Forex scam is any trading scheme used to deceive traders into believing that they can expect to make high profits by trading the forex market. According to Michael Dunn of the US Commodity Futures Trading Commission (CFTC), currency trading became a common form of fraud in early 2008 [1].
The foreign exchange market is at best a zero-sum game [2] meaning that if one trader wins, the other loses. However, brokerage fees and other transaction costs are deducted from the results of all traders, making the foreign exchange market a negative-sum game.
Features of the game in the foreign exchange market
The foreign exchange market is a zero-sum game [2] where there are many experienced, well-capitalized professional traders (for example, working in banks) who can fully devote themselves to trading. The inexperienced retail trader will have a significant informational deficiency compared to these traders.
Retail traders are by definition undercapitalized. Thus, they are subject to the player's ruin problem: in a “fair game” (in which there is no information advantage), the player with less capital is more likely to go bankrupt than the player with more capital. The retail trader always pays the difference in buy / sell prices, which makes his chances of winning less than fair play. Additional costs may include margin interest or, if the spot position remains open for more than one day, the trade may be “recalculated” every day, and each time it will cost the difference in buy / sell prices. In some variations of forex trading, clients do not receive normal fungible futures, but instead enter into a contract with some specified company. Even if a company claims to be acting as a “forex dealer,” it has a financial incentive to see the retail customer lose money. The contract is concluded directly between the client and the pseudo-dealer, therefore it is OTC; it cannot be registered and sold on the futures exchange [12
The foreign exchange market is at best a zero-sum game [2] meaning that if one trader wins, the other loses. However, brokerage fees and other transaction costs are deducted from the results of all traders, making the foreign exchange market a negative-sum game.
Features of the game in the foreign exchange market
The foreign exchange market is a zero-sum game [2] where there are many experienced, well-capitalized professional traders (for example, working in banks) who can fully devote themselves to trading. The inexperienced retail trader will have a significant informational deficiency compared to these traders.
Retail traders are by definition undercapitalized. Thus, they are subject to the player's ruin problem: in a “fair game” (in which there is no information advantage), the player with less capital is more likely to go bankrupt than the player with more capital. The retail trader always pays the difference in buy / sell prices, which makes his chances of winning less than fair play. Additional costs may include margin interest or, if the spot position remains open for more than one day, the trade may be “recalculated” every day, and each time it will cost the difference in buy / sell prices. In some variations of forex trading, clients do not receive normal fungible futures, but instead enter into a contract with some specified company. Even if a company claims to be acting as a “forex dealer,” it has a financial incentive to see the retail customer lose money. The contract is concluded directly between the client and the pseudo-dealer, therefore it is OTC; it cannot be registered and sold on the futures exchange [12
