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Just like any other investment. You must know the mechanisms for forex trading before actually entering this kind world of investment. If you do not know the mechanism of trading and investment, nor knowing if this is allowed by the government means that you’re gambling.
The other issue is the legality. Try to imagine an investment in forex. You have already invested in forex and gaining hundreds of percent profit from your forex trading. Then it’s time to withdraw/realize your money/profit. And you found that the companies you are investing in forex company are illegal. Now, the dream of enjoy hundreds of percent in profit already ended.
All forex traders are more likely to see a platform or the trading regulations more friendly for them. But let me tell you: a good platform and regulation does not guarantee that the place you are investing is legal!
So, read this article carefully if you do not want to enter the trap Forex Scammer!
As in a trading transaction generally, forex trading is basically require that both sides of the buyer and seller. But the difference here, the buyer and the seller did not perform physical meeting directly. Everything is done in the form of contracts and connected by institution called Broker.
Main task of Broker / Broker Company is to collect transactions done retail investors, and then forward it to the market. Market is the meeting place between the seller and buyer in which they can deal or trading forex.
The difference with the conventional market is that in the exchange transactions are not done at the retail level but it usually in accumulated and then executed.
Well, If let’s say you’re an investor, you’re predicting that the currency GBP (remember, this means is GBP Great Britain Pounds Sterling or currency
Let’s say you want to buy 10,000 Pound. Forex unit in 10,000 regulary called 1 lots. So, all transactions are calculated based on a this unit. 1 lots, 2 lots, 3 lots, and so on. 2 lots means 20,000 (depending on the currency purchased / sold). So in forex transactions, we do not recognize the purchase of 15,000 Pound.
To make a purchase transaction of GBP, You make purchases through broker, where you’d like to invest. Order was made. And then with just one click on the forex platform, you just do action purchase 10,000 British Pounds Sterling.
It's that easy. But the question for beginners: What actually happens when you make a purchase through forex platform?
Well, the answer is that basically there has been a transaction in your account where you purchased 1 lots of Pound.
Then, who sell those GBP to you. Well in this case at that time, the transaction occurred between you and your broker. Broker will collect all of your order and another investors’ order who invested through the same broker. So at that time, the transaction occurred between you and your broker.
Next in a certain period usually broker will forward all orders made by customers to a higher institution like an exchange or maybe a bank. All forwarding is usually done once a month (or depending on the policy of the broker). In the case of forwarding, the broker does not do it in the form of retail (one-on-one transaction) but done in a collectively in the form of a lots. For example, total purchase volume of GBP 100,000 lots, and the selling as much as USD 50,000 lots, and the purchase CHF (Swiss Franc) lots of 75,000. Volume mentioned before is the total volume of transactions conducted by you and the other investors in a certain period of time through the broker.
Well, basically stock as I have mentioned before, is the meeting place between the seller and the buyer of the party. Most of them are the major banks, brokers or other financial institutions as well as the big boys (big investors). About what the big boys is, will be discussed in the module "Fox Hunting" and not here.
On the market purchase and sell transaction are meeting each other. They are massively large enough: about 2 trillion U.S. Dollars per day.
With the market like this, of course, it's not difficult for a broker to forward a month of our accumulated order/transaction. Thus, the brokers get what they needed and so did investors. All thanks to the mechanism called Exchange. On investors' side, they do not really care about how their broker forward or execute their own transaction. He only knew that less than a second, their order have been fulfilled by the broker and then waiting for the price to move according to their prediction. If prices increased, you will earn a profit. If you find the price decreased, then yes, of course you loss.
Well, that is the common mechanism in the forex trading world everyday. Here there are many exchanges.
Please note here, the forex market has no centralized exchange like the stock market. If in stock, say shares can only be traded on exchanges where the shares are already listed, this system does not apply in the forex market. All people can make the currency and does not recognize such as the stock market closed. Everyone can trade using their money. Where there are differences in the exchange rate difference, that's where speculation and investment occur.
So now we enter into a legal problem. Something usually neglected by the beginner forex trader.
Investment's legal issue is one of most important things to be considered. As an investment company is usually also collect public funds. This is especially crucial when the fraud occurred, or if they've failed to pay their debt to customers.
So, why is it necessary for an agency of the local authority regulators who oversee the activities of Investment Company? Banks have the Fed as the regulator.
So how about the Forex?
Forex classified as investment derivatives from the product of investment like ordinary share. Initially this kind of product is preceded by index trading and commodity trading. And then later, a new member named foreign exchange / forex introduced.
