How to Not Get Scammed with Forex

Forex, FX, the Spot market. It has different names, but it means one thing, the Foreign Exchange market. The Forex market trades over $4 trillion dollars a day. That's more than the NYSE, the NASDAQ and the AMEX combined. The foreign exchange (Forex) market is one where people buy and sell currencies for profit. By currencies I mean the monetary unit of exchange for a country. Here in the U.S. it's the dollar. Other currencies are: the Canadian dollar, the Euro, the British pound (also known as the Cable or Sterling), the Swiss Franc, the Australian dollar, the Yen, etc. Even though Forex is a market, there is no centralized place for people to trade in, unlike the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotation (NASDAQ). The Forex market is considered an over-the-counter (OTC) market. You do still need to have a brokerage account in order to trade in the Forex market. In the Forex market currencies are traded in pairs. For example the EUR/USD (Euro/U.S. dollar) pair. They are usually listed like that with the base currency listed first and the quote currency listed second. The way it works is that when you buy a currency pair, you're buying the base currency and selling the quote currency. When you sell a currency pair, you're selling the base currency and buying the quote currency. One does not have control over this, the currency pairs take on these opposing positions. Currencies get their value this way, as opposed to being based off of some precious metal like gold. You make money in the Forex market by buying currency pairs low and selling them high (just like the stock market). However, there are a couple of differences than the stock market. One, there are "hidden" commissions. You're Forex broker doesn't charge you an explicit commission to buy or sell a currency pair. The "commission" is the spread between your buying and selling price. The spread always exists and is varies with the currency pair that you are trading. Two, you can sell first and buy back later (also called 'shorting). When you get a Forex brokerage account, you are always given margin (or credit). You can use this margin or credit to help you buy/sell currency pairs. You use margin when you initiate a sell (short) trade, because you are selling something that you don't have yet. So you're borrowing this money from your broker; then you buy back the money you sold first and close out the trade. Your broker doesn't charge you anything extra to execute sell (short) trades, unlike stock brokers. The end result is, you can make money when the market goes up or down. You can't make money when the market is going sideways (going fractionally up or down). You want volatility, the market to go significantly up or down. That's when you can make money in the Forex market. Another thing particular to the Forex market is that you trade lots (groups of money). There are three lot sizes, $100,000 for a standard account, $10,000 for a mini account and $1,000 for a micro account. This organization helps standardize the Forex market. Your account type depends on how much money you have in it. Typically to start a standard account you need $2,000, for a mini $250 and for a micro $25.

Scams: Here's how people can take your money. There are two general ways that a Forex account can be traded: manual and automatic. Manual trading involves you sitting there watching price charts and guessing and/or using technical and/or fundamental indicators to help you know when to trade. Automatic trading involves using a "expert advisor" that can trade your account automatically. (Usually you have to specify with your broker that you want this type of automatically-traded account.) The automatically traded accounts are called 'metatrader' accounts. They are called that because you use a program called Metatrader to automatically trade your account. The expert advisor runs within the Metratrader account to automatically trade. It sends the buy/sell signals through Metatrader to your broker which then executes your trades. The expert advisor uses market data and technical and fundamental indicators to know when and how to trade. Scammers market their useless trading systems and expert advisors to you hoping that you will buy them. They concoct some "facts" showing how good their system is with backtests and the claims of making thousands of dollars, but all they really want is your money. Back tests are useless. Let me say that again, back tests are useless, because an expert advisor or system can be optimized to show excellent performance on historical data. (That's the equivalent of me telling you where a currency pair closed, day after day, by memorizing the close price. That doesn't mean that I'm good at forecasting the close price.) Forward tests are the only ones that count; the test that allows the expert advisor to trade real money in a real account. So how do you know which product/service is a scam and which is not? I'm glad you asked, because the answer is here - http://www.forexpeacearmy.com .

The Forex Peace Army reviews and rates Forex brokers, software, trading systems, trading signals, managed accounts, training systems and lists specific scams. Since I didn't define some of these things before, here are the definitions. Forex software typically tells you when and when not to enter a particular buy or sell trade. Trading systems are a complete package of market analysis tools that tell you when to enter a particular buy or sell trade. Trading signal services tell you when enter a particular buy or sell trade. They typically signal you by e-mail or cellphone text. A Forex managed account is one where you give them your money and they have professional Forex traders trade it for you, to make a profit. Although the profit margin is really low considering how much money can be made trading Forex. A training system or education site teaches you the basics about Forex trading and may even teach you some trading strategies. This is a must for people new to Forex. A highly-recommended site is http://www.babypips.com . Click on the 'School' tab to get started. This is basically what you need to know to look out for Forex scams and remember the saying "if it seems to good to be true, it probably is".