Forex is a scam!
June 19, 2008
Forex is a scam!
I studied and practiced for quite awhile and as soon as I went live those MM make sure to go against your trade-they along with the big banks make the money.
I feel they analyze your deal and make sure to go against it.
This is something I received from an obviously disgruntled now ex-forex trader yesterday. He’s not the first to make that statement, and I’m sure he won’t be the last. I’ve been involved in the forex market as a trader and/or analyst for more than a decade now, so I think you can figure out where I stand on the subject.
The primary argument folks who make the scam claim put forward is that fact that forex brokers take the other side of your position in their market making actions. They thus conclude that said brokers are trading against you.
First of all, not all forex brokers are market makers. Some are ECNs. They simply pass your orders through into the market like a stock market broker does. Since they don’t act as market makers and take no positions they do not earn the spread, so they make their money from commissions instead.
Oh, and by the way, not all stock market transactions are straight pass throughs to the exchange either. Some brokers act as market makers in certain stocks, so if you trade those stocks through them they are doing the exact same thing as the non-ECN forex brokers do. I don’t think anyone ever calls that a scam. Further, the whole basis of the interbank market – and all OTC markets – is transactions between buyers and sellers and market makers. In interbank forex, the banks are the market makers, both with and amongst each other and with the funds and companies that are their customers.
On top of that, there are market makers in all markets. They are the ones who provide steadily liquidity by always being ready to provide a quote and take the other side of a trade. Without them the markets would operate much less smoothly. As a rule, market makers in all markets look simply to make the spread over and over and over again. They don’t generally look to take positions, but rather to be net neutral.
Forex brokers who act as market makers operate in basically the same fashion. They are just offsetting customer longs and shorts against one and other. Do they sometimes have an overbalance? Sure. In such cases they have internal processes which determine whether they keep the exposure or whether they offset in the market. Different brokers handle things different ways in that regard.
One of the other arguments scam claimers make about forex brokers is that they run people’s stops. Guess what? That gripe has been in the markets for years – all markets. For traders in the futures pits are supposedly notorious for that kind of action. Here’s the thing, though. The markets and market makers exist to facilitate transaction flow and make their money from it. They are going to do whatever makes sense to increase that flow. That periodically could include running stops.
That sort of action, though, is a bit easier in the futures pits than in the widely dispersed forex market. Brokers and dealers generally keep their prices tightly in line because if they don’t they can lose business. As such, stop running is not something easily accomplished. It would take a highly coordinated effort among a wide array of market makers to do that kind of thing.
In most cases, the claims of stop running coming from forex traders is nothing more than people getting burned by putting their stops too close to the market and getting taken out by normal volatility.
The question I would ask for anyone who is making a claim of forex being a scam is whether they can demonstrate a trading system with a meaningful trackrecord of success and that they followed said system as designed. A lot of traders spend a relatively short period of time in demo trading and make good returns with no real proven method, then find that things are very different when it comes to real money. This is more about the trader than the broker.
The idea that your broker looks at your specific open positions – out of the many thousands of trades that might be open at a given time among all their customers - and make decisions based on it is egotistical and self-centered in the extreme.
If you really have a problem with market making forex brokers then trade through an ECN.
Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.
Taking the suggestion of the “demo” account, I’ve actually opened more than one to test multiple platforms. These demo accounts all have live charts on them. While some brokers may limit your demo account availability for a finite number of days, there are so many vendors I doubt you’d run out of “demo” account access to charts for a good long time.
Anyway, my whole point is… If you think the market maker is trading specifically against you, check the other vendors charts! Surely one market maker has no more influence over everyone else’s charts than you do.
I’m still in demo mode, but seemingly get traded against regularly. Seems almost like just about the time I give up and bail out of my position, the market moves in my direction immediately afterwards. Seems eerily predictable. So, I checked some other charts. Guess what, besides the spread, they were identical. Just proves that Murphy’s law and inexperience are my only foes at the point.
Yes, Forex is opertated like a scam! These Hedge Funds and major institutions see all orders coming through and trade against them with their millions and billions of dollars causing all of the small traders getting wiped out. The guy writing this article is baised because he works in the industry, protecting the “big boys.” It;s B.S. How is it when I practice trade the trend continues as predicted, but when I place a big order it immediately switches direction and wipes me out? Stay out of Forex, it’s unregulated and they scam you and me.
Mark you make me laugh!
As the “guy writing the article” I have no bias. I do not now, nor have I ever worked for any bank, brokerage, fund, or any other institution involved in taking positions or managing transactions in any market. My work as an analyst is for a group which provides analysis on a 3rd-party basis. Seeing as our forex commentary (I’m currently in stocks, but used to be in forex) is available to both FXCM and Oanda forex traders at no cost (and by subscription to anyone who wants it otherwise), the idea that I’m biased toward the institutions is a complete joke.
