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Spotting a Forex Scam.

FOREX scams are scams where the scam artist tries to defraud investors who put their money in foreign exchange market (FOREX) trading. The scammers convince investors that they can earn large profits through FOREX trading if they follow their advice. While it is certainly possible to earn profits from FOREX trading, it is a complex endeavor that requires experience and market savvy most victims of FOREX scams lack. FOREX scams can take on many forms, but because FOREX is loosely regulated, many of them are not technically illegal. This is why investors must remain vigilant for any signs of FOREX scams no matter how tempting an investment opportunity may be.

Understanding FOREX Trading.

FOREX trading involves trading one currency for another for the purpose of conducting business transactions. The value of currency depends on a wide variety of economic, political and social factors, and it can go up and down on a moment's notice. Investors who choose to invest their money in FOREX markets hope to earn profit by using the changing currency exchange rates in their favor. For example, Americans investors who traded hundreds of dollars for Canadian dollars were able to earn significant profit when the value of Canadian dollars relative to US dollars increased, allowing them to turn Canadian dollars into more US dollars than what they started with.

FOREX Trading and Scams.

FOREX trading in an innately complex, volatile process that involves a great deal of risk and requires the investors to be patient, yet decisive. Chances are pretty good that they will be years before they earn any profit, and profitable times may be short-lived. The FOREX scams paint an unrealistic picture of FOREX trading, claiming that the investors will be able to earn high profits without much delay. They aim to convince investors that they have what it takes to ensure those profits, something which not even the most experienced investors can say all the time. As mentioned before, FOREX scams forms take on many forms. Some of the most common FOREX scams are listed below.

Signal Sellers Scam.

In this scam, the con artists offer to monitor the foreign exchange market trends on the investors' behalf and use that information to offer advise on which currency they should buy and sell. The con artists promise the investors high returns, so long as the investors are willing to pay what they assure are low fees (at least compared to the profits they claim investors will be able to earn under their guidance). Because their victims don't know enough about FOREX to second-guess their suggestions and no way to verify their information, the con artists are free to earn money at their victims' expense, with their victims none the wiser.

Miracle Software Scam.

In this scam, the con artists offer customers software that can supposedly analyze FOREX markets and tell them what they should buy or sell in order to earn profits. The software tends to be expensive, with some scammers selling it for several thousand dollars. While there is software that can anticipate the shifts in currency rates, it can't make reliable long-term predictions. Furthermore, some of the software the con artists offer is designed to steal the investors' personal information, leaving them open to other types of fraud.

Phony Investment Funds Scam.

In this scam, the con artists encourage investors to buy shares in high-yield investment programs that supposedly take funds from several investors, invest them in FOREX and earn profit for everyone involved. In reality, such programs are Ponzi scams. It relies on constant influx of investors, with funds contributed by newer investors used to pay off older investors. Like all Ponzi scams, this scam is doomed to fall apart once the money runs out.

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10 Ways To Avoid Losing Money In Forex.

The global forex market boasts over $4 trillion in average daily trading volume, making it the largest financial market in the world. Forex's popularity entices traders of all levels, from greenhorns just learning about the financial markets to well-seasoned professionals. Because it is so easy to trade forex - with round-the-clock sessions, access to significant leverage and relatively low costs - it is also very easy to lose money trading forex. This article will take a look at 10 ways that traders can avoid losing money in the competitive forex market. (There are no specifically forex focused programs, but there are still some advanced education alternatives for forex traders. Check out 5 Forex Designations .)

1. Do Your Homework – Learn Before You Burn.

2. Take the Time to Find a Reputable Broker.

Traders should also research each broker's account offerings, including leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies. A helpful customer service representative should have all this information and be able to answer any questions regarding the firm's services and policies. (Discover the best ways to find a broker who will help you succeed in the forex market. Refer to 5 Tips For Selecting A Forex Broker .)

Nearly all trading platforms come with a practice account, sometimes called a simulated account or demo account. These accounts allow traders to place hypothetical trades without a funded account. Perhaps the most important benefit of a practice account is that it allows a trader to become adept at order entry techniques.

