Theoretical overview of Forex trade:A Comparative Analysis

TABLE OF CONTENTS

1.0 INTRODUCTION

1.1 The History of Forex Trading

1.2 What is Foreign Exchange?

1.3 What is traded in forex?

1.4 Participants in Foreign Exchange Market

2.0 WHEN TO TRADE ON FOREX

2.1 Market hours

2.2 Market overlaps

3.0 TRADING ON FOREX

3.1 factors that may affect trade

4.0 BASIC CONCEPTS IN FOREX TRADE

4.1 point in percentage

4.2 Lot Size

4.3 Leverage

4.4 Trend

4.5 Candlesticks

4.6 Support and Resistance

4.7 Trendline

4.8 Pullback

4.9 Pending Orders

5.0 TRADING PLAN

6.0 CHECKLIST

7.0 FOREX MOBILE TRADING

8.0 RISK MANAGEMENT IN FOREX

8.1 Risk management tips which may help in reducing potential trading losses

9.0 FOREX SCAM

9.1 How To Spot A Forex Trading Scam

9.2 Simple rules to follow in order to avoid scammers

10.0 RECOMENDATIONS AND CONCLUSION

    SOURCES AND REFERENCE

A THEORITICAL OVERVIEW OF FOREX TRADE

1.0 INTRODUCTION

1.1 The History of Forex Trading

According to Divyansh Sharma, The origin of Forex trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon. In those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system. Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World war, most Central banks supported their currencies with convertibility to gold.However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations,who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government’s currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called “Run on banks ” The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in Forex market activity. From 1931 until 1973, the Forex market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the Forex markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility. Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon’s suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits. The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency

after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable. While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The foreign exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions, at present it also includes the dot com booms and the world wide web. The size of the Forex market now dwarfs any other investment market. The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It can be said easily that Forex market is a lucrative opportunity for the modern day savvy investor.

1.2 What is Foreign Exchange?

Forex (FX) is the market in which currencies are traded.The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day. There is no centralized location, rather the forex market is an electronic network of banks, brokers, institutions, and individual traders (mostly trading through brokers or banks). All these entities have currency needs, and may also speculate on the direction of currencies. They post their orders to buy and sell currencies on the network so they can interact with other currency orders from other parties. The forex market is open 24 hours a day, five days a week, except for holidays. Currencies may still trade on a holiday if at least country/global market is open for business.

1.3 What is traded in forex?

The simple answer is MONEY. Because you’re not buying anything physical, forex trading can be confusing. Think of buying a currency as buying a share in a particular country, like buying stocks of a company. The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy. In forex trading, when you buy, say, the Japanese yen, you are basically buying a “share” in the Japanese economy. You are betting that the Japanese economy is doing well, and will even get better as time goes on. Once you sell those “shares” back to the market, hopefully, you will end up with a profit. In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to other countries’ economies.

1.4 Participants in Foreign Exchange Market:

Participants in Foreign exchange market can be categorized into five major groups, viz.;

commercial banks, Foreign exchange brokers, Central bank, MNCs and Individuals and Small businesses.

1. Commercial Banks:

The major participants in the foreign exchange market are the large Commercial banks who provide the core of market. As many as 100 to 200 banks across the globe actively “make the market” in the foreign exchange. These banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that require foreign exchange. These banks operate in the foreign exchange market at two levels. At the retail level, they deal with their customers-corporations, exporters and so forth. At the wholesale level, banks maintain an inert bank market in foreign exchange either directly or through specialized foreign exchange brokers. The bulk of activity in the foreign exchange market is conducted in an inter-bank wholesale market-a network of large international banks and brokers. Whenever a bank buys a currency in the foreign currency market, it is simultaneously selling another currency. A bank that has committed itself to buy a certain particular currency is said to have long position in that currency. A short-term position occurs when the bank is committed to selling amounts of that currency exceeding its commitments to purchase it.

