FXCM targeting morons?

Recently I contacted someone who works in the financial industry with a follow up to an article the individual wrote suggesting none too delicately that FXCM is a “bucket shop” which is to say, essentially, that they are a scam broker out to rip off their customers. I asked him to clarify some of the points he was making because as far as I knew FXCM is registered with the NFA and regulated by the CFTC; and FXCM is apparently one of the largest if not the largest forex broker on the Internet.

The individual was kind enough to reply with an interesting answer. The gist of his answer was that FXCM is indeed regulated but that doesn’t really mean much of anything when you consider that there’s really no stiff penalty for failure to comply with regulations. The individual pointed me to this link as an example: http://www.nfa.futures.org/news/newsRel.asp?ArticleID=1972

What the individual explained was that the US$175,000 penalty which FXCM had to pay is nothing to them. He explained that the risk to reward ratio is so high they can afford not to worry too much about the occasional penalty.

The individual then went on to call the people signing up for accounts with FXCM and other forex brokerage firms “morons”. These morons, of which I plan to become one starting in a few weeks, are enabling FXCM and other forex brokers to make enough money to meet the CFTC capital requirements and stay in business.

I bring this up because it dawned on me today that there’s a reason forex trading was once upon a time not open to the general public. It was a game that you needed to have a whole lot of money to play; and in reality, you still need to have a whole lot of money to play the forex game; but the doors to the foreign exchange market were opened to one and all; and people like the guy(s) who is FXCM otherwise known as Forex Capital Markets LLC’s founder realized there was a way to get ridiculously rich by getting ordinary people involved in forex trading. It’s the age old winning system of making money off of people’s dreams. Sell them an idea for how they can get rich and if you’re convincing enough they’ll fork over thousands in the hope of turning it into millions.

This is not to suggest forex trading is itself a scam. Forex trading is quite legitimate; but it’s still the case that it’s a game best played by people with a good amount of money to start. Places like FXCM don’t stress this point though. Because they are obligated to do so, they warn you about the risks. They use words like leverage and margin and tell you that trading on margin with leverage increases your risk of losing your money. They advise you not to open an account with less than a certain amount of money; but in the same breath they let you know you can open an account with as little as $300. And they know the majority of the people who join will not be able to fund their account with the recommended amount.  But this is okay with them because it almost assures they will pocket the deposited funds.

Most individuals who get into forex trading with small accounts lose their deposited funds before too long; but the ease with which you can potentially make money in forex will always lure people who dream of making lots of money quickly. We’re talking about a pretty large percentage of the general public, which explains why companies like FOREX Capital Markets are so strongly invested in getting the word out about forex trading. Just read this article for example, published on keytv.com: Foreign Accent in Exchanging Dollars

This is clearly a bid to generate interest in currency trading in order to lure the dreamers; and why would there be such a vested interest in getting news about forex trading out to the public? Is it because FXCM wants us all to get our piece of the pie? Not likely. The more likely answer is that FXCM wants our money; but not just FXCM. All forex brokers want your money and yes, most of them are counting on you being a bit moronic, greedy and undisciplined; but in order to buy and sell currency it would seem you need to lie in bed with one of these forex brokers. So if you’re going to go ahead and do it you need to figure out how to make sure you’re not giving all and getting nothing. Don’t just jump in without knowing anything about who you’re getting into bed with. You might be sure you can handle the situation, but once in it you might find yourself at the mercy of an unyielding rapist.