Few things are as damaging to a trading account (and a trader's confidence) as pushing the wrong button when opening or exiting a position. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade. Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, this situation is incredibly stressful. Practice makes perfect: experiment with order entries before placing real money on the line.

Once a forex trader has opened an account, it may be tempting to take advantage of all the technical analysis tools offered by the trading platform. While many of these indicators are well-suited to the forex markets, it is important to remember to keep analysis techniques to a minimum in order for them to be effective. Using the same types of indicators – such as two volatility indicators or two oscillators, for example – can become redundant and can even give opposing signals. This should be avoided.

Any analysis technique that is not regularly used to enhance trading performance should be removed from the chart. In addition to the tools that are applied to the chart, the overall look of the workspace should be considered. The chosen colors, fonts and types of price bars (line, candle bar, range bar, etc) should create an easy-to-read and interpret chart, allowing the trader to more effectively respond to changing market conditions.

While there is much focus on making money in forex trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of successful trading. Many veteran traders would agree that one can enter a position at any price and still make money – it's how one gets out of the trade that matters.

Part of this is knowing when to accept your losses and move on. Always using a protective stop loss is an effective way to make sure that losses remain reasonable. Traders can also consider using a maximum daily loss amount beyond which all positions would be closed and no new trades initiated until the next trading session. While traders should have plans to limit losses, it is equally essential to protect profits. Money management techniques, such as utilizing trailing stops, can help preserve winnings while still giving a trade room to grow.

6. Start Small When Going Live.

Once a trader has done his or her homework, spent time with a practice account and has a trading plan in place, it may be time to go live – that is, start trading with real money at stake. No amount of practice trading can exactly simulate real trading, and as such it is vital to start small when going live.

Factors like emotions and slippage cannot be fully understood and accounted for until trading live. Additionally, a trading plan that performed like champ in backtesting results or practice trading could, in reality, fail miserably when applied to a live market. By starting small, a trader can evaluate his or her trading plan and emotions, and gain more practice in executing precise order entries – without risking the entire trading account in the process.

Forex trading is unique in the amount of leverage that is afforded to its participants. One of the reasons forex is so attractive is that traders have the opportunity to make potentially large profits with a very small investment – sometimes as little as $50. Properly used, leverage does provide potential for growth; however, leverage can just as easily amplify losses. A trader can control the amount of leverage used by basing position size on the account balance. For example, if a trader has $10,000 in a forex account, a $100,000 position (one standard lot) would utilize 10:1 leverage. While the trader could open a much larger position if he or she were to maximize leverage, a smaller position will limit risk. (For additional reading, see Adding Leverage To Your Forex Trading .)

8. Keep Good Records.

9. Understand Tax Implications and Treatment.

10. Treat Trading As a Business.

It is essential to treat forex trading as a business, and to remember that individual wins and losses don't matter in the short run; it is how the trading business performs over time that is important. As such, traders should try to avoid becoming overly emotional with either wins or losses, and treat each as just another day at the office. As with any business, forex trading incurs expenses, losses, taxes, risk and uncertainty. Also, just as small businesses rarely become successful overnight, neither do most forex traders. Planning, setting realistic goals, staying organized and learning from both successes and failures will help ensure a long, successful career as a forex trader.

The worldwide forex market is attractive to many traders because of its low account requirements, round-the-clock trading and access to high amounts of leverage. When approached as a business, forex trading can be profitable and rewarding. In summary, traders can avoid losing money in forex by:

Being well-prepared Having the patience and discipline to study and research Applying sound money management techniques Approaching trading activity as a business.

How Much Money Can I Make Forex Day Trading?

See the profit a simple risk controlled forex day trading strategy can produce.

The forex market requires the least amount of capital to start day trading, trades 24 hours a day (during the week) and offers a lot of potential due to the leverage provided by forex brokers. The key question is "How much money can I make forex day trading?" The following scenario shows the potential, using a risk controlled forex day trading strategy.

Forex Day Trading Risk Management.