2. Foreign Exchange Brokers:

Foreign exchange brokers also operate in the international currency market. They act as agents who facilitate trading between dealers. Unlike the banks, brokers serve merely as matchmakers and do not put their own money at risk. They actively and constantly monitor exchange rates offered by the major international banks through computerized systems such as Reuters and are able to find quickly an opposite party for a client without revealing the identity of either party until a transaction has been agreed upon.  This is why inter-bank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers.

3. Central banks:

Another important player in the foreign market is Central bank of the various countries. Central banks frequently intervene in the market to maintain the exchange rates of their currencies within a desired range and to smooth

fluctuations within that range. The level of the bank’s intervention will depend upon the exchange rate regime flowed by the given country’s Central bank.

4. MNCs:

MNCs are the major non-bank participants in the forward market as they exchange cash flows associated with their multinational operations. MNCs often contract to either pay or receive fixed amounts in foreign currencies at future

dates, so they are exposed to foreign currency risk. This is why they often hedge these future cash flows through the inter-bank forward exchange market.

5. Individuals and Small Businesses:

Individuals and small businesses also use foreign exchange market to facilitate execution of commercial or investment transactions. The foreign needs of these players are usually small and account for only a fraction of all foreign exchange transactions. Even then they are very important participants in the market. Some of these participants use the market to hedge foreign exchange risk.

2.0 WHEN TO TRADE ON FOREX

There are technical reasons why certain times are better to trade than others. But first, you must account for the most important factor in trading–yourself. It may be tempting to trade at all hours of the day. However, burnout can quickly set in and blur decision-making. Technical traders can benefit from having set trading hours where patterns may be compared against one another against the same time frame. For the fundamental trader, news releases are often released on the same day or at the same time, making the planning of possible trades more predictable in your weekly trading schedule.

2.1 Market hours

Forex is a network of international exchanges and brokers. Trading hours are determined when each participating country’s exchange is open. The first step in determining the best time to forex is to understand when each major market is open. There are four major markets:

Sydney – Opens at 5 p.m. EST and closes at 2 a.m. EST

Tokyo – Opens at 8 p.m. EST and closes at 4 a.m. EST

London – Opens at 3 a.m. EST and closes at 12 p.m. EST

New York – Opens at 8 a.m. EST and closes at 5 p.m. EST

Even though markets open and close throughout the day, it doesn’t mean a particular country’s currency stops trading. Local markets provide domestic banks, businesses, fund managers, and investors to actively buy and sell their local currency in

the most transparent time of the trading cycle. The ability to trade any currency at any time still exists throughout the day. However, trading domestic currencies when the local market is closed may expose traders to unknown market factors which could impact valuations by the time the local exchange opens again. If you’ll be focusing on trading a single currency, consider setting your trading hours to match the time the local exchange is open. Trading your preferred currency during the open market hours will provide the best liquidity.

2.2 Market overlaps

A market overlap exists when two exchanges are open at the same time. There are fifteen foreign exchanges. But the four markets mentioned earlier are the largest and most important. Two markets are open simultaneously:

Sydney and Tokyo overlap between 8 p.m. EST and 2 a.m. EST London and New York overlap between 8 a.m. EST and 12 Noon EST During market overlaps, most traders are active. More forex traders mean the markets are more volatile. Although volatility may be feared by investors, it does provide price movements. When only a single market is open, prices can stagnate. Stagnation results in fewer trades and less opportunity to buy and sell currencies. So, when markets overlap and volatility increases, so too does the ability to trade in a more liquid and hopefully profitable.

3.0 TRADING ON FOREX

Forex trading is when people buy and sell currencies with the aim to make money on the difference between the two currencies. They will buy currency ‘A’ against currency ‘B’ in the belief that the price of A will increase against B after some time. If the currency does indeed increase in value, they will close their trade with a gain. However, if the currency decreases in value, then the trader will incure a loss. When you trade forex on a platform you are trading it as an Over the Counter (OTC) transactions. This means that you speculate on the movement of currencies against each other but don’t actually take physical ownership of the actual asset (in this case, money). You only take the resulting profit (or in some cases loss).

