Forex Brokers: Are They a Scam?
Forex, or the foreign exchange market where investors and institutions trade currencies, is the biggest financial market in the world. Around $6.5 trillion trades each day on the forex markets, according to the 2019 Triennial Central Bank Survey.To get more news about Doo Prime德璞资本
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While forex trading is legal, the industry is rife with scams and bad actors. Investors need to do their due diligence before venturing into what can be a Wild West version of global financial markets.Forex, also known as FX, trading takes advantage of the fluctuations in currency exchange rates. "The FX market does not set a currency's absolute value but rather determines the value of one currency relative to another," says Robert Johnson, professor of finance at Creighton University's Heider College of Business. "You can take a position in virtually any major currency against another major currency in the FX market."
For instance, you might bet on the U.S. dollar versus the Japanese yen. Or the yen versus the Mexican peso.
While most of the activity in forex markets is done by multinational corporations to hedge natural positions, individual investors sometimes speculate on currency movements.Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with top fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is legally bound to act in your best interests. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
"Investing in currencies, whether traditional currencies or cryptocurrencies, is fundamentally different than investing in stocks, bonds or real estate," Johnson says. "Over the long term, investing in the stock market is a positive-sum game" because the value of stocks rises over the long term.
"On the other hand, over both the short and long term, investing in currencies is a zero-sum game," Johnson says. "When the U.S. dollar strengthens versus the yen, those holding U.S. dollar positions win and those holding yen positions lose an equal and opposite amount."For this reason, he says that those wanting to build long-term wealth should stick to the stock market.
If you do venture into the world of forex, however, you need a forex brokerage account. The trouble is, not all forex brokers have your best interest at heart.While on its face, forex is legal, "there are many potential bad actors in the space, and it is a prime atmosphere for spoofing, ghosting and/or front-running," says Braden Perry, a regulatory and government investigations attorney with Kennyhertz Perry LLC, based near Kansas City, Missouri.
The rise of internet-based trading platforms has only exacerbated the risks, creating more opportunities for fraudulent promotional schemes, overstatement of returns and the failure to pay out for wins, Perry says. "Furthermore, some actors are using manipulative software to rig the system."
The main issue with forex trading is a lack of transparency and unclear regulatory structures with insufficient oversight. However, there are forex products listed on exchanges that have regulatory oversight. Likewise, there are legitimate brokers making a business in the market as well.To avoid forex scams, the most important action you can take is to research the underlying broker, Perry says.
Sergey Savastiouk, CEO of Tickeron, a market intelligence platform that assists users with portfolio and trading decisions on stocks, exchange-traded funds, mutual funds, forex and cryptocurrencies, says the best way to avoid forex scams is to ensure a company is registered with the Securities and Exchange Commission.