Understanding Forex Scams

A Forex scam uses a trading scheme in order to trick individual traders into believing they can be easily profitable on the foreign exchange markets whereas the only purpose of the scammer is to steal their capital. These scams actually come in a wide range so it is sometimes difficult to make the difference between a scam and a “fraud”. Most of the time, online brokers will protect themselves from being accused of fraud and will resort to “legal” tactics to deceive their clients.

In this eBook, we will focus on few strategies used by Market Makers. These brokers claim no other transaction cost than their “spread”, namely the difference between the “bid” and “ask” prices. You have to keep in mind that the Forex market is a sub zero sum game (or “over-the-counter” market), which means that any profit made by a trader represents a loss for another one. But in the end, both pay the broker. Simply put, it means that Market Makers earn money upon their clients’ losses but must pay the winner, and therefore you find yourself in a conflict of interest every time you initiate a trade (the market maker is counterparty every time).

Below are exposed few techniques used by these brokers along with their solutions to fight them on their own ground:

Increased Spreads

Brokers will display their most competitive spreads but will often forget to tell you if these are “floating spreads” or “fixed spread”. A broker such as ETX Capital (London) offers a 0,7-Pip spread for the EURUSD, but this spread can reach 1,8 at certain times of the day. Increasing the spread allows the broker to cash in more, but this can also be a technique to prevent underfunded traders from entering the market when brokers don’t want to pay their clients. This is a current practice of XTB (Paris) to raise major currency pairs spreads during 1 or 2 hours when market opens on Sundays (from 11.00pm to 2am). Spread on GBPUSD, for instance, can be as high as 14 Pips! This broker also changes the USDCAD spread every evening from 11.00pm to 1.00am (Paris time), and even if you have entered the market before this time, your trade will be charged the difference and you will see your account go down even if price doesn’t move!

Solution: to avoid this problem, get the “Fx Hot Times” exe. indicator for MT4 platforms. This indicator will show you, for each currency pair, the high price volatility during which spreads are tighter. Avoid trading at a low-volatility time.

Remember that traders can find it very tough to prove that market manipulation has occurred because there is no centralized market in this business, but interconnected marketplaces controlled by market makers.

Swap fee

Sometimes called “Rollover”, a Swap is the commission charged by a broker when your trade runs over midnight. Many market makers tend to overcharge their Swap that can reach 2 or 3 USD for one Standard contract.

Solution: if you don’t want to pay more than the spread, focus on Intraday trading or initiate a trade after midnight.

Leverage

Market Makers will often encourage their customers to trade with high leverage. Never over-leverage your positions, for this increases the likelihood of a margin call and a quick loss, which will close your position(s) immediately. Brokers will automatically close your position if you reach a 70-percent loss of your capital, arguing this is their role to protect you. Don’t believe a word of it; what they only want is to soak you for all you have worth!

Two Solutions:

1) Use efficient, visual indicators such as Harmonic Patterns, Center of Gravity (CG), Triangular Moving Averages (TMA) and Supply/Demand areas (SupDem), and Stochastics to see when to close or open a position. These indicators will help you visualize your transaction.

harmonic patterns

Harmonic Patterns combined with other visual indicators

2) Use a very strict Money Management and adapt the lots to trade according to your capital. In general, don’t risk more than 5 percent of your capital. You can find programs on the web that will calculate for you the amount you should trade according to your available capital. Stick to this.



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