The foreign exchange market or forex market is the largest financial market in the world, comprising more than $5 trillion per day in transactions as it spans currency trading activity in various exchanges, institutions, and banks all over the world. At this rate, it dwarfs even the major stock markets such as the NYSE, London Stock Exchange, and Tokyo Stock Exchange combined. The exchange rate is one of the most important indicators of a countries economic well-being. A high rate means they can import or buy goods and services easily, whereas a low rate means they can sell or export easily. This is why central banks’ monetary policies are often working to get a good balance on their rates.

3.1 factors that may affect trade

A number of factors affect the value of a country’s currency in relation to other currencies. The importance and weight of any one of the below factors may shift and should be considered in combination.

⚫Inflation– generally, the lower a country’s inflation, the higher its currency’s exchange rate.

⚫Interest rates – Central banks may manipulate interest rates to manipulate their currency’s

value. A higher rate of interest brings in foreign investment raising the exchange rate and vice versa.

⚫Trade – The ratio of export vs import prices leads to the balance of payments. Higher exports (than imports) means the country’s goods are in demand leading to an increase in their currency which is needed to pay for their good.

⚫Political stability– foreign investors look for stable countries to invest in. This leads to greater demand for their currency.

4.0 BASIC CONCEPTS IN FOREX TRADE

4.1 point in percentage

“PIP”– which stands for Point in Percentage – is the unit of measure used by forex traders to define the smallest change in value betweenbtwo currencies. This is represented by a single digit move in the fourth decimal place in a typical forex quote.

For example, if the price of EUR/USD moves from 1.1402 to 1.1403 this would be a one pip or ‘point’ movement.

4.2 Lot Size

A lot refers to a bundle of units of trade. It also refers to the size of the trade which the trader is making in the forex market. In the past, spot forex was traded only in lots. There

are different types of lots available in forex market; theyare mentioned below: Lot Number of units

Standard 100,000

Micro 1,000

Mini 10,000

Nano 100

4.3 Leverage

In forex, trading leverage is one of the most important concepts. Leverage can be used by both the companies and the investors. It is basically used in order to enhance the returns which can be offered on investment. Financial institutions or organizations use leverage to finance their assets.

4.4 Trend

A trend is a tendency for prices to move in a particular direction over a period. Trends can be long term, short term, upward, downward and even sideways. Success with forex market investments is tied to the investor’s ability to identify trends and position themselves for profitable entry and exit points.

4.5 Candlesticks

Forex candlesticks provide a range of information about currency price movements, Trading forex using candlestick charts is a useful skill to have and can be applied to all markets. There are three specific points that create a candlestick, the open, the close, and the wicks. The candle will turn green/blue (the color depends on the chart settings) if the close price is above the open. The candle will turn red if the close price is below the open. If you have the chart on a daily setting each candle represents one day, with the open price being the first price traded for the day and the close price being the last price traded for the day.

⚫Open price : The open price depicts the first traded price during the formation of a new candle.

⚫High price: The top of the upper wick. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle.

⚫Low price: The bottom of the lower wick. If there is no lower wick, then the low price is the open price of a bullish candle

or the closing price of a bearish candle.

⚫Close price: The close price is the last price traded during the formation of the candle.

4.6 Support and Resistance

According to CASEY MURPHY The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis. Part of analyzing chart patterns, these terms are used by traders to refer to price levels on charts that tend to act as barriers, preventing the price of an asset from getting pushed in a certain direction. At first, the explanation and idea behind identifying these levels seems easy, but as you’ll find out, support and resistance can come in various forms, and the concept is more difficult to master than it first appears.

Support is a price level where a downtrend can be expected to pause due to a concentration of demand. As the price of a security drops, demand for the shares increases, thus forming the support line. Meanwhile, resistance zones arise due to a sell-off when prices increase. Once an area or “zone” of support or resistance has been identified, it provides valuable potential trade entry or exit points . This is because, as a price reaches a point of support or resistance, it will do one of two things – bounce back away from the support or resistance level, or violate the price level and continue in its direction–until it hits the next support or resistance level. Most forms of trades are based on the belief that support and resistance zones will not be broken. Whether price is halted by the support or resistance level, or it breaks through, traders can “bet” on the direction and can quickly determine if they are correct. If the price moves in the wrong direction, the position can be closed at a small loss. If the price moves in the right direction, however, the move may be substantial.

