The Forex Market is a place where institutions and investors trade different currencies and is the largest financial market in the world. There are many different aspects of the Forex market, and there are some components on the market that are considered ‘grey areas. In this article, we will discuss the following:
What is Forex Trading?
Forex trading is when a trader buys a currency and sells a different one, and the exchange range fluctuates according to the demand and supply. The trade for currencies takes place in the foreign exchange market that is open from Monday to Friday.
The Foreign exchange market is open 24 hours a day. All currencies are traded over the counter (OTC), which means there are no physical exchanges, and a worldwide network of financial institutions and banks oversee the operations. As a result, the vast majority of trading in the market is between institutional traders.
Scammers in the Forex Market
If you judge the face value of the Forex market, it is a legal place to trade currencies. However, traders need to be smart vary of lingering threats in the form of scammers. Though internet-based trading platforms have made trading accessible, it has also made it vulnerable as it presents a great opportunity for online scammers to do:
- Use manipulative software
- Fraudulent promotional schemes
- Overstatement of returns
These are just three techniques that scammers can use to rob the traders, and the blame largely falls on the Forex market itself. The market’s lack of transparency and unclear regulations have raised safety concerns.
How to Identify Scammers
Some common scam practices that take place in the Forex Market:
Spoofing (also called ghosting)
This is when a trader manipulates the Forex market by placing a large order that he does not plan to execute and creates an impression of interest.
Front Running
This happens when a broker finds out that the client will be placing a large trade order, places an order from his account before the client places it.
Signal Sellers
Traders or companies who promise to identify sell and buy signals indicate that the market conditions are favorable for trading and charge a specific fee.
Robot Scams
This promise to make automatic Forex trades through a trading program is called a ‘Robot.’
How to Avoid Scammers in the Forex Market?
To avoid scammers, the most important step traders can do is to research the underlying broker. Most experts believe that the best way for companies to avoid Forex market scammers is to register with a security and exchange firm.
How to Select a Forex Broker?
You are probably safe from scammers if you have already selected a brokerage firm and opened an account. First, the best way of hiring brokers is to test them by investing money and then taking it, testing its accessibility. Secondly, make sure the broker firm you invest in is located in a country with proper rules and regulations.
Experts state that it is better to invest in a brokerage firm located in Europe or America rather than Asia. It is also recommended to ask the brokerage firm about their procedures and policies for placing a trade. In addition, reputable brokerage firms use third-party sources for auditing their trading activity.
Guide for Forex Trading
If you are planning to become a Forex trader, then you need to hone your skills. The best way to sharpen your skill set is through discipline and practice. Traders should also be knowledgeable and should be able to analyze valuable and crucial information.
Below is a list of skills that traders need to have to be successful:
Understand the Price Signals
The trader should be able to understand the price signals, as this will determine their success. Over time, traders must master this skill, and the first basic step is to study the price reaction. Beginners can also practice this skill by making a demo account, as it will allow you to learn from your mistakes.
Devise a balanced strategy
Most traders apply the Fibonacci Trading Strategy, as it allows them to earn huge profits and minimizes the losses. Therefore, a successful trader should always look to incorporate the Fibonacci strategy. However, before applying the strategy, please familiarize yourself with it to reduce risks.
Management of Risks
A successful trader is someone who can manage the risks by not engaging in aggressive trading. In most cases, aggressive trading leads to losses, so traders need to consider the 2 % risk management policy. Traders should not risk more than 2 % on a trade.
Keep an Eye on the News
Keeping an eye on the news is crucial, as it does influence the Forex market. Traders should learn to read the news regularly and stay in the loop. Traders should also analyze the news and always keep the bigger picture in mind.
Three Best Forex Trading Platforms
These are the most reliable forex trading platforms in the market right now:
AvaTrade
This firm was founded in 2006, and for the last fifteen years, it has introduced large-scale trading tools to the Forex market. AvaTrade uses several trading softwares such as MQL5, ZuluTrade, and DupliTrade.
The firm also provides 24/7 customer service and is available in fourteen different languages.
