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Yeah, we’re really going to try to start this conversation. No, this is not the reason why you should avoid Forex or consider scams as a potential client. It is about the very real dilemmas that tarnish the image of the industry and diminish the activities that are carried out. The marginalization of Forex has been a problem for brokers trying to promote their services and a stigma has been attached to traders as well. Who bears the brunt of the responsibility for the industry’s downward spiral? Hint, hint: Everyone’s in on it.
5. Brokers who push for deposits in any way
Yes, the economy is in bad shape and companies will go the extra mile to make sure there is money in their coffers. Sorry for the ridiculously low minimum deposits? Excuse sales calls after a few days of using a demo? Excuse the reckless cash-back and leverage proposals?
If it looks like the Forex industry has taken some advice from the casino gaming industry, you’re probably pretty observant. Casinos and poker sites use rakeback bonuses, giveaways and VIP points to build loyalty and use deposit bonuses to get you in. Forex companies that act as casinos tarnish the reputation of the industry and the transactions that take place. Bad actions by brokers make action in the world’s most liquid and active market seem petty and foolish.
Deposits at ridiculously low levels are also a problem, $1 deposits are nonsense. Then again, any broker that accepts deposits under $250 should really leave you scratching your head. Forex is not a trip to the racetrack, racino, slots, nor is it the lottery! People should trade an amount that they are comfortable trading, but would take trading action seriously.
By acting like casinos, brokers are diminishing the credibility of the forex market.
4. Signal boosters go crazy
Forex industry snake oil sellers are ready to offer you their holy grail developed by “brilliant” minds who have tested the trends over the last 15 years that will guarantee you a % profit or percentage profit above a certain point . This is just nonsense, there are no guarantees on the market. Even fixed income securities must be rated to guarantee repayment of company, government or municipal debt.
The websites for most signal boosters are rubbish and they spam forums and Twitter. They take advantage of those who are losing money in order to buy their services. If their signals were that good, they wouldn’t need to distribute them to the public for everyone to use at a price.
If someone had a signal software that worked 80% of the time and ensured 20% profit, would they really go to the effort of distributing it at a price? No, the user would trade based on this information and would trade at leverage levels that they felt comfortable with and would not share this valuable information. They would become rich in a short period of time and the world would not know about the signal software. Is the signals software as good as the algorithmic trading software developed by quants for banks and hedge funds? Probably far from it. Yes, banks lose money on trades even with high frequency trades.
There is no magic elixir, sorry.
3. The current way of demo trading
Do you have $100,000 to invest in Forex trading? Well, do you have $50,000? Okay, how about $25,000? Well, Forex brokerage firms out there, believe it! Or so it seems… Could it be that these ridiculous demo amounts have been set to create unrealistic expectations in the heads of traders so that they trade in a real environment thinking they can reach such high levels by themselves?
Or… Maybe the brokers think that by offering something that is so unrealistic that their demo is only for those who are simply interested in learning and experiencing the trading software? Perhaps the only realistic brokerage experience they can provide comes at a cost and is designed that way.
The other explanation is that they may not have many good ideas for attracting and retaining customers.
2. Currency scams
The unfortunate thing about Forex is that warehouse shops, scammers, boiler rooms, and brokers who trade against your clientele are much more common than you might think. These companies and the people who run these companies are driving the industry into a ditch. Regulations are increasing and startups with alternative visions have to raise large amounts of capital just to compete in certain markets where attracting customers is uncertain.
Forex scams make the industry look shady and unseemly, when in reality it is an alternative trading market for those who do not wish to track 5000 different companies. It looks a lot like Las Vegas during the 1950s and it tarnishes everyone involved. It hurts to reach new clientele because you probably heard a horror story about how someone lost a lot of money or their identity to a Forex scammer.
Those who run these sketchy operations looking to rip off or harm their clientele need to go out of business and pay customers back.
1. The merchants themselves
From dreams of getting rich quick due to exorbitant leverage to not taking the time to choose brokers correctly and not being prepared to trade live in the first place. The traders themselves give the industry a bad name because they fail at an outstanding clip of 65.01% (2013 Q2 in the US).
The scare tactic used by many is that 95% of traders lose their money, but the facts don’t really support this. The so-called smart marketers keep repeating this nonsense as if it is the gospel truth, but the reality is that it is a lie. More traders are successful than is being talked about on message boards, forums, and seminars. 65% failure rate is average, you’ll see failure rates range from 54-78% depending on the broker. It is not so surprising that brokers that attract users with ridiculously low deposits have higher rates of non-profitability.
The problem is that most traders are completely uninformed and when they communicate with each other and potential traders they give bad information. This is detrimental to the industry.
Continuing to perpetuate the problems plaguing the industry will eventually kill off retail forex trading in most of the world and that would be a shame.