First of all, I want to note that the motivation for writing this article was by no means a desire to discourage you from investing in various financial instruments. I just want to share with readers my personal experience and knowledge, which I gained over several years of work in the financial markets, both as a trader and as a financial consultant for a brokerage firm. After all, only assessing the situation from several sides can make a rational decision.
So, the forex market. Already this word can cause hostility or a grin in many people. This is all a scam! I am sure that people who deal with investments have repeatedly heard or have themselves uttered these magic words. But is it?
The word Forex has acquired its negative implication since the end of the 90s in light of the appearance of many fraudulent organizations that used it in their names. Although this practice exists now.
The word Forex itself (abbreviations from Foreign exchange) is just a designation, the name of the market (the largest by the way) on which there is an exchange or currency trading. Most often, participants in forex transactions are banks, large financial institutions or international companies whose goal is to exchange one currency for another.
Speaking of speculation, the foreign exchange market has never been very popular among professional investors or the same hedge funds. But why? All our forex brokers chorus about what huge, and most importantly quick results can be achieved by trading on the currency market.
When we talk about a company′s stock, the foundation of the price and its driving force is the issuing company. And even analyzing one share you can not speak with absolute confidence about its future value. Indeed, even one single share can be influenced by different market factors that set the price in motion.
So is it worth talking now about the huge foreign exchange market, where the whole state is the basis of the instrument price? After all, here, to predict the movement of courses, it is necessary to monitor hundreds of events every day. In addition, in the foreign exchange market, a trader deals with currency pairs when they buy one currency for another. Therefore, to trade on one currency pair, for example, the euro against the dollar, a trader is required to predict the situation in the European Union and the United States, which is already an impossible task.
The foreign exchange market is extremely volatile. The exchange rate is influenced by an infinite number of factors, which makes the market practically unpredictable. Yes, by virtue of its hyper-liquidity in Forex, you can quickly make money on the difference in rates. But do not forget that you can lose money at the same time.
Now it becomes clear why the same investment banks, which are practically unlimited in funds, most often use the foreign exchange market for exchange operations or hedging operations.
Why is it popular?
At once I will make a reservation that the so-called “Forex trading” is most popular in countries with poorly developed market economies. For example, the former USSR countries. If we take any forex broker known to us and look at its “habitat areola”, then with high probability it will be Russia, Ukraine, Belarus, Kazakhstan, etc.
Retreating from the main topic, I will say that this applies not only to Forex brokers, but also to the abundance of pawnshops, fast-loan companies, and so on. The presence of a large number of such institutions immediately indicates a weak market development and a financially illiterate population.
The main reason why such organizations are quite rare in developed countries is the developed banking sector, the stock market and a large number of alternatives for investment, which are available, for example, to citizens of European countries. In support of my words, I will quote one well-known forex broker (for obvious reasons, I will not give the names of companies in this article).
On the first map are the countries of the former USSR and marked cities with official representative offices of the broker.
On the second map of the country of Europe and the representative office of the same broker. The difference is significant, is not it? And really, if everything that our brokers tell us was true, the Europeans would not use their services?
Or another example of another popular broker. As you can see, they did not even try to enter the European market.
Returning to the beginning of the previous chapter, I want to explain why the words trading in forex were written in brackets. The fact is that 80 90% of traders who trade through various domestic brokers trade against the broker itself, or against each other. Here it is customary to use the beaten word Kitchen. This is what Her Majesty Wikipedia says about this:
Kitchen (in brokerage jargon) is a designation of a situation when client′s; requests for conducting transactions are satisfied by counter-orders of other clients of the same broker or by the broker. At the same time, there is no need to conduct external transactions.
The point is that, of all the brokers we have, only a few actually enter the market, and in most cases, the movements of funds occur exclusively within the company. Although, what is this? If trader orders are correctly executed and trading goes well, then what′s the difference if the money goes to the interbank market or not?
On the one hand, this is true, but it’s worth considering that if the broker has such freedom to manage client money, then he has too many room for maneuver. In fact, the broker is able to do with your orders whatever he wants. And naturally, a serious company registered, say, in the USA, will never get such freedom of action.
But where do you think the vast majority of our brokers are registered? Of course this is offshore. And now think how absurdly hopes for a successful trade by sending your own money to the offshore, so that the broker drove them there in a circle until you lose them.
But more absurdly are the sums of deposits with which the client is able to gain access to trade. Often this sum begins with a ridiculous 10 dollars. Even with the opening of a deposit of $ 500, this will not be enough to complete the trade. Not for nothing, in American companies the minimum deposit starts from 3-5 thousand dollars.
But honestly, who among you thought, why all domestic forex brokers use the same “MetaTrader” terminal for trading? We are told that it is the most convenient, most versatile, and so on. But is this the reason?
The developer of this terminal is MetaQuotes, which has Russian roots and a Cyprus residence permit. And the main advantage of this program is the ability of brokers to adjust the “market” to their needs. The fact is that this terminal has three components:
- MetaTrader-client is a terminal that is accessible to clients and where they perform their operations.
- MetaTrader-server is the system responsible for processing and execution of client orders.
- MetaTrader-manager is the most interesting part of the program. It is designed specifically for dealing centers and gives absolute power over the terminal: from changes in quotes or charts, and up to access to client tools.
Below is a screenshot of this terminal:
As you can see, all customer data, account size and its operations are displayed here. And how the broker will use his power over the situation depends only on his greed.
