Editor’s note: This article was first published in July 2011; retail forex regulation in Spain and the EU has tightened since then, so its advice on brokers, platforms and CNMV warnings should be checked against current guidance.
Lately, forex has increasingly been associated with scams and swindles, so it’s worth clarifying a few points to avoid misunderstandings. Saying that forex is a scam would be like saying the stock market is a con, and nothing could be further from the truth. Forex is the currency market, where billions change hands every day. It’s a very volatile and very complicated market. In fact, to be honest, I don’t understand it and have never tried to. I wouldn’t be able to make money in it.
The problem is that, in some cases, when someone invests in any product or market through third parties and loses their capital, they feel cheated. That said, pyramid schemes have appeared within forex, promising that you won’t lose money and offering a guaranteed return of 4%, 8%, 10% and so on. Those clearly are scams: like every pyramid scheme, they pay your gains out of newly raised capital, and sooner or later, without real profits, every investor ends up losing their money.
Once again, we stress the importance of not investing through third parties. Although we need a broker to act as an intermediary when investing in the markets, we should at least be able to choose when and how to invest, and to sell whenever we ourselves see fit.
If you decide to invest in forex, do it through your own platform. Don’t hand €1,000 to someone so they can invest it for you, because that person earns more the more trades they make. If luck goes your way and they make you a return, their earnings grow. If it goes the other way and there are losses, you’re the one who loses. In investments with variable returns, nobody can guarantee you fixed gains, and if someone does, you need to examine the company in question very carefully.
In short: forex isn’t a scam, although some online companies using the forex name may well be. That’s why the CNMV (Spain’s securities regulator) has offered some advice to consider before investing in forex.
Further reading
Featured image: Images Money, CC BY 2.0, via Flickr.