Every successful forex day trader manages their risk; it is one of, if not the , most crucial elements of profitability.

Keep risk on each trade very small, 1% or less is typical. This means if you have a $3,000 account you shouldn't lose more than $30 on a single trade (see ​Forex Position Sizing). That may seem small, but losses occur, and even a good day trading strategy will see strings of losses. Risk is managed using a stop loss order, which will be discussed in the Scenario sections below.

Forex Day Trading Strategy.

While a strategy has potentially many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win-rate and reward/risk ratio.

Win-rate is how many trades are won out a given number of trades. Say you win 55 out of 100 trades, your win rate is 55%. While it isn't required, having a win rate above 50% is ideal for most day traders. 55% is acceptable and attainable.

Reward/risk determines how much capital is being risked attain a certain profit.

If a trader loses 10 pips on losing trades but makes 15 on winning trades, they are making more on winners than they are losing on losers. Even if they only win 50% of their trades, they will be profitable. Therefore, making more on winners is also a strategy component many forex day traders strive for.

A higher win-rate means more flexibility with your reward/risk, and a high reward/risk means your win-rate can be lower and you'd still be profitable. For a more thorough discussion on win-rate and reward/risk (also discussed in terms of risk/reward) see: Day Trade Better Using Win Rate and Risk-Reward Ratios.

Scenario: How Much Money Can I Make Forex Day Trading?

Assume a trader has $5,000 in capital, and they have a decent win-rate of 55% on their trades. They risk only 1% of their capital or $50 per trade. This is accomplished by using a stop loss. For this scenario, a stop loss order is placed 5 pips away from the entry price, and a target is placed 8 pips away.

This means that the potential reward on each trade is 1.6 times great than the risk (8/5) -- we want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day (see: Best Time of Day to Day Trade Forex) it's usually possible to make about five round turn trades (round turn includes an entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Forex brokers provide leverage up to 50:1 (more in some countries).

For this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps risked limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and offer, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.5 for every $100,000 traded ($5 round turn).

If day trading a pair like the GBP/USD, we can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 worth of currency).

Therefore we can take a position of one standard lot with a 5 pip stop, which will keep the risk to $50 on the trade. That also means a winning trade is worth $80 (8 pips x $10).

With all that out of the way, letès see how much a forex day trader can make in a month (100 trades).

55 trades were profitable: 55 x $80 = $4,400 45 trades were losers: 45 x ($50) = ($2,250)

Gross profit is $4,400 - $2,250 = $2,150 if no commissions (win rate would likely be lower though)

Net profit is $2,150 - $500 = $1, 650 if using a commission broker (win rate would be like be higher though)

Assuming a net profit of $1,650, the return on the account for the month is 33% ($1,650/$5,000). This may seem very high, and it is a very good return. See Refinements below to see how this return may be affected.

Refinements.

It won't always be possible to find five good day trades a day, especially when the market is moving very slowly for extended periods of time.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop loss order. It's common in very fast moving markets. To account for slippage, reduce the net profit by 10% (this is a high estimate for slippage, assuming you avoid holding through major economic data releases) This would reduce the net profit to $1,485 per month.

Adjust scenario above based on your typical stop loss and target, capital, slippage, win rate, position size, and commissions.

How Much Money Can I Make Forex Day Trading? - Final Word.

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than is lost on losers, it's possible to attain returns north of 20% per month forex day trading. Most traders shouldn't expect to make this much; while it sounds easy, in reality, it's more difficult. Even so, with a decent win rate and reward/risk ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% a month thanks to leverage. Also remember, you don't need much capital to get started, $500 to $1,000 is usually enough.

Making money in forex is easy if you know how the bankers trade!

How to make money in forex?

I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market. It all comes down to understanding how the traders at the banks execute and make trading decisions.

Why? Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly that 5% of bank traders account for 92% of all forex volumes. So if you don’t know how they trade, then you’re simply guessing. First let me bust the first myth about forex traders in institutions. They don’t sit there all day banging away making proprietary trading decisions. Most of the time they are simply transacting on behalf of the banks customers. It’s commonly referred to as ‘clearing the flow”. They may perform a few thousand trades a day but none of these are for their proprietary book.