4.7 Trendline

A trendline is one of the basic component of most technical analysis patterns. To construct a trendline, simply connect with the high prices or low prices on an asset’ chart. The resulting line is the trendline. There are two types of trendlines. An uptrend line is formed by connecting the low prices for an asset, where the more recent low price is higher than the previous low price. An uptrend line extends into the future and can be thought of as a level of support for the asset’s price. A downtrend line is exactly the opposite, and is formed by connecting the high prices for the asset, where the more recent high is lower than the previous high. A downtrend line can be thought of as a level of resistance for the asset’s price. Only two points are necessary to draw a trend line, but the more points are used in constructing the line, the more traders tend to consider it as a valid indicator of an asset’s overall trend. Trendlines have a variety of uses in technical analysis, most fundamentally for their ability to predict levels of pricesupport and resistance. Trendlines are also used as components in a variety of specialized technical analysis charts, including trend channels and wedge patterns.

4.8 Pullback

According to JAMES CHEN A pullback is a pause or moderate drop in a stock or commodities pricing chart from recent peaks that occurs within a continuing uptrend. A pullback is very similar to retracement or consolidation, and the terms are sometimes used interchangeably. The term pullback is usually applied to pricing drops that are relatively short in duration -for example, a few consecutive sessions – before the uptrend resumes. Pullbacks are widely seen as buying opportunities after a security has experienced a large upward price movement. For example, a stock may experience a significant rise following a positive earnings announcement and then experience a pullback as traders with existing positions take profit off the table. The positive earnings, however, are a fundamental signal that suggests that the stock will resume its uptrend. Most pullbacks involve a security’s price moving to an area of technical support, such as a moving average or pivot point, before resuming their uptrend. Traders should carefully watch these key areas of support since a breakdown from them could signal a reversal rather than a pullback. Pullbacks typically don’t change the underlying fundamental narrative that is driving the price action on a chart. They are usually profit-taking opportunities following a strong run-up in a security’s price.

4.9 Pending Orders

The concept of pending orders can seem somewhat complicated to new traders. The way they are used or why they are used at all is not that obvious compared to the standard trading orders. Pending orders help traders to automate the process of trading and to remain in the market while being not in front of their Forex terminals. There are four basic types of pending orders and two derived types (which are quite popular):

⚫Buy Limit: This is used if you want to buy a currency pair (open a long position) at a level, which is below the current price. For example, EUR/USD is currently trading at 1.2378; you believe that it can reach as low as 1.2300, and then it will rise. If you want to have an automatically triggered buy order at 1.2300, you should use a Buy Limit pending order. Basically, a buy limit order lets you enter a trade at a better rate than currently available.

⚫Sell Limit: This should be used when you want to sell a currency pair (open a short position) at a level, which is above the current price . For example, GBP/USD is currently trading at 1.4531, and you believe that if the currency pair reaches 1.4700, it will surely go down after that. If you want your broker to enter a short position at 1.4700, you should use a Sell Limit pending order. A buy limit order, a sell limit order lets you enter a trade at a more favorable rate than the current market offers.

5.0 TRADING PLAN

A trading plan in the FX market isn’t really any different from any other trading plan you could imagine. It is an outline of your planned trading activities, something like a to-do list when it comes to trading Forex online. The main idea of the trading plan is to develop a set of rules that you are going to adhere to, and how you are going to implement them. Once you have the rules written, it is much easier to apply them, as there is a clear plan of action on how they need to be followed. In addition to this, a trading plan can help you analyse the market better, and then apply your analysis to your trading strategy. A Forex plan can prevent you from making rash, irreversible decisions- something that is particularly useful when emotions start to come into play. They stop you making silly mistakes, and allow you to evaluate your wins and losses.