Pros
- No commissions ($ 0)
- Spreads are low
- Minimum deposit of $ 100
- Regulated in six jurisdictions
- Offers more than 250 trading tools
- 24/7 customer care
- Fourteen languages
Cons
- Only beneficial for copy trading
XTB
XTB is one of the largest trading platforms for Forex and is regulated in several countries globally. XTB gives its client access to more than 1500 industries, including Crypto, indices, Forex and ETFs. Some key features of XTB are the economic calendar, risk management, and accessible market sentiments.
Pros
- Regulated by FCA (Financial Conduct Authority)
- 1500 financial tools
- Easy platform for both experts and beginners
- A top trader in the market
- Fifteen years of experience
- Desktop and mobile application
Cons
- High charges for stock CFD
- Little fundamental information is available
FXTM
FXTM was founded in 2011 as a global CFD and FX broker. This trading platform is regulated by several authorities worldwide, such as FCA, Cyprus securities, and Exchange Commission. FXTM offers several types of trading account, and they all come with a different fee.
Pros
- Licensed broker
- Regulated
- Several financial tools
- Spreads are tight
- No hidden commissions or charges
- Instant execution
Cons
- Accessible in limited countries
Leverage in Forex Trading
In the past, only large financial institutions and wealthy individuals were allowed to invest in the Forex market. The main reason for this was that the trader needed a large amount of capital. On the other hand, retail traders usually lacked large capital, so they were unable to invest in Forex.
How Does Leverage Work in the Forex Market?
Leverage in financial terms is expressed as a ratio (1: 1, 1: 10, 1: 100). The amount of leverage and the size of the initial investment by the trader determine the size of trade they will be able to control. For example, if a trader initially invests 1,000 dollars, the levels of leverage will have a varying effect on the size of the trade.
| Leverage | Size of Trade |
| 1:1 (no leverage) | 1,000 dollars |
| 1:5 | 5,000 dollars |
| 1:10 | 10,000 dollars |
| 1:20 | 20,000 dollars |
| 1:50 | 50,000 dollars |
| 1:100 | 100,000 dollars |
As you can see in the table, the higher the leverage in play, the larger the trade size for the trader. Thus, even though using leverage has several positives, it is still a risky move for the trader. To understand how leverage can lead to losses and profits, traders must understand margin, and we have discussed the concept below.
The Risks of Forex Trading
Forex traders require leverage, and traders will also use margin, so there are risks involved. Currency prices fluctuate but not by a huge margin, so traders often need leverage to execute a trade. If the trader makes a winning bet, the leverage can help maximize the profits.
However, the leverage can also increase the losses. If the value of a specific currency falls significantly, traders that rely on leverage open themselves up to margin calls, which can force them to sell off their securities. Other than losses, transaction costs can also reduce the profit.
To become a successful Forex trader, you need to be skilled and extremely sharp, as there are many obstacles, and the risk of fraud and misinformation is high.
Will Forex Trading be Profitable for You?
Forex trading is usually profitable only if the traders are on the right side of the market. Unfortunately, traders can also lose money in Forex trading by being on the wrong side of the market.
In financial markets, traders need to determine the size of the market they will invest in beforehand. Traders can improve their odds by carrying out technical or fundamental analyses. Traders can also improve their chances significantly by taking advantage of a timely market call.
Is Forex Trading Right for You?
Forex trading has its pros and cons, if you get lucky, you can earn a fortune, but there are risks involved. Nevertheless, the currency market as a whole has made people millionaires, so with the right guidance, anything is possible. However, traders must first learn the techniques and methods of Forex trading and develop a winning strategy.
Conclusion
One thing is certain; the Forex market is not for the faint-hearted; it is a market with several elements and components. The best traders are those that can identify those components and act accordingly. Several factors impact the Forex market, and on top of that, there is the constant threat of online scammers.
While online trading has several benefits, it is vulnerable, as it can be an easy target for skilled scammers. This article has identified the types of scammers you can bump into, how you should deal with them, and what tactics you should apply to be safe from scammers.
The bottom line is that despite being the largest financial market globally, Forex is not the safest; it is nowhere close to being safe. The market has no regulatory authorities, and there are few safety measures in place. If the Forex market does not fix these loopholes, traders will continue to face issues while trading.
So, there it is, all the information you need to come up with better trading models, and if possible backup plans as there should always be something to fall back on. The best advice we can give is, do not invest all the money you have; only invest a small portion of it.