ForEx Trading is Not For You

There is an old saying in poker, “If you can’t spot the sucker at the table in the first 30 minutes, you are the sucker.” In the world of ForEx (Foreign Exchange) trading it’s even easier to spot the sucker.

There are two different types of ForEx traders. One type are the professional traders who work for banks or investment firms and trade with their investors’ money as part of a comprehensive risk-mitigation strategy. The second type are those the Commodity Futures Trading Commission refers to as “unsophisticated, elderly, low net worth and other vulnerable individuals.” If you’re not the first type of ForEx trader, you might be the latter.

Unfair Competition

The “spread” is the difference between the ask and the bid price. In the ForEx markets, different traders are given different spreads based upon their “lines” (the amount of money with which they are trading).

This means that if EUR are being offered at 1.1 USD, an individual investor will pay more for the same EUR than an institutional investor. Two investors can make the same trade, with the differences in spread making it profitable for the larger investor and unprofitable for the smaller investor.

ForEx is a Zero-Sum Game

In stock exchanges like the NYSE and NASDAQ, everyone can win at the same time. One stock going up does not cause another stock to go down. Every stock on an exchange could go up at the same time.

In ForEx trading, this cannot happen. If the USD rises, it does so only in relation to other currencies. For the USD to rise, another currency must fall.

Consider the implications of this. In a stock exchange, you are not directly competing with large institutional traders, because they don’t have to lose for you to win — they can win and you can win.

ForEx is what is known as a zero-sum game. For one trader to win, another must lose. Even worse, when you consider the added cost of trading fees, ForEx is actually a negative sum game.

Insider Trading

The professional traders working in ForEx markets benefit not only from formal education in finance, but also from insider knowledge provided by their employers and government connections. In most stock markets, trading from insider knowledge is a criminal matter. In ForEx, it is part of the game.