Forex Trading, A Scam or Legit?

“Don’t try Forex, it’s a scam”, “It’s just another money game on the market”

It’s not uncommon that a scam happens every now and then, like a virus spreading in the society. An investment scam is a fraudulent scheme, often disguised as a legitimate investment. As most common scams would often associate Forex as the underlying asset, skepticism of Forex thus arise. When this has gone rampant, people started to gain awareness about scam and become averse to anything seems like a scam, and indirectly averse to Forex.

In short, is Forex a scam? No.

Forex trading can be deemed as a professional career, just like stock trading and fund management. However, many have considered Forex to be a downright scam while making an investment in mutual fund or hedge fund. Why does the misconception of Forex being a scam has rooted among societies in Asia and some parts of the world?

Misconception of Forex Trading

The misconception can be drilled down from the human and societal point of view.

Fraudsters often associate get-rich-quick schemes with Forex, exploiting human greed. The greed and jealousy in human have reduced our capacity for rational thinking. These schemes are often pyramid scheme/Ponzi scheme which uses Forex investment as a cover-up. The public would be brainwashed that they are making a small investment in Forex, where the trader teams would trade in the market and generate lucrative returns monthly. In fact, these schemes are merely unhealthy MLM. The only way these schemes could be sustained is by recruiting more new members down the pyramid, have them making more “investment”. Get-rich-quick schemes promise high return with a very small investment, seem to be alluring to get people baited. These schemes could promise a high return of up to 20% – 30% monthly regardless of the market conditions, which may sound too good to be true.

Professional in the financial world could have better identified the legitimacy of these schemes, but most in the society are not financial literate and do not understand how the market works. The public does not conduct due diligence and is blinded by the promised lucrative returns. Get-rich-quick schemes are not built to last. When the pyramid collapses, victims lose money and often Forex gets the blame as being too volatile and vulnerable, causing the trader teams to “suffer loss”. Some victims might get their savings all wiped out overnight. While in fact, fraudsters would have vanished with the money. This leads us to the second factor.

Word of mouth. Victims will spread about the incident, which is good as it creates awareness in the society and people become risk-averse to these bogus schemes. But due to cognitive biases, people might also, directly and indirectly, associate Forex as the scam itself. Whenever people heard about Forex, they shun from it altogether. The incident would then be spreading among societies, solidifying the misconception of Forex being a scam.

Society perception on Forex could have also worsened the misconception. For some reason, Forex has been marketed as the way to get rich quick, bombarding social media feeds that associate Forex with sports cars, expensive watches, and lavish living styles. As compared with the perception society has on stockbroker, all suited up and conduct business in a professional manner like a Fortune 500 company CEO, it makes Forex seem more like a scam. However, the perception does not mean that Forex is a downright scam. With passion, necessary knowledge and traded well, Forex trading can indeed make a profession.

The Bottom Line

As discussed in the previous #AnalysisAside article, Forex market is the world’s largest trading market for banks or companies to exchange world currencies. It makes buying, selling or even holiday overseas easy. With the presence of Forex brokers, retail Forex trading has been made available. Most Forex brokers are rigorously regulated and conduct business in a professional manner. It is those bogus investment schemes that have caused paranoia and misconception in the name of Forex.

Part II of this series coming out next week. Follow us on Facebook for the latest update.

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