How do banks trade forex?

They actually only perform 2-3 trades a week for their own trading account. These trades are the ones they are judged on at the end of the year to see whether they deserve an additional bonus or not.

So as you can see traders at the banks don’t sit there all day trading randomly ‘scalping’ trying to make their budgets. They are extremely methodical in their approach and make trading decisions when everything lines up, technically and fundamentally. That’s what you need to know!

As far as technical analysis goes it is extremely simple. I am often dumbfounded by our client’s charts when they first come to us. They are often littered with mathematical indicators which not only have significant 3-4 hour time lags but also often contradict each other. Trading with these indicators and this approach is the quickest way to rip through your trading capital.

Bank trader’s charts look nothing like this. In fact they are completely the opposite. All they want to know is where the key critical levels. Don’t forget these indicators were developed to try and predict where the market is going. The bank traders are the market . If you understand how they trade then you don’t need any indicators. They make split second decisions based on key technical and fundamental changes. Understanding their technical analysis is the first step to becoming a successful trader. You’ll be trading with the market not against it.

What it all comes down to is simple support and resistance. No clutter, nothing to alter their trading decisions. Simple, effective and highlighting the key levels. I’m not going to go into the ins and outs of where they actually enter the market, but let me say this: it’s not where you think. The trendlines are simply there to indicate key support and resistance. Entering the market is another discussion all together.

How to make money in forex?

The key aspect to their trading decisions is derived from the economic fundamentals. The fundamental backdrop of the market consists of three major areas and that’s why it’s hard to pin point currency direction sometimes.

When you have the political situation countering the central bank announcements currency direction is somewhat disjointed. But when there are no political issues and formulated central bank policy acting in accordance with the economic data, that’s when we get pure currency direction and the big trends emerge. This is what bank traders wait for.

The fundamental aspect of the market is extremely complex and it can take years to master them. This is a major area we concentrate on during our two day workshop to ensure traders have a complete understanding of each area. If you understand them you are set up for long term success as this is where currency direction comes from.

There is a lot of money to be made from trading the economic data releases . The key to trading the releases is twofold. First, having an excellent understanding of the fundamentals and how the various releases impact the market. Secondly, knowing how to execute the trades with precision and without hesitation. If you can get a control of this aspect of trading and have the confidence to trade the events then you’re truly set up to make huge capital advances. After all it is these economic releases which really direct the currencies. These are the same economic releases that central banks formulate policy around. So by following the releases and trading them you not only know what’s going on with regards central bank policy but you’ll also be building your capital at the same time.

Now to be truly successful you need an extremely comprehensive capital management system that not only protects you during periods of uncertainty but also pushes you forward to experience capital expansion. This is your entire business plan so it’s important you get this down pat first.

Our stringent capital management system perfectly encompasses your risk to rewards ratios, capital controls as well as our trade plan – entry and exits. This way when you’re trading, all your concerned about is finding entry levels. Having such a system in place will also alleviate the stresses of trading and allow you to go about your day without spending endless hours monitoring the market.

I can tell you most traders at banks spend most of the day wandering around the dealing room chatting to other traders or going to lunches with brokers. Rarely are they in front of the computer for more than a few hours. You should be taking the same approach. If you understand the technical and fundamental aspects of the market and have a comprehensive professional capital management system then you can.

From here it just takes a simple understanding of the key strategies to apply and where to apply them and away you go. Trust me you will experience more capital growth then you ever have before if you know how the bank traders trade. Many traders have tried to replicate their methods and I’ve seen numerous books on “how to beat the bankers”. But the point is you don’t want to be beating them but joining them. That way you will be trading with the market not against it.

So to conclude let me say this: There are no miraculous secrets to trading forex. There are no special indicators or robots that can mimic the dynamic forex market. You simply need to understand how the major players (bankers) trade and analyse the market. If you get these aspects right then your well on the way to success.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

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Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.