FOREX Scams
According to the U.S. Commodity Futures Trading Commission, the average individual foreign-exchange-trading victim loses about $15,000. The North American Securities Administrators Association says that “off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud.” Â Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007, about 26,000 people lost $460 million in forex frauds.
All risks of fraud aside, you should understand the FOREX market is a zero-sum game. One traders gains are the result of another traders losses. The winners are typically well-capitalized proffesional traders working for the banks. The losers are typically undercapitalized retail traders. Retail traders also pay the spread and they may pay margin interests or other fees.
Some estimates suggest that less than 10% of the retail traders make a profit.
The odds are stacked against new traders, but it is possible to make money in FOREX by following these 5 tips:
- Learn as much as you can. There is a vast selection of FOREX books and websites to learn from. All of the top retail brokers offer free learning tutorials. You should dedicate at least 520 hours to learning FOREX before you ever make a trade with your own money. 520 hours is 10 hours a week for one year (1.5 hours/day). Fools rush in, and fools lose money.
- Trade with a demo account first. All of the top brokers offer free demo accounts. You can get a feel for trading FOREX before ever trade with your own money
- Pick a reputable broker that is regulated and that has been in business for more than 5 years. Call the broker and talk to a representative before sending them money.
- There is no such thing as infinite profit. You will find scammers selling robots, expert advisors, systems, and asset management all with claims of 80% returns. Why would anyone sell a system that yielded 80% returns? Ridiculous claims are a sure sign of a scam.
- Walk away. FOREX is risky, and profitable traders have over $50,000 in trading capital. If you cannot deal with the stress of losing $50,000, walk away. A mutual fund or CD may be a more appropriate investment strategy.
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