And summing up this chapter, we saw how a broker can easily change absolutely all the data in the terminal, thereby negating the trader’s efforts. I do not claim that all brokers who use MetaTrader are scammers and are just waiting for the opportunity to drain your deposit. But I am absolutely sure that traders need to have this information and, before starting work with such a broker, carefully evaluate the pros and cons.
There is no direct evidence that a particular broker uses all the dirty capabilities of its terminal, as well as there are no guarantees that it will not do this. This is the same as sitting down to play poker at the same table with a player armed with a gun. Even if he does not touch him, how can you be sure that he will not seize him if a bad card comes out?
Working as a financial advisor
In my biography there is a time when I, with the desire of Prometheus to bring fire to people, went to work at the consulting center of one of the forex brokers. This gave me the opportunity to make a complete picture of this business and the nuances of its operation.
I think it will not be a great discovery if I say that consultants working in brokerage offices are absolutely not interested in making profits for clients. Rather, on the contrary, but first and foremost.
Often, consultants have a miniscule rate and most of the income they receive from attracting clients. Most often, this is a percentage of the amount for which the customer replenishes his account. Now, in pursuit of bonuses, the consultant is ready to impale the client anything if only he has deposited his funds into the account. In the course are such common arguments as: We guarantee you income from 10% per month (20%, 30%, 100% there are no restrictions). You can earn as actively trading, and from passive investment! After passing our weekly courses you can earn from 1000 dollars a week.
Naturally, after the replenishment of the account, the interest to the client from the broker’s employee diminishes, but exactly until he wants to withdraw his funds. And if many knew or guessed about the bonuses from replenishment, then the majority will know about withdrawal penalties for the first time.
The fact is that when a trader wants to withdraw money from his trading account, the consultant who leads this client risks not only being left without bonuses but also remaining a debtor of the broker.
Specifically, in my case, in the company where I worked the bonus from replenishment and the percentage for withdrawing money from the client was 3% of the deposit amount.
Taking into account this fact, that the consultant is on hand for the trader to drain his deposit. Further mathematics is simple: if the client has lost part of the deposit and wants to withdraw the balance, convince him of the need to increase the bill. If earned (which also sometimes happens) do not let the client withdraw funds.
However, the most curious thing is that it is not necessary for a person to understand anything in finance or investment to be accepted as a financial consultant. Together with me, to this position came one man, whose had never seen a trading terminal and a chart of quotations. But after two weeks of work, he held a lecture for clients, talking about investments and trade.
Learning from brokers
Remember one important rule: it is not profitable for a broker that a trader would trade well.
This is the fundamental principle of our forex companies. After all, if you lose money from a broker who releases them to the market, he will receive only commissions from you. But when you lose money that did not leave the brokerage account, this company becomes richer for the entire amount of your deposit.
And in the first case, the company will be profitable, so that his client would trade as long as possible and better, because then he will bring a commission to the broker. But for the second type, the faster you lose the deposit, the faster the money will be transferred to the “broker”.
So what′s the point of teaching your future traders well?
Before the start of training, all clients are promised an incredible profit immediately after the courses.
They will tell you about magic strategies with which it is very easy and profitable to trade. Although I am not a supporter of the theory that it is easy to get nothing in this life, in this case the broker simply plays with the client′s imagination.
First of all, in just a few weeks it is simply impossible to sort out all the variety of instruments, and the market as a whole. From the first days, the client is given a “profitable strategy” that has performed well in the past (after all, how do they prove its effectiveness? Scroll the story and show where the signals were and how much money could be earned there). Frankly, having found any trading strategy on the Internet, a person can start trading. And he absolutely everything is exactly what is happening in the market, because the main thing is that the red line crossed the yellow one from the bottom up. After all, this is almost all training with a broker. And after that you are told that you are ready for everything and you need to open an account. The client is really ready, that′s just what? Able to replenish the deposit and drain it during the first month.
I know what I′m writing about, because I also had to train clients. And despite the fact that I had some knowledge of the sphere, I myself, naturally, did not trade then.
Game with negative sum
Quite often, people who talk about trading in Forex or other markets say that even without any knowledge or strategy, the chances of success are always 50 to 50. The most common comparison is a casino, where you either win or lose. I am afraid to disappoint you, but not in a casino, not in the market, your chances of winning do not even amount to 50%. Here comes into play the theory of games, and in particular, a game with a negative sum.
Having gone a little bit to science, I will say that games come with zero, positive or negative amount. An example of a zero-sum game would be a card game of two participants. If you win one, the second will definitely lose. In a game with a positive amount, both participants may become a little richer or happier.
As you have already guessed, trading on the market is a game with a negative amount, when both participants have more chances to lose. And the main reason for this is the presence of a third party a broker, exchange, casino. They charge a fee for their intermediary services, so if you open the operation, you have already become a little poorer.
And this does not mean that for this reason it is impossible to trade in plus. You just have to understand that you have much more chances to close the operation with a minus than with a plus. After all, for this price will need to overcome more distance. And most importantly, the smaller the amount of your trading account, the smaller this percentage. With a deposit of several million, you will no longer be afraid of brokers or market volatility (of course, with proper management of funds). And, unfortunately, this has to be reconciled.
As I wrote at the beginning, the main motivation for writing this article was not once and for all to discourage your desire to invest, learn and try new ways of earning. I just felt it my duty to share the knowledge about some companies that, and because of their excessive greed, can not do well with their customers.
There are a large number of reliable and proven companies that will help you to realize your full potential of the Wolf from Wall Street, and at the same time do not wipe your money. Only here their choice must be approached wisely.