Forex scam

A forex (or foreign exchange) scam is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading "has become the fraud du jour" as of early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission.^[1] But "the market has long been plagued by swindlers preying on the gullible," according to the New York Times.^[2] "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal.^[3] 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."^[4]

"In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists."^[5]

In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.^[6] In January 2010, the CFTC proposed new rules limiting leverage to 10 to 1, based on " a number of improper practices" in the retail foreign exchange market, "among them solicitation fraud, a lack of transparency in the pricing and execution of transactions, unresponsiveness to customer complaints, and the targeting of unsophisticated, elderly, low net worth and other vulnerable individuals."^[7]

The forex market is a zero-sum game,^[8] meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a "negative-sum" game.

These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,^[9] improperly managed "managed accounts",^[10] false advertising,^[11] Ponzi schemes and outright fraud.^[4][12] It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.^[13]

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.^[14]

An official of the National Futures Association was quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."^[15] 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.^[1] CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"

FOREX: Exiting positions at a right time

The presented article covers one of the most important (in author's opinion) aspects of trading in general and Forex trading in particular - managing of orders and positions. This includes choosing entry points, making decisions about exit points, stop-loss and take-profit of the trader. I hope this article will help new traders, who just began to work with Forex, and also to experienced traders who trade regularly and regularly make or loose their money to the market.
	When I started to trade Forex and made my first big losses and profits I began to notice when very important thing about the whole trading process. While the right time to enter a position was rarely a problem for myself (nearly 80% of all my open positions had gone into the "green" profit zone), the problem was hidden in the determining the right exit point for that position.
Not only was it important to cut my risk on the potential losses with stop-loss orders, but to limit my greediness and take profit when I can take it and make it as high as I can. There are many known guidelines and ways to enter a right position at a right time - like major economic news releases, global world events, technical indicators combinations, etc. But while the entering into a position is optional and trade can decide to miss as many good/bad entry point moments as they wish, this is untrue if we talk about exiting a position. Margin trading makes it impossible to wait too long with an open position. More than that, every open position in a certain way limits trader's ability to trade. Choosing the good exit points for positions could be an easy task if only the Forex market wasn't so chaotic and volatile. In my opinion (backed by my trading experience) exit orders for every position should be toggled constantly with time and as the new market data (technical and fundamental) appear. Let's say, you took a short position on EUR/USD at 1.2563, at the time you are taking this position the support/resistance level is 1.2500/1.2620. You set your stop-loss order to 1.2625 and your take-profit order to 1.2505. So now, this position can be considered as an intraday or 2-3 days term position. This means that you must close it before it's "term" is over, or it will become a very unpredictable position (because market will differ greatly from what it was at the time you have entered this position). After the position is taken and initial exit orders are set, you need to follow the market events and technical indicators to adjust your exit orders. The most important rule is to tighten the loss/profit limit as time goes by. Usually if I take a middle term position (2-4 days) I try to lower the stop and target order by 10-25 pips every day.
I also monitor global events, trying to lower my stop-losses when very important news can hurt my position. If the profit is already quite high, I try to move my stop-loss the entry point, making a sure-win position. The main idea here is to find an equilibrium point between greed and caution. But as your position gets older the profit should be more limited and losses cut.
Also, trader should always remember that if the market began to act unexpectedly, they need to be even more cautious with exit order, even if the position is still showing profits. Every trader has their own trading strategy and habits. I hope this article will make its readers think about such an important aspect of trading as the exit orders and this will only improve their trading results. by Andrey Moraru http://www.earnforex.com http://earnforex.blogspot.com

Filed under Basics, Strategy, Tips, Coaching, Forex Trading Strategy, Systems, bollinger bands by wizardoftrading.

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Common Online Trading Mistakes

Online trading of financial instruments offered a whole range of tools and information for traders. The trading processes became fast and simple and traders have developed new strategies and systems for profiting the market. But still most online traders, especially beginners, lose their money. Here are some common trading mistakes that online traders make.

1. Trading without a Strategy
Most traders just look to change all opportunities into profit. They won’t analyze stocks or other trading instruments, won’t respect market sentiments and won’t understand their limitations. They trade, trade, trade and lose.

2. Complex Trading Strategies
Most traders simply trust their trading software tools, chart patterns and indicators for making trading decisions. They try to make simple strategies complex by incorporating other strategies, ending up in nowhere.

3. Under-Capitalized Accounts
For selling something for profit there should be enough capital to buy it. Many traders trade extensively on their margin to magnify their profit, ignoring the fact that trading on leverage can also evaporate their capital.

4. Blindly Trusting Trading Software Platforms
Trading platforms with a variety of charting and technical analysis tools provide excellent support for traders of all kinds. But they only help to find opportunities but it is the trader who has to analyze whether he can convert the opportunity to profit.

5. Trading Insufficient or More Than Sufficient Stocks
Position sizing is a very important factor in determining the success of a trade. One must size their orders with respect to their trading style, product traded, expected return, entry and exit point, and market performance.

6. Avoiding Limit Orders and Stop Losses
Both limit orders and stop loss orders are considered as the most powerful risk minimizing tools. Many online traders risk their portfolio by not employing these tools or by delaying their implementation.

7. Eagerness to Adapt to New Strategies
New ‘Hot Trading Strategies’ are introduced almost on a daily basis. Many online traders are too keen to frequently change their trading strategies in search of better profits or lower risk. Many times they forget that ‘they have to keep the basics right’.

8. Ignoring Fees and Costs involved in trading
Online trading of financial instruments involve many fees, brokerage fees, ECN fees, trading platform usage fee, account checking fee, market access fee, and more. Costs may differ with type of account, account size, brokerage firm, markets/products trading and leverage used.