Top 5 Ways the Forex Industry Has Earned a Bad Reputation

Yes, we’re really going to try to start this conversation. No, this is not why you should avoid Forex or consider the scams as a possible client. This is all about the very real dilemmas that tarnish the image of the industry and diminish the activities that take place. The marginalization of Forex has been a problem for brokers trying to promote their services and a stigma has been applied to traders as well. Who bears the brunt of the responsibility for the downward spiral of the industry? Hint, hint: It’s everybody involved.

5. Brokers Pushing for Deposits in Any Fashion

Yes, the economy is in bad shape and businesses will go the extra mile to make sure money is in their coffers. Does it excuse ridiculously low minimum deposits? Does it excuse sales calls after a few days of using a demo? Does it excuse reckless cash back and leverage propositions?

If it seems like the Forex industry has taken a few tips from the casino gaming industry you are likely rather observant. Casinos and poker sites use rakeback bonuses, comps, and VIP Points to generate loyalty and they use deposit bonuses to get you in the door. Forex firms acting like casinos tarnishes the reputation of the industry and the trades that are taking place. The poor actions of the brokers make the action that takes place on the world’s most liquid and active market look insignificant and silly.

Deposits at ridiculously low levels is also a problem, $1 deposits are silly. Then again, any broker taking deposits under $250 should really leaving you scratching your head. Forex is not a trip to the horse track, racino, slot machines, nor is it the lottery! People should trade an amount that they feel comfortable trading, but would take the trading action seriously.

By acting like casinos, brokers are diminishing the credibility of the foreign exchange market.

4. Signal Pushers Running Wild

The snake oil salespeople of the Forex industry are ready to serve up to you their holy grail developed by “brilliant” minds that have tested trends over the past 15 years that will guarantee you a % profit or winning percentage above a certain point. This is just plain silly, there are no guarantees in the marketplace. Even fixed income securities have to be rated for assurance of being paid back on company/sovereign/municipality debt.

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The websites for most of the signal pushers are scummy and they spam the heck out of forums and Twitter. They prey on those that are losing money so that they can buy their services. If their signals were so good, they wouldn’t need to distribute them to the public for all to use at a price.

If anybody had a signal software that worked 80% of the time and locked in 20% gains, would they really go about making the effort of distributing it at a price? No, the user would trade based on this information and do so at leverage levels they felt comfortable and not share this valuable information. They would become wealthy in short period of time and the world would not know of the signal software. Is the signal software as good as the algorithmic trading software developed for banks and hedge funds by quants? Likely far from it. Yes, banks do lose money on trades even with high frequency trading.

There’s no magic elixir, sorry.

3. The current form of demo trading

Do you have $100,000 to throw into trading Forex? Okay, do you have $50,000? Alright, what about $25,000? Well, the Forex brokerages out there – believe you do! Or so it seems… Could it be that these ridiculous demo amounts are put in place to create unrealistic expectations into traders heads so as to get them to trade in a real environment thinking that they can reach such high levels themselves?

Or… Perhaps the brokers think that by offering something up that is so unrealistic that their demo is just for those that are simply interested in learning and experiencing the trading software? Maybe the only realistic brokerage experience that they can provide comes at a cost and it is designed that way.

The other explanation is maybe they do not have many good ideas to drive in and retain clientele.

2. Forex Scams

The unfortunate thing about Forex is that bucket shops, scam artists, boiler rooms, and brokers that trade against their clientele is far more common than you think. These companies and individuals that run these companies are driving the industry into a ditch. Regulations are on the rise and startup firms with alternative visions have to raise huge amounts of capital just to compete in certain markets where driving in clientele is uncertain itself.

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Forex scams make the industry seem shady and unseemly, when in reality it is an alternative trading market for those that do not wish to track 5,000 different companies. It is a lot like Las Vegas during the 1950s and it tarnishes all involved. It hurts with outreach to new clientele because they have probably heard a horror story about how someone lost a lot of money or their identity to a Forex scam artist.

Those that run these sketchy operations that are out to rip off or hurt their clientele should close down and give clients their money back.

1. The traders themselves

From pie-in-the-sky dreams of getting rich quick because of exorbitant leverage to not taking the time to choose brokers properly to not being prepared for live trading in the first place. The traders themselves give the industry a bad name because they fail at an outstanding clip of 65.01% (2nd Quarter 2013 in the United States).

The scare tactic used by many is that 95% of traders lose their money, but the facts actually do not support that. The so-called smart traders keep parroting this nonsense as if it was the gospel truth, but the reality is that it is a lie. More traders succeed than what it is spoken about on message boards, forums, and in seminars. 65% failure rate is the average, you’ll see failure rates range from 54% to 78% depending upon the broker. Not so shockingly, brokers that attract users with ridiculously low deposits have higher rates of unprofitability.

The problem is that most traders are completely uninformed and when they communicate with each other and prospective traders they give bad information. This is harmful to the industry.

Continuing to perpetuate the problems that plague the industry will eventually end retail currency trading in most of the world and that would be a shame.

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by Blake Summers