6.0 CHECKLIST

A checklist is a type of job aid used to reduce failure by compensating for potential limits of human memory and attention. It helps to ensure consistency and completeness in carrying out a task. A basic example is the “to do list”. A more advanced checklist would be a schedule, which lays out tasks to be

done according to time of day or other factors. A primary task in checklist is documentation of the task and auditing against the documentation.

7.0 FOREX MOBILE TRADING

It’s no secret that Forex mobile trading (smartphone trading) has given traders the ultimate freedom. Until recently, trading required you to spend several hours in front of a computer or laptop each week. Thanks to smartphones and tablets, these days you can trade from anywhere with a good internet connection.

8.0 RISK MANAGEMENT IN FOREX

JOHN RUSSELL is of the view that You can have the best forex trading system in the world, but without a solid forex risk management plan in place, you could lose everything. Just what is risk management? Simply put: it’s a collection of ideas offering downside protection to investors. This can include limiting your trade lot size, hedging, trading only during certain hours or days, and recognizing when to take losses. Unfortunately, many traders fail to implement these measures. Why? Mainly because they enjoy pursuing big bucks by making risky investments using leverage–despite the high chance of suddenly losing everything. And while many traders have had success practicing these trades with demo accounts, they’re over-confident and unable to succeed when it comes to executing such moves for real. But responsible traders take precautions. Controlling Losses Knowing when to cut your losses on trades is a powerful risk control method. This can be done with a “hard stop “, where you use trading platform technology to lock in a stop loss at a certain level, or this can be done with a “mental stop”, where you psychologically decide to limit the drawdown you’re willing to take on a trade– essentially making a promise to yourself to jump ship at a certain point. With either method, it’s crucial to resist the urge to move your stop loss farther and farther out, as investment values decline.

One of the fundamental ground rules of risk management in the Forex market is that you should never risk more than you can afford to lose. That being said, this mistake is extremely common, especially amongst Forex traders just starting out. The Forex market is highly unpredictable, so traders who are willing to put in more than they can actually afford make themselves very vulnerable to Forex risks. Anything can affect the Forex market – the smallest piece of news can affect the price of a particular currency in a negative or a positive way. Instead of ‘going all in’, it is better to follow a more moderate path, and trade conservative amounts of capital.

Forex traders need to have the ability to control their emotions. If you cannot control your emotions, you won’t be able to reach a position where you can achieve the profits you want from trading. Market sentiment can often trap traders in volatile market positions. This is one of the most common Forex trading risks. Those who have a stubborn nature don’t tend to perform well in the Forex market. These types of traders tend to have a tendency to wait too long to exit a position. When a trader realises their mistake, they need to leave the market, taking the smallest loss possible. Waiting too long may cause the trader to end up losing substantial capital. Once out, traders need to be patient and re-enter the market when a genuine

opportunity presents itself.

8.1 Risk management tips which may help in reducing potential trading losses:

⚫Stop-losses: Trading without a stop-loss is similar to driving a car with no brake at maximum speed- it’s not going to end well. Similarly, once you’ve set your stop-loss, you should never bring it down. There’s no point having a safety net in place if you aren’t going to use it properly.

⚫Don’t tie all of your investments up in one place: This is applies to all types of investment, and Forex is no exception. Forex should account for a portion of your portfolio, but not all of it. Another way you can expand is to exchange more than one money pair.

⚫The trend is your companion: You may have made the decision to be a position trader, with plans to hold that position for an extended period of time. However, no matter which position you have ultimately decided to take, you shouldn’t fight current market trends or movements. There’s always going to be stronger players in the market, and the best way you can keep up with them is by accommodating such changes, and altering your strategies to reflect this.

⚫Keep teaching yourself: The best way to learn the risk management system in Forex and become an effective Forex trader is by knowing how the market functions. However, as mentioned previously, the market is constantly changing, so if you want to stay ahead of your game you have to be willing to always learn new things and update yourself on the market’s changes.