Ah, it's already explained in the previous module of "Structure of Investment". Please read the article again.
Because is not classified as investment securities, forex trading also has its own regulator.
Who's that? In the
CFTC and NFA can be said as a role model for other regulators, regulators in another country. Broker regulated under which they must follow strict regulations and also strictly selected. That's why international broker companies who become a member of the CFTC and NFA are proud with their membership status.
Afterwards, as the forex business is international business and cross-country, it's not need to be a established broker company in the
However, clearly, US Act prohibits
Well, here I think we have a little enlightenment about an issue with legality. One thing is for sure: never open the account in the forex broker that is not regulated under any government institution. So do not easily getting in love with good platform, and regulations that seems to give benefits the customers, but when they asked about permission of the company, they only said that permission is being processed or even say they don't have one. Do not even believe in the promise of broker's direct marketers. Indeed, a task to tell you only the good things. Yes that's the marketing.
There now appears a question, is there any broker that the company that's not have regulator's permission a.k.a. Illegal broker?
Yes, many of them exist. These brokers have many illegal ways to persuade people to invest through them. Yes, of course, no investment profits a.k.a. fraud. Usually they told you promises with a sweet flavor that seems to be reasonable. Some of their promises are just like this:
"Get the profit up to US$ 1000 within a week"
"We'll guarantee your investment profit 30-40% a month"
"Whether the market rise or go down, you'll still get profit!"
"We promise to restore any loss that may occur from your investment."
Well, is it too good to be true? Is it too good to be trusted?
Do not trust them; even if they come with their transaction history seen from the left side climbing towards the top rights of the chart. We will never know whether it is correct or not. It might just another Photoshop trick.
Well let me conclude some suspicious signs that you need to watch over before investing your funds in a broker:
1. be aware of any investment schemes that are too good to be trusted.
The bad news is that forex is not a way to get rich quickly. Forex is just the same as the other business. It requires diligence and hard work for the investors to be succeeded in this kind of investment.
2. Avoid companies that promise big profits for the funds you invest.
Yes, I already explain this a little above. All comments above issued a broker need to be suspected.
3. Avoid companies that promise no risk at all by trading through them.
This is biggest bullshit that I ever heard. We really have not discussed about the risk of forex trading here, but try to think carefully: Is there any business with no risk at all? Even crossing the road could have a risk.
For you to think that this investment is without risk, let me say this: Do not daydreaming! Arise! If you want to succeed, there’s no way a substitute for diligence and hard work. Work hard to choose your own investment policy. Work hard to determine the appropriate timing. Work hard to analyze capital and risk management. That’s what you should do to be succeeded.
4. Do not do margin trading unless you know what that means.
Margin trading is like a magnifying glass. It was useful to increase your profit opportunities. But it can also make your loss bigger. So, watch out! Once again, learn at least the risks in forex market before you start an investment.
5. Ask them if they trade through the "Inter-bank Market"
Some companies claim that they forward the customer’s transaction through the inter-bank market so that they can get a better price for themselves, then they do not need to burden customers with the cost of transaction fees and other fees.
Inter-bank Market generally used by world-class banks to process loans between the inter-banking institutions. Inter-bank Market does not involve small company / bank which only have hundreds of millions of Dollars capital. Well, it’s suspicious when an unpopular broker said that they do have access there.
6. Be careful for any payment processing via the Internet which does not involve inter-bank transfer.
Some of the broker is offering to accept the payment via e-gold, paypal and another payment method. Not trying to become over suspicious, but customers often forget to see the recipient’s information of funds transferred due to payment method is too easy to do. With just few click away, it’s finished already. Many of the broker company like that is not a member of NFA and CFTC.
7. Usually the illegal broker markets their product to developing countries.
In psychological terms this is easy to understand. Lack of knowledge of wealthy people in such countries tends to make their fraud action becoming easier. So, people who live in such country should be aware of this issue.
8. Make sure you know the track record the company where you invest.
That is a proof of dedication and the hard work of the company. So don’t be fooled. If they do not even want to let you see their track records or company background, leave it and seek another place of investment.
9. Find a third opinion from those who have invested there.
Well, it's easy yet so hard thing to do. Sometimes there’s also someone from broker trying to give positive campaign on the independent forums to strengthen their position. Be smart. Once again start with the opinion: too good to be true is not true. Suspect of the comments that are too positive in order to filter out all information.
10. Contact your investment advisor before investing.
Well, if you are still in doubt, contact them to understand more about forex trading and ask for the security of funds invested in the company that you want to invest.
