Foreign exchange trading (or “forex trading” for short) can be a good source of income. However, you may know some people who are either scared of or want nothing to do with forex. What’s with the strong hatred for forex?
Here are the top reasons why forex has such a bad reputation:
- Fraud is rampant in forex trading.
- Forex professional licensing is complex at best.
- It’s hard to learn and make money from the market.
- Forex is associated with gambling.
- Market conditions are unpredictable.
In the rest of the article, I’ll cover the above reasons in more detail. You can also read more information on why people usually don’t include forex trading when considering passive income options.
1. Fraud Is Rampant in Forex Trading
Perhaps the main thing that turns people off of forex trading is the countless news about fraudulent actors in the market. Although forex trading isn’t a Ponzi scheme per se, there are plenty of forex scams you need to be wary of.
Forex scams include:
- Signal seller scams. Essentially, signal sellers claim to help you identify the best times to buy or sell forex for a hefty fee. Of course, once you pay them for their “services,” you’ll never hear from them again.
- Robot scams. As the name suggests, the “traders” rely entirely on artificial intelligence (AI) to make trades that will likely not be profitable for you.
- “Ghosting” or “Spoofing.” You hand over your money to “brokers” who don’t do any actual brokerage. Instead, they keep orders on their servers and wait for traders to inevitably blow up their accounts.
Even legitimate forex brokers can sometimes employ questionable methods to make as much money as possible. For example, they can make it easy for you to fund your forex account, but the moment you start making withdrawals, you find out there are a lot of terms and conditions (which you were previously unaware of) you need to comply with before you see a single dollar of your investment returned to you.
I’ve also encountered self-proclaimed forex gurus on online forums, claiming to help you earn big bucks as long as you follow their so-called no-fail step-by-step method. Oh, and also, could you maybe funnel a few bucks into their online accounts, because that would be great! (For obvious reasons, I’m not going to name names or link to those people’s accounts.)
If enough people experience forex scams, they’ll likely post online about it and add to the industry’s bad rep.
2. Forex Professional Licensing Is Complex at Best
It’s easy to verify the credentials of professionals in fields like medicine, engineering, or business. On the other hand, checking for a forex trader or broker’s credentials isn’t quite as straightforward. For example, forex brokers in the U.S. need to be certified to do their jobs, but the offshore companies they deal with may not be as stringent about trader qualifications.
3. It’s Hard To Learn and Make Money From the Market
Let’s face it: Forex trading is complex even at the best of times. You have to keep track of how much one currency stacks up against another. You also have to watch out for market conditions that can affect exchange rates (e.g. economic conditions, political instability, etc.)
Learning the ins and outs of forex trading requires you to understand a ton of complex theories and approaches. Since there are likely only a handful of people who can do this, the likelihood of losing out on forex is pretty high. Again, if you have enough people who’ve had bad experiences with forex, they’ll likely be vocal about it online and make it look as though engaging in forex at all is pointless.
4. Forex Is Associated With Gambling
If you buy a stock, you have an asset. Your asset’s performance is tied to a real-world company, providing real value. In forex trading, you don’t own the currencies you buy and sell. You’re simply speculating on the price movement and hoping to make money by predicting the direction correctly. For that reason, forex trading isn’t that much different from gambling.
As you can guess from the long list of regulations and restrictions on gambling, gambling doesn’t exactly have the best public reputation. Yes, you can easily become a millionaire from a single round of betting, but you can just as easily become a pauper.
In other words, if you see forex as an acceptable form of gambling, you’re not going to speak very highly of it either.
5. Market Conditions Are Unpredictable
Analysts often make their forex predictions based on models that assume a certain set of conditions will hold under specific circumstances. Unfortunately, the reality of forex isn’t as straightforward, which makes it similar to the cryptocurrency world in that respect.
One day, you can make money in forex beyond your wildest dreams. The next, you find yourself slamming your fists in front of your computer, tears streaming down your face, and wondering why everything turned out like this. The hardest part is accepting that, even with your best efforts, you may not profit from forex as much as you want to.
Tips on Avoiding Forex Scams
I can’t say you can 100% avoid getting scammed in forex. However, I do have a few pieces of advice for those who plan to dip their feet into the murky waters of foreign exchange:
- Do your research. If you live in the U.S., make sure the broker or trader you’re dealing with has the necessary qualifications or licenses for the things they claim they can do. Checking a forex pro’s credentials can be tricky, as I’ve mentioned before, but that doesn’t mean you shouldn’t do any due diligence at all.
- Don’t rely on others to do the trading for you. Learn as much about forex as you can before betting your hard-earned money on it. That way, it’s easier for you to identify profitable opportunities on your own — not to mention avoid people who promise the moon but can’t even give you the earth.
- Be conservative about your investment. If you’re still getting your feet wet in forex, I suggest investing only a small amount of money first. Make sure it’s an amount you can afford to lose should things go south. Also, make sure you have a “buffer” investment to help cushion any losses from forex trading.