Is Forex Trading a Scam?

After the financial crisis slightly more than a decade ago, there have been a lot of questions as to whether or not any type of investing or trading is truly profitable. Beyond that, if you try to explain to people that you “trade money”, then they are even more skeptical, because quite often it’s something that they had no idea the general public can do, let alone that money was traded against each other.

The main culprit

The main culprit of course is that any time there is a lot of money involved, there are a lot of scammers. All one has to do is type in ”Forex trading” into a search engine, then there will invariably be a lot of websites offering all kinds of outrageous returns. For example, you will see things such as “this trader made 200% returns in just one month”, typically attach to some type of trading methodology. However, what they don’t tell you is that the trader will eventually blow up. If you don’t believe me, take a look at the leaderboard of some type of trade following forum, and notice how people come and go from the top. They will have outrageous turns for a moment, and then suddenly disappear. This is because they blew up.

Is Forex a ScamBeyond that, the reality is that Forex trading isn't any different than any other market. Yes, the potential rewards are a lot higher but the reality is that some of the best traders in the world make 20% a year. That isn’t exactly sexy when you are talking about a $5000 account. For what it’s worth, I’ve recently had conversations with a friend of mine with one of the largest brokerages in the United States, he guesstimated that the average account was probably somewhere in the neighborhood of $2000. Even at the best of returns, you’re looking at the $400 gain for the year. That’s hardly something to get excited about. With a small count, greed takes over and you try to double your money right away, and then do it again.

Think of it this way: the people to trade your retirement accounts typically do about 8% or so a year. You seem to be perfectly happy with that, yet very upset if you don’t double and triple your money every couple of months while trading Forex. There is a reason why so many of the adverts for currency trading features something along the lines of a private jet.

The reality

The reality is that one of the great things about currency trading is that you can trade smaller positions and build up to a much bigger one. That being said, keep in mind that the leverage works against you if you abuse it. As long as you keep the leverage under control, you can benefit from a longer-term trends. Short-term micro scalping is something that very few people can do, especially those who have real jobs during the day.

That being said, you can add to a trading account as you build it up simultaneously. Given enough time and if you are patient enough, you could find yourself managing a relatively decent account. However, most people don’t have the patience or the professionalism to take the time to build up that account. The reality about Forex trading is that you certainly can make money doing it, but it all comes from within.

It may be a bit ironic that someone who makes his living as a technical analyst will tell you the following statement: The secret to success has nothing to do with chart reading. Yes, you need to understand that technical analysis can give you bits and pieces of information, but the reality is that the main reason that people succeed is their emotional regulation. If you can handle losses and let winners run, that is what makes the difference between winners and losers.

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.