Is Forex trading a scam?
Forex is in a weird position as of late. The market volume reaches record volumes, the number of traders grows and yet people are still sure that it’s all a scam. If you think this doesn’t make sense — you are right.
What is Forex and how it works
Forex is a foreign exchange market, where large corporations and government banks trade currencies for international transactions. It has been around since the late 1970s when the world decided to abolish the gold standard. Now all currencies float under the free market rules.
How do the Forex traders make money
Each time the banks demand more currency than there’s in supply, the price of that currency rises. And vice versa, when the supply is higher than demand, the price drops. So while the corporations, hedge funds and banks are making the market, the smaller players can speculate on these changes.
However, Forex requires some serious investments. Just running an interbank currency terminal will run you $6000/mo. Also there’s an additional fee on each transaction, which often reaches $300. So unless your trading capacity is more than a $100000 — you are better off trading with a broker.
How do the Forex brokers make money
The brokers employ two techniques:
Transaction fee. Brokers make a commission off each trade made through their service and it’s more than enough to cover their expenses.
Dealing Desk. Brokers do not submit all their trades to processing. Instead, they attempt to close most of them internally. It allows them to consolidate the trades and pay much smaller commission.
How to not get scammed on Forex
Historically, the majority of scams come from the brokers. For example, the money traders send to the broker does not get traded. Once the trader wants to withdraw the money, the broker starts blaming emergencies, denies verification or disappears.
There are also Forex traders that, apparently, have incredibly high profits and are looking for investments to start making even more. Of course, once you invest, the trader disappears.
To find a proper broker you should look at:
Age. It makes little sense for a company to spend years on creating their reputation only to squander it. Generally, if a broker was established more than 5 years ago — it is safe.
Reviews. It’s hard to trust the reviews — good reviews can be bought, bad ones can be written by the competitors. However, it never hurts to check all reviews and get the general vibe.
A good example of a decent broker is JustForex. The broker operates since 2012 and have an average rating of 4.6 at FXEmpire.
Conclusion
Forex trading is a dangerous and risky endeavour, but isn’t a scam. With a decent broker and a proper trading strategy, you will be profitable. However, it will take a lot of work to get there.
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