The world’s most significant financial market is the foreign exchange market, where investors and institutions trade currencies. Almost $6.5 trillion is traded in the foreign exchange markets every day, according to the 2019 Triennial Central Bank Survey.
Despite the fact that foreign exchange trading is legal, scams and unscrupulous individuals exist. Investors should do their study before diving into the global financial markets.
Forex trading, commonly referred to as FX trading, takes advantage of changes in the value of a currency’s exchange rate. Heider College of Business Professor Robert Johnson says that the FX market does not determine a currency’s absolute worth, but rather the currency’s value in respect to other currencies. The foreign exchange market offers the opportunity of betting on one major currency versus another major currency.”
You may, for instance, bet on the US dollar vs the Japanese yen, or the other way around. The Mexican peso vs the Japanese yen.
As far as Johnson is concerned, currency investments are fundamentally different from the investments made in stock or bond markets or even in real estate. Since stock values rise over time, a “long-term positive-sum game” in this market is conceivable. When the dollar climbs versus the yen, the value of US dollar holdings increases and the value of yen positions decreases in equal measure. He advises that you stick to the stock market if you want to build long-term wealth.
In addition to that when it comes to forex trading compared to stock trading, its even more crucial to find a reputable Forex broker. There are several ways to do so. One of the main ways among others is to search for the list of trusted FX brokers, where you can find financial services providers with a good reputation. To participate in the forex market, you’ll need a brokerage account. But, take into account that the customer’s interests are not always protected by all forex brokers.
Can FX Brokers Be Considered As Scammers?
There are some of the most common scams in the FX industry, including:
- Ghosting, or spoofing. To generate the appearance of interest in a position, a trader will place a huge order on the market that he does not intend to execute.
- Front-running. To make an order for one’s own account before the customer’s in anticipation of a large purchase from a client.
- Providers of directional signals. Services are provided by companies or traders that offer to find out when it is a good moment to purchase or sell and then charge for that service.
- Scams involving automated systems. Automated forex trading using trading software, which is sometimes referred to as a “robot.
Researching the underlying broker is the most crucial step you can take to prevent forex frauds, says Perry.
Investors should look for a business that is registered with the Securities and Exchange Commission (SEC) to guarantee that they are protected against currency frauds, says CEO Sergey Savastiouk of market information platform Tickeron.
As a general rule of thumb, avoid falling for what seems unreal or implausible. The use of auxiliary services by brokers, such as selling signals or other automated services, might result in account churning and increased costs for the customer, according to Perry.
How To Choose The Right Forex Broker
Assess your personal requirements before looking into brokers. Consider an ECN broker if you often day trade and take advantage of tiny price movements. Pay a fee but the spreads are substantially less, which is important when you’re trading little changes. Only “ECN Forex Brokers” should be searched for.
In the event that you don’t believe you’ll need the services of an ECN broker, you nevertheless have a wide range of options.
You’ll need an ECN broker if you want to trade “scalp.” You may begin day trading micro lots if you have at least $5,000 in your account. If you don’t have at least $50,000, don’t create a basic lot account.
Choose a broker and an account type (lot size) that is appropriate for your financial resources. Different brokers have different procedures for depositing and withdrawing cash from your account.
Assuming you’ve reduced down your list of possible brokers, search for the following characteristics in the remaining brokers.
Be sure your broker is registered in a nation where the financial system is well-established. Even if you choose a Cyprus-regulated forex broker, you still run the risk of encountering issues. Choose from brokers licensed by US, UK, Canadian, Japanese or Australian regulators.
Make sure the spreads are competitive since you are a day trader. Non-ECN accounts might anticipate a spread close to one pip (percentage point) when day trading the EUR/USD during a signing session. That broker’s spread is excessively wide; you should not consider using him as a broker. If you have an ECN account, the spread should be no more than half a pip during the most active trading hours.
A broker who is accessible when you need them is the best choice. When you open a sample account with a broker you’re interested in, send them a lot of emails with your inquiries. Observe how quickly and completely they react to your questions. Eliminate brokers from your shortlist whose customer service falls short of your expectations.