What is the difference between Forex and a Forex trading scam?
How Forex trading scams fool their victims
Forex aka FX is the real time financial market that investors can trade a wide variety of international currencies. This market happens to be the biggest market with the most liquidity on the planet visa-vis the total amount of funds in trade. On a daily basis there are literally trillions of dollars in play. This is why this particular type of scam can seem so real.
In Forex trade, the purchase occurs when a specific seller accepts to pay a purchaser the monetary difference between the present cost of a currency and its value at another agreed upon time. Meaning if the value goes up then the seller makes a profit and if the value drops then the buyer makes a profit.
A centralized foreign exchange market does not exist. Therefore, the markets for trade can be a number of major financial hubs including New York, Hong Kong, London, Sydney, Frankfurt, Nicosia, Paris, Tokyo, Paris and Zurich among others. Certain countries such as Russia, China, Romania, UAE etc. also have budding Forex markets.
The most traded currency in FX markets is the US dollar, followed by EUR, GBP, JPY and the Swiss Franc. Global economics play a role in determining how these markets fluctuate and affect trade.
Scam brokers create websites that appear to mimic these markets and have the look and feel of a real Forex trading platform
Spot Trading versus Forward Trading
The two types of trades that take place withing the foreign currency market are “spot” trades with occur immediately and “forward” trades with occur later in time. The time frame for a spot trade is 2 business days for most types of Forex pairs. A legitimate FX broker can schedule a forward trade for any date, after two days, outside of non-business days.
What are futures?
Futures are more or less the same as a forward. The difference is that in order to execute a future the trader must specify the exact amount and exchange they would like to execute. The trader will also pay partial value of the contract upon placing the trade and will receive or lose the amount of change in currency. More often than not, these types of trades will be closed before they reach full term.
Upsides, Downsides and Risks of Forex
The advantages of FX trading are that Forex is a market that caters to every type of investor, the cost per transaction is significantly lower than other markets, trading is 24 hours a day and 365 days a year (excluding national holidays), market info is easily accessible and simple to understand and the global foreign exchange market is so large that it is impossible for any bank or large investor can manipulate or corner the market.
The disadvantages in Forex trading can be time-zones for different countries, a private investor needs to use algorithms and protections to monitor their trades when they are not watching the market, minute shifts in contract price can result in an immediate and substantial loss and being the Forex market is generally not volatile the changes in market are small unless the trades are leveraged.
The risks involved in FX trading can be that one of the parties may not be able to honor a contract, geopolitical changes can occur and unexpectedly radically affect the market, government regulations are relatively low which affects your protection and it is possible to lose a lot of money very quickly through leveraged trades.
Spotting a scam
For an exact break down of how Forex trading scam operate please see the link here. But in short if your company isn’t regulated by the FCA, ASIC, SEC or CySEC then odds are they are a scam and you should stay away.
If you are suspicious that you may have dealt with or are dealing with a Forex scam company then please contact a Wealth Recovery Expert here.