FX, how does it work? How not to get scammed!

FOREX (FX) or foreign exchange, is the process of buying and selling currencies

In addition, most platforms offered by FX brokers, usually an mt4 or mt5, also offer shares, Indices, commodities and some crypto’s.

If you’re an active player in the FX game then your goal is to buy a currency and re-sell it at a higher price to make a profit. It doesn’t matter if you’re buying Japanese Yen to sell in exchange for US dollars. Most of the time, USD currency is involved.

                         On a side note, crypto is a form of currency that may work in the Forex industry. Unfortunately, there’s not much going on in the market for said virtual currency. Not many countries are involved with trading crypto in forex platforms, although the virtual currency has its platform. There’s a slow but increasing trend for crypto trading, and it’s going to take a while before the rest of the world picks up on it.

                        Forex is much like buying stocks, except it works two ways since two currencies can purchase each other. So, for example, if you’re in the US and want to buy Japanese Yen, you have to wait for the Japanese Yen to have a lower value than the dollar. Then, once the Japanese Yen further decreases in value, you can sell it to someone who has US dollars.

For a more helpful visualization, check the following info:

 

lets do the math

 

Today: 03 December, 2021

You have $1000.00 and you decide to buy (long) the AUD/USD and you enter the long at .01 or 10 cents per point.

(remember 10 pips = 1 point)

(so what this means is, you are forecasting the AUD will increase in value against the USD)

Current Value of AUD/USD is at a value of .74000

(If you travell to America, for every $1 USD you only get. 74 cents Australian)

Tomorrow: 04 December, 2021

AUD/USD after one day increases by $1.00 from .74000 to .75000

Now if you travell to Americe you get 75 cents for every $1 USD, so the value in pips is 1000 pips or 100 points increase in value.

Now you can offload your position to someone who is willing to open a position at that price/level

(usually someone who wants to sell the AUDUSD, and your broker will do this for you almost instantly)

In just one day, you earn an extra $100 because you opened a long position and the market moved your way!

Now you have $1100.00

 

This scenario is relevant to a hyperthetical. You would have to take into consideration the leverage you are trading, good account management meaning you may not be able to afford a 10 cent position, your stoploss and DD (drawdown levels) levels and many other factors. But as a basic comprehension, this is basically FX Trading! Alternatively, you could have lost $100!

But everybody wants to win, so how do things proceed from here? That’s where brokers come in. The broker’s job is to match a buyer and a seller for a specific currency. Of course, it takes effort to achieve this goal, so brokers also factor in how much they will profit from the exchange. Unfortunately, the world of FOREX trading isn’t safe, and scammers convince buyers and sellers to interact with them. The good news is that there’s a way for traders to identify if a service is legitimate or if it’s a scam.

Potential Profits and Losses in FX trading is highly volatile compared to stocks. Volatility is a measure, or a probability estimate, of the risks involved with trading. So, if a currency is volatile, it means the risk of the currency gaining or dropping in point or dollar value is high and can happen quiet quickly.

 

Personally, just from news announcements, I have seen values rise and fall hundreds of points in mere seconds! We’ll talk about trading the news in a later post.

 

Volatility can be measured weekly, fortnightly, monthly, quarterly, or annually. A good percentage of profit from FOREX varies anywhere from 5% up to 20% a month. Although this sounds promising, the losses involved are generally around the same percentage. To be able to profit from FOREX trading, strategy, consistency, and discipline are essential. You can implement several techniques to make sure you’re always on the right side of a position. Strategies like trend trading involve looking at the general direction of the currency. It’s one of the most straightforward strategies for FX beginners.

Forex brokers also have creative ways to maximize their profits and minimize their investor’s losses. One of these is through the use of diversification. This means you have spread your positions ocross many currencies and maybe even commodities, indices and crypto’s. It effectively reduces risk by spreading your positions across a wider market range instead of placing everything on one trade. We in the FX industry like to call this, DIVERSIFICATION. You’ll need to know how to do this if your in this game for the long run. You don’t lose as much, but you also don’t gain as much. It’s a relatively safe way to involve one’s self in day trading.

For anyone who isn’t familiar with Forex trading, hiring a broker may be the better decision. Brokers usually form organizations, and they may also set up their own companies dedicated to helping players in the Forex industry make a profit. They typically conduct their business via websites. The bad news is there’s a chance you’re visiting sites made by scammers.

 

How Scammers Take Advantage Of The Forex Industry

Setting up a website is easy, and even scammers can make their “profession” look, well…. professional. They hook inexperienced traders with guarantees of high returns and minimal to zero risks of losses, this is the first big red flag you should be wary of. Forex trading in itself is not a guaranteed financial investment, and there are always risks involved.

NO-ONE CAN GURANTEE PROFITS, If they do, personally I stay well clear of them.

Scam websites will also create urgency, using fake currency trends to convince you to deposit a minimum amount. Amounts can range from $500 to $50’000. More experienced traders know about risk reward and account management. Much like gambling, you only use the cash you’re prepared to lose. It’s the same concept as buying shares or crypto.

These scammers even provide a set amount of cash reimbursed once the investor reaches a specific amount. Although some legitimate forex trading websites actually offer this, the scammers take it too far and almost make it sound too good to be true. The major problem in FX regarding scammers is, they actually know enough to be considered an experienced traders, at least to a beginner anyway, and trick you into believing they are legit. I have seen some very elaborate scammers in my time. A common strategy they have is to take your deposit and convert it into crypto as an intermediary between their exchange and your bank account. ABSOLUTELY NO REASON TO DO THIS EVER! A clear warning sign.

If you have a friend who works as a daytime FX tradier, that’s good news. You may get some good mentoring otherwise there are plenty of trading communities out there. CommunityFX
is a complementary Trading Room I built specifically for this reason so don’t forget to check it out. It’s only very new so I appreciate you joining and helping grow the community! Dealing with individual brokers is riskier since you have no knowledge of their affiliations or whether they have certifications to act as a broker. That’s why it’s better to approach brokers that specialize in FX trading and preferably one goverened in your own Country. Australia have one of the strictist and most regulated governing bodies called ASIC (Australian Investment and Insurance Commission). Australia have some great full brokerage services and are able to offer their brokerage service world wide and highly regulated can’y hurt. You’ll pay a little more in the spread for a full broker service but if you’re a beginner, it may be a good option.

 

Why You Should Join Highly-Regulated Brokers

CommunityFX has information regarding the top FOREX brokers in the world.The selected broker are one I personally use and offer safe and secure platforms for trading or widespread trend trading. Ore Government highly regulates these brokers to submit official documents for them to operate. Brokers under these companies know the best ways to achieve maximum profit for the currency you’re trying to trade. It doesn’t mean well-regulated brokerages are going to make you money, it just means they’re able to work with you and answer any FX questions or concerns you have a they focus highly on excellent client services.

There will always be flaws inside every system, including the FX industry. I am always wary of brokers who start directing the conversation away from the platform and to the involvement of outside transactions. Most FX brokers provide terms and conditions that protect them from lawsuits when transactions occur outside their platform. It’s in your best interest to avoid making deposits other than the official payment methods provided by brokers and be careful of anyone encouraging you to keep adding monies to any losses.

Scroll to top