The more i read around, the more dishonest practises i see taking place. This taken from wikipedia sums up a lot of it quite well, definately worth a read.


A forex scam is a confidence game played in the context of the foreign exchange market against fairly unsophisticated "retail speculators." 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 number of these scams recently [1]. Complaints cited by the CFTC since the beginning of 2004 revolve around managed accounts [2][3], false advertising [4]outright fraud [5] [6] [7], and manipulation [8].

CNN [9] quotes an official of the National Futures Association as saying "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically." Between 2001-2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million mostly in managed accounts. CNN also 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?"

The highly technical nature of forex scams, the OTC nature of the market, and, the fact that foreign exchange trading is fairly unregulated, also makes exchange rate manipulation or price spiking easy for scammers to commence.

Because of the technical factors mentioned above, the traders on the other side of the trade, or even regulatory authorities, will have an almost impossible task in proving that such manipulation has taken place. Partly because there is no central currency market, but rather a number of more or less interconnected marketplaces, provided by brokers and market makers.


The disadvantages of retail speculators

The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attentions full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.

Retail speculators are almost always undercapitalized, so are subject to the problem of Gambler's Ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. According to the theory, any speculator who plays this strategy is effectively playing against the market as a whole which has nearly infinite capital and he will almost certainly go bankrupt. Any speculator - particularly undercapitalized traders who do not have any informational advantages - should understand why his trading strategy is superior to the above strategy.

The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade must be "resettled" each day, each time costing the full bid/ask spread.

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [10]


Additional disadvantages when dealing with scammers

Forex scammers, posing as customer brokers, use the standard confidence game techniques perfected in bucket shops and boiler rooms.

The spot currency trades placed by retail speculators are made directly with the trader's own "broker," that is, the broker takes the other side of the transaction. Thus, many of spot trades never enter the open market and are subject to reorders which are issued to protect the profit margin dealing desk brokers impute in their fixed spreads or to "hedge" unbalanced trades.

When dealing with scammers, retail speculators suffer from at least 5 additional disadvantages:

* They have no competitive prices to trade against, i.e. they must accept their broker's price or not trade.
* The broker may show them actual prices from the forex market, but only with several minutes delay. Thus the broker has better information to trade on.
* They are sometimes encouraged to over-leverage their trades, thus almost insuring that they will "receive a margin call" allowing the broker to close any open trade immediately, at the broker's price.
* The brokers work as a team of several people as the forex market trades 24 hours a day. An individual trader will not be able to monitor his trades (and his broker's actions) for 24 hours a day. In some cases, the brokers may be aided by computer programs, which have near-instant reaction times and never make mistakes or take breaks.
* They look to the brokers for training in the foreign exchange market and may actually buy their trading advice.


The use of high leverage

By offering high leverage, the broker may encourage traders to trade extremely large positions. This increases the trading volume cleared by the broker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are offered leverage up to 400:1.

Often traders will have a profitable first trade (as manipulated by the broker) in order to increase his confidence in the broker and encourage the him to "invest" more money. Next, due to the use of too high leverage (often combined with rate spiking) the traders will receive a margin call, telling him that he must deposit more money or his trades will be closed out. The retail FX brokers will do anything to get the customer's money deposited with them, since eventually all this money becomes theirs.


The use of stop loss orders

Forex scammers will often encourage their clients to trade on margin and set stop loss orders, which allow the broker to close out the trade almost at will during busy markets at prices set by the broker. As the client's trade never makes it into the open market, the loss generated when a stop loss is triggered becomes the scammer's gain.

Trade prices are easily skewed one way or the other, depending on the retail trader's position, which is known by the scammer. Traders can be encouraged to take risky positions just before major economic announcements. If all else fails, the broker can quote extreme prices (known as spiking) to trigger stop loss orders while the client is at work or asleep.

In any case, all of the trader's money will be transferred to the scammer without any trade being made in the open market, and without any economic risk being created or destroyed.

Good article... Do you have any ideas on which trading brokerages/paltforms are NOT scams?
At the moment I am eye-ing Northfinance MT4... any feedback please?

Northfinance's platform is good choice

good support crew and you can trade silver and gold

It is worth joining

I trade with northfinance. Can't give you a positive or negative opinion right now, coz frankly theres been nothing but whipsaw all through the market. Can't really proove jack as to whether its good or not. I think i got stop hunted on thursday though, if thats any help. I have no proof that i was, it was just a bit sus to me, to close the trade the high exactly my stop loss and thne go my way.... Too sus.

From what i've read MOST brokers operate suspiciously. I'm still new to this and i've been demoing with FXCM but i gonna stay away from them now. Oanda appear to be the best as i've yet to read any real bad things about them.

does that include Marketiva and NF??

(By the way, could someone give me the NF url ? thanks...)

Maybe everyone should use something like MetaTrader4 instead of using their broker's charting software...it should then be easy to see if they manipulate the price. Just use your broker to place your orders imo.

Here you go.
http://www.northfinance.com/

NorthFinance is using MetaTrader 4. Would it be possible for them to use MT4 as their software but manipulate pricing? Or they have to go through the MT4 servers (something like e-signal?)

Guys, any comments on e-signal by the way? Not free but people drop its name like its well worth it. Plugin for FXCM as well (which I kind of have big confidence in).

I'm a newbie by the way...

Just wondering but: whatare the bad things you've heard about FXCM? I quite like their interface though..

It really is worth reading around before you entrust your money with ANYONE online, i'm sure those here that play HYIPs regular will agree with this. Here's some things to look at regarding opinions of various brokers and also a thread on stop-hunting from another forum.

http://www.forex*******s.com/broker_reviews.shtml

http://www.forexfactory.com/forexforum/showthread.php?t=5289

I'm using MT4 demo for analysis and OANDA demo for trading now and tho there seems to be the odd 1 pip indiscrepency here and there (could just be different feeds), the fact that they seem to lack the obvious signs of possible bucket-shop and they've had good reviews is encouraging.

When i think about it if the official statistics of "95% new traders lose their money" are to be believed then there are a lot of profits to be made from newbies if a broker were to keep all the deals inhouse (bucket-shop). Brokers that offer high leverage are directly appealing to the get-rich-quick mentality that draws so many ppl to forex in the first place.

This post has been edited by mutant dog: May 23 2006, 02:34 AM

As far as i know mt4 is rented. So the prices should be the same as per the other brokers who use it. HOWEVER....

This does not stop the companies from trying to get some stop hunting between them. I cannot confirm ANY stop hunting, but I believe i have felt it one time. And it cost me a bit, but you will see interbank and nf can sometimes have 1-2 pip difference. Possible server overload. Or lag.

Anybody got any info on that new program forex-7.com.they say they invest for you and pay 200% a week.thanx......t

I've started using a manual stop loss process. Course you need discipline and this only works if you can watch the trade.

You'd probably best ask that in the hyip section.