Have you heard that some people say forex is a scam? I have heard it a lot. Some of those who have been trading forex for a while without any success, say that forex is a scam simply because it is not possible to make money though forex trading. They say that they have been learning and trading forex for such a long time, sometimes even for several years, but the more they learned and practised the less they could achieve. So that they have finally gave up on forex trading  and came to this conclusion that it is a scam.

Well! Lets see whether these people are right or not.

First of all, the fact that some people cannot make any money through forex trading doesnt mean that forex is a scam, because there are some other forex traders who are doing great. Even if nobody makes any money through forex, it doesnt mean that it is a scam, because probably people dont know yet how to make money through trading forex. There are so many stock traders who lose much more than what they make. Many of them have lost all they had in the stock market. Does it mean that stock trading is a scam too? I dont think so.

There always some scams in any business. Forex trading can also be a good opportunity for the scams to rip you off and make some money out of your forex trading activities. However, forex trading itself cannot be scam, because although more than 95% of the forex traders lose, there are still some other traders who make money from forex trading.

Some people trade forex for a while and not only cannot make any money, but also lose a lot. Then they sit and think why? Finally they conclude that it doesnt make sense to buy and sell currencies against each other and make money through it. Such a business doesnt make sense and if it is now available to the public, it is because scam companies like brokers want to make money out of the traders illusions about making money through currency trading. It makes sense to buy and sell different companies shares/stocks. but it doesnt make sense to buy and sell currencies.

This idea looks true at the first glance. When you buy a companys share, indeed you are participating in that company activities. Your money goes to the companys pocket and they use this money to improve and develop. If they can do that, more people will buy their shares and so the price will go up, and you will make profit. If not, then the price goes down and you lose money. Whether you make or lose money, the capital you spent to buy shares will be spent to improve the company. This is a good and legitimate business. You not only invest in a company to make some profit, but also your money promotes the company, saves the jobs and creates new jobs in it.

Now the question is where your money goes when you buy, for example, EUR against USD? Does your money help any company or any people to work, develop and improve their business? If the answer is yes, then forex is also a legitimate business. If not, then it is a scam and has become accessible to the public through the Internet just to rip people off.

It is not that hard to answer this question.

1. If you open an account with a market maker broker, then your account is nothing but a different type of a demo account. You are trading in the brokers pocket. Your money and your orders dont go anywhere, exactly like when you demo trade. If you lose, the money stays in the brokers pocket and he will enjoy it. If you win, then the broker has to pay your profit from the money he has taken from the other traders. They have to make you lose, because your loss is their profit. If they do their best to make you lose, but still you make profit, they will do something to make you close your account and leave. You will be a terrible client for them, and they will have to kick you out.

Therefore, when you trade through a market maker broker, your money just helps the scams to improve and develop while they know that they are ripping you off. They know that their clients stupidly think that they are trading in the endless world of currencies, but indeed they are trading on the brokers servers and computers that are connected to nowhere.

So, forex trading becomes a scam when done through a market maker broker.

2. If you open an account with a true ECN/STP broker that his platform is connected to several different big and well-known liquidity providers like Bank of America, Goldman Sachs, JP Morgan, Citi Bank, Nomura, HSBC, and it really routes your orders to these liquidity providers, then your money will be distributed among these banks and you are trading with the real world of currency exchange. Your money will be added to these banks treasury which is connected to too many other banks, companies and businesses. They use your money to invest in different markets including the stock market, give loans to individual and businesses, buy and sell different currencies against each other, and so many other activities that you cannot even imagine. That is why when the New York Stock Exchange opens the currencies prices also start moving like crazy.

So, while your money helps only one single company when you buy/sell its shares, it can help too many companies and businesses when you trade currencies through a true ECN/STP broker. And such a business cannot be a scam. If some people cannot understand the currency market movements, and so they cannot make any money out of it, it is their own failure. It doesnt mean that forex is a scam.

In one of my next articles I will explain how a liquidity provider makes money through the forex traders transactions, and whether liquidity providers are market makers themselves or not.

Good luck

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