) market. It is not situated in a particular location, but it combines banks, brokerage houses, funds and individual traders via the Internet.
Trading is conducted around the clock. Market participants trade with special programs – the platforms or terminals, where they monitor the quotes, predict price movements, open and close orders. Forex does not work only on weekends and some holidays.
Forex is often compared with the stock market. Imagine a stock exchange. What do you see? The famous Wall Street, hard-headed businessmen in expensive suits, rabbit-warren of dealers shouting tenders, monitors with innumerable quotes, nail biting and a lot of money. Сurious to relate, mentioning of Forex evokes an image of slot machines.
It is considered to be a deceit, however, this market is much stronger than stock exchange, and has substantial advantages:
- It is possible to trade on Forex with the deposit from $1, while it is necessary to invest at least $1000 in stock exchange.
- The daily volume of currency trading on Forex makes about 4,7 trillion dollars – it is in 16 times greater volume than in stock market.
- Forex works round the clock, so it is possible to trade after the main work. Trading session on the stock market lasts only 8 hours.
- The account on Forex is opened in several minutes while on the stock market this process can run over several weeks. At the same time the trader has to sign a set of documents.
- A leverage on Forex can reach 1:1000-2000, on the stock market – maximum 1:20.
So, trading on the Forex market is easier and cheaper, but why does Forex have so many negative responses?
Why Forex is considered to be a scam?
Ignorance is no argument
Everyone knows the sad statistics of 95/5, where 95% of new traders drop their deposit immediately and just 5% of traders gain profits. Why is that? Because the market is full of dummies, dreaming to earn millions at once.
For example, John is fond of football watching. So he thought, “Hmm, I’ll start playing football. Why not? … I will run with a ball and coin money”. John paid some money to the city football club in order to play there a little. As a result, he broke a leg while playing. John felt aggrieved and decided that football is just a scam. “They broke my leg by design, I was on game after all!” – he says to his friends.
An example with football seems to be absurd. Who will hit upon the idea of becoming a professional football player just out of the blue? Then why do people, who do not understand even the mechanism of exchange rates formation, beleive that they will make a fortune on the Forex? Football needs physical training as well as the Forex needs the intellectual one.
A lot of people consider the trading to be a game by default. In some Asian countries Forex replaces the prohibited casinos and betting pools. But hazard is a bad companion on the currency market. “Players” go to market blindly, trying to “get out from under”, open a lot of orders, do not take risks into account. And then they share negative experiences on forums and blear the eyes of others. The loss does not mean that you have been deceived.
The first reason why you are sure that Forex is a scam: you haven’t enough knowledge and experience for trading. Beginners luck is not for Forex.
Not all newcomers have large sums to trade with. Therefore, brokers offer to their clients a leverage, i.e. a loan for openning of transactions for the sum many times greater than the sum on the trading account. For example, you have $10. This is not enough even just to open the transaction. Then you take a leverage of 1:100, and your balance increases hundred times. Now you can enter the market with one thousand dollars. Every pip of price movement will bring you a profit of 100 times greater than those without leverage. There is a reverse side – if the movement on the market is unfavoravle, a loss will also be in 100 times greater. The most common situation: a newcomer opens several orders at once, the positions go against him, and eventually they are closed by stop-out. A trader does not even understand what has happened.
The second reason is a lack of understanding of the leverage mechanism and noncompliance with the rules of risk management.
Who is a scammer?
Unscrupulous brokers and dealing centers can put spokes in trader’s wheel. “Kitchen” or a fraudster may discourage from trading once-for-all-time.
How to understand that the broker deceives you?
- The dishonest broker offers fantastic terms of trading with minimal commissions. Remember, there’s no such thing as a free lunch.
- He entices traders with big bonuses (for example, 250% of the deposit).
- The strong slippages often occur without objective reasons.
- The broker does not withdraw your earnings for some reasons.
- There are faults in the terminal, what may be a reason why your position is closed or you are going negative.
- The broker has no license.
- The dishonest broker offers a fixed spread. While on the real market the spread is constantly changing.
The third reason of disbelief in Forex is unfair Forex brokers. They can manipulate quotations or even steal money of investors.
Forex – the scene of action
Things can’t be all that bad. Forex became a favourite hobby, highly paid job or a springboard to a million state for many people. There are some celebrities on the Forex market, who inspire other traders.
George Soros, for example, became rich in one day. In “Black Wednesday” on September 16, 1992 when the pound sterling dropped significantly against Deutschemark, George earned more than one billion dollars.
Cynthia Kase has considerably increased her capital thanks to commitment, lack of passion and greed and became the successful and famous female trader. Cynthia has developed own technical indicators and on their basis trains newcomers.
In 2008, a trader Cheng Likuy, a native of the Chinese province of Shanghai, began trading with $ 400. A month later he had already 247 thousand dollars on his account. Cheng spent only six months for training. The trader did not disclose all his secrets, but said that he had used pending orders. Cheng also advises to limit the losses strictly.
In 2012 trader Ahmad Ariff opened a trading account and made a deposit of $ 1,000. Just in two weeks, Ahmad became a millionaire. He used an aggressive trading of major currency pairs. The trader continued to trade in the same spirit that led to the complete loss of profits. Forex has fantastic opportunities, but greed leads to losses.
On average, successful traders earn 15-20% of the amount of the initial deposit in a month. So the answer to the question “How much can you earn on Forex?” depends only on the amount of the trader’s investment.
In what way do successful traders differ from losers?
- Successful traders do not give up, even if the they sink first deposits. They analyze their mistakes and just keep on trading.
- Successful traders don’t seek to earn millions at once and don’t create illusions.
- Successful traders are constantly learning – studying the theory, practicing on a demo account, learning the real market, making correction of mistakes, adopting experience of successful colleagues.
- Successful traders do not panic. Loss is a normal part of the trading process, and panic leads to even greater losses. Successful traders always consider the risks and go out of the market at the right time.
- Successful traders do not consider the market to be a game. They do not dwell on the victories and defeats. For them Forex is work and earnings.
We do not claim that you are sure to earn on Forex your first million. And we do not insist that all brokers are honest. We’re just trying to show that Forex is not a global gamble, but a really functioning market. And it’s possible to make profits there, if you know how.