And Forex is becoming increasingly more regulated.
I’ve read and listen to different people with claims and counter claims that forex trading is a scam. I personally transact with AVAfx, a forex platform. What I experienced is that anytime I opened the platform ready for trade, a position would be opened automatically against the trend without my involvement. I reported the case to AVAfx but claimed it was a virus on my computer. I formated the computer and installed an antivirus, same thing happened.
My question then was that why is it that a positioned is opened against the trend and not in the direction of the trend? with frustration, i was forced to wthdrew remains of my fund.
Thanks for sharing Adewole. I’ve never dealt with AVAfx so I cannot personally comment.
as we have now seen that investments banks, hedgefunds, large insurance agents, ratings agencies and others have been colluding in more than a few mulit billion $ scams while the regulatory authorities sat back on their laurals,it requires much more to convince Joe public to part with their money and trust any organised money making system than a few words on an internet page. I am not convinced yet i have been conned, and more proove will be required before i trust any forex broker pertaining to offer me direct access to the real Forex market.
I am desperately looking to find a way to make money from home. I’d like to get into the trading scene but dont know where to start or even if its a good idea. Im willing to invest in the time to learn. Im even willing to start small and take the time to build it up. but again…NO where to start…Should I start with stocks? Should I do Forex? I barely know the difference between the two. Is it even a viable option in todays economy?
Kris – I strongly recommend you look at my introductory trading course or book. They were both specifically written for people like you who want to get involved in the markets, want to do it right, but need a good starting point.
Kris, you won’t make an income from home from Forex, 98% of people lose their money one year because it is an unregulated market designed to wipe you out. They don’t even execute trades at the price you initiated. Stocks are easier because it’s regulated but with all the skill in the world you will lose money (like the pros) about 2/3 of the time, so cut your losses and have your third stock run a huge profit and you have a chance at making an income. That’s the real side of the story you don’t hear often.
Mark – Contrary to what you may have heard, forex is increasingly more and more regulated. In the US it’s been put under the oversight of the CFTC, and through them the NFA. It’s not the Wild West it used to be, at least in the US. I can’t speak to other countries.
As for comments about not getting executions at the right price, I can’t think of any time among the years worth of trades I’ve done where I didn’t get a fill in line with expectations (or if so that wasn’t corrected by the broker). If you’re having problems with that then either there’s a problem with what you’re doing or your broker is doing something untoward (unlikely as they actually want you to execute trades).
Stocks are neither easier nor harder. All the same mistakes trip traders up. The only difference is the permissible leverage. Believe me, regulation does not mean less chance of losing money. After all, regulation didn’t prevent Enron or any of the other scandals that crushed any number of unfortunate stockholders.
I and millions of people need opportunities to survive. After researching all complaints, looking at broker websites, the nfa and ctfc websites, I concluded that though the forex market is legitimate, forex brokers are not. It is a scam to trade the forex market. It should be heavily regulated and enforced. It is a SHAME that the forex market has such great opportunities that everyone needs but is WASTED because of all those crooked brokers who cheat, lie, and steal your money.
Forex brokers ARE regulated – at least in the US. They fall under CTFC supervision via the NFA.
I lost nearly all my money making big trades; small tades on the other hand I made over 1000% gain. That’’s an indication someone trades against the big trades.
Mark – Or could it simply be that you were taking too much risk with your big trades and that once you lowered your risk your drawdowns didn’t do nearly as much damage?
I do believe their is a lot of market manipulation and that Traders really start believing their own mail – certain economic analysts are very capable of saying anything the institution they work for want then to say to set up market conditions. Oil Futures are one good example and crashed when OPEC finally called them all out by cutting production not once but twice. The Aussie Dollar is the sixth most traded currency in the world – it does not deserve that status – but dealers see it as safe and able to be manipulated.
The big fund managers can easily set a market to their requirements.
ok, here it is the truth about Forex (or trading in general). The market is TOTALLY random, therefore it is IMPOSSIBLE to be consistently proficient. Over time, no matter what strategy you use, you’ll lose money, and your money goes to the pocket of your broker. If the market had some degrees of predictability, then one would learn how to make money out of it, since there is NONE, it’s like gambling. In other words, if you go to the casino, you have the same chance to win or lose. The 5 % of winners simply doesn’t exist…never existed, and never will! I’ll give you a perfect analogy with the world of sport. Experts know that it’s impossible to develop big muscles or run 100 meters in less than 9 seconds without steroids. However, there are testimonials (the ones who are not caught at the doping test, which is a true farce) who swear that they did it. They are simply paid off to lie to the public, so the dream can continue.
The market is the same. If you’re thinking of investing your real money, do it, but just for the fun and the excitement, NEVER hope that you’ll make any money out of it, if not out of pure luck.
Good trades to everybody