⚫Use software programs for help:

To progress in Forex you may want to utilise certain trading software that can help you settle on your choices. That being said, these systems aren’t perfect, so it’s best to use them as an advisory tool, and something to fall back on, rather than using them as the basis for trading decisions.

⚫Limit the use of leverage: It can be extremely tempting to use leverage to make significant profits. However, this can make it much easier for you to lose huge amounts of capital too. So don’t take on gigantic leverages. All it takes is one quick change in the market, and you could easily wipe out your entire trading account.

Forex risk management is not hard to understand. The tricky part is having enough self-discipline to abide by these risk management rules when the market moves against a position.

9.0 FOREX SCAM

Forex scams will be around for as long as the Forex market exists. As schemes are evolving, scammers are always somewhere nearby, trying to extort your money away. But could there be a solution to this problem? Investment scams take many different forms. Some of the scams are even named after their creators – such as a Ponzi scheme, after the infamous scammer Charles Ponzi. Forex scammers tend to target beginners or uneducated traders. The best way to combat this, and avoid getting scammed, is by getting a good Forex trading education, so you are aware of everything before you enter the markets. Once you master the markets, you are no longer an easy target. Forex scams often use phrases like “a too-good-to-be-true investment opportunity” as a way of convincing you to part ways with your money. When you lack trading experience, swindlers will try to exploit your optimism and fears.

9.1 How To Spot A Forex Trading Scam

The most important giveaway of a Forex scammer is the guarantee of unusually large profits with little or no financial risk. First of all: there’s no such thing as a 100% guarantee. If there was, there’s no way traders would share it with other market players. Some of these offers may sound very attractive, especially to beginning traders. But as the saying goes, the only free cheese is in the mouse trap. The bottom line is this: if something sounds too good to be true, it probably is.

9.2 Simple rules to follow in order to avoid scammers:

-Remain safe and don’t run after empty promises

-Be especially wary of software that claims to have found a ‘secret formula’

-Do not install any programs until you are certain they won’t damage your computer

-Scammers never register with any regulatory authority. Remember – true brokers always provide proof of their legitimacy. If you suspect that a Forex broker is lying about their regulation, you can contact a regulatory authority who may be able to provide a list of regulated companies, and a list of cases opened against regulated companies. This will help you understand which Forex brokers to avoid.

As Forex trading carries exceptionally high risk, losses are inevitable. Retail speculators are almost always trading undercapitalised, and are subject to the problem of gambling addiction and improper use of leverage . Any

speculator who trades without skill is essentially playing against the market as a whole, which has nearly infinite capital, and they will almost certainly go bankrupt as a result.

10.0  RECOMMENDATIONS AND CONCLUSION

-The best way to avoid investment scams is to take your time. Don’t rush your decision and make sure to assess all the pros and cons first.

-Finding a reliable Forex broker is not an easy task, but you’ll benefit in the

long run from investing your time. The first step you should take when you come across a Forex broker or agency is to google their business name.

-Look for customer reviews on reputable websites. If there are none or they are sound fake, you should stay away from that service provider. Additionally, you can browse through scam reviews and see if a Forex broker is as reliable as claimed. Also, make sure to find out if there are any outstanding legal actions against the broker, you can ask for business registration proof before registering with a broker.

-Don’t forget that when you start live trading -always trade a small volume for a short period initially, and then attempt a withdrawal. If everything goes smoothly, it’s safe to deposit more funds. The availability of a Demo account is another indicator of a good or bad broker. If you don’t get offered this option, or are discouraged from demo trading, this is a strong indication of a Forex scammer.

-Remember that you have every right to ask questions. A few proper questions, can determine whether you are dealing with a trustworthy broker or a Forex scam artist.

-To ensure you’re not a victim of a scam, always use a regulated broker that is well established, has favourable online reviews, and is 100% transparent in their fees and compliance policies. The allure of quick money and easy cash will always be omnipresent, which is why you should make sure that you fully understand what it truly takes to become successful at currency trading, without using quick-fix schemes that put you at risk.

Sources and References

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