Real Foreign Exchange Market and its Simulators on Web

Although what I am going to tell you now is not about financial markets, but I could not close the introduction part of this workshop without mentioning it.

The art and science of trading financial markets is very young among the people of this region of world. Unfortunately there are individuals and companies who are taking advantage of this matter and misguiding thousands of people into huge amounts of loss, which becomes their profit.

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These individuals and companies impersonate us (brokers of financial markets) and deliver a totally different thing instead of our services. A very popular and general name for this phenomenon is Foreign Exchange Market.

Originally the word FX is an abbreviation for Foreign Exchange. It refers to the exchange of foreign currencies. However since the above mentioned scam is most of the time involved with currency exchange rates, it is widely known as Foreign Exchange Market trading. This fraud is most of the times guiding its victim to use a computer program that they call trading platform that they claim it connects the trader to international financial markets.

In reality there are no financial markets behind that trading platform. The buy and sell prices are generated by the operators of that computer program and they remain in control of moving those prices. In such system the operator of this computer program practically becomes the counterparty of all trades. It means the traders` profit is his loss and the traders` loss is his profit. Naturally they have no interest in the traders enjoying any profit. But it doesn`t end just like that. Such computer programs are being developed everyday and allow the operator to exploit its victim more aggressively such as showing different prices to different traders, abusing the ability to see their orders, rejecting their winning orders,....

The above scam attracts its victim to fall in the trap using many different tactics such as training courses, providing trading tips, saying tempting things to attract the greedy, offering free things or even sometimes asking for a very high price for their service or information wearing a luxurious dress.

Other measures that can be used to recognize such individuals and companies include the spread on the platform that as discussed cannot be fixed in a real market, and credentials of the company such as the license that allows them to provide what they are offering and the regulator authority and what this authority actually regulates. For example why a company should be established in Belize island and have its postal address in Cyprus? Or how come a company that is licensed by a stock exchange offers currency trading? What is the mechanism behind a trading platform that can always keep the spread of a contract at 2 or 3 pips? Obviously this cannot be a real market with real buyers and sellers.

How to differentiate fake and real:

1- Always be careful when what you trade is not being traded on an exchange. Ask for the name of the exchange where the instrument you trade is being traded. Specially be sensitive to the word " International Markets" such thing doesn't exists and has no meaning. Each instrument is traded on one and only one exchange.

You need to know the name of that exchange. Otherwise it means that what you trade is not being traded on an exchange that automatically means you must know there may be no regulator body and no supervision what so ever on the party that you are trading with.

2- Price Discovery mechanism - On an exchange, you are always sure that you get the most fair price for what you are trading as there is always a queue of buyers and sellers and you are always able to buy the cheapest offer or sell to the one who buys at the highest price. When you buy something, naturally there is a seller.

The buyers and sellers in an exchange provide a competitive environment for us to trade. Always make sure that you understand what is the price discovery on the platform that you trade.

3- Depth of Market - When DOM is not available on a Platform i.e. you see only one selling price and one buying price be careful. With whom are you trading? Most probably there is one counter party for all your trades. In such case your profit is his loss and your loss is his profit. Naturally such counter party is not on your side.

4 - Order matching mechanism- Always understand the mechanism how the orders are being matched on the platform. In case of platforms that connect you with real market, when a buyer or seller agrees to the price that another seller or buyer is naming, a trade happens that is why a "Market Order" (Please refer to the order type section) is always guaranteed execution and will never be rejected because of the change in the price.

5 - The Broker - always make sure that the broker provides you with the trading platform is licensed by an exchange. Naturally this broker must provide you with instruments that are traded on a exchange where he is a member. Investigate about the company to whom you give your money. Be careful about companies established in a small remote island with its postal address in another strange place. The Cyprus Stock Exchange broker who is offering you a trading platform for trading currencies, is not licensed and regulated to do so.

6- Account Size- To Trade financial instrument you are required to deposit a certain amount of money with your broker to insure the profit of other traders in case of your loss this amount is calculated based on statistical and mathematical calculations. This is a deposit and belongs to you there is no point for a broker to freeze your money unnecessarily and we do not accept a deposit less then what is required for your insurance. As an example in case of Gold depending on the contract size and market volatility such deposits may differ between 1000$ - 5000 $. If you are invited to open an account with 200 dollars think twice. Why that so called broker is accepting any amount even when it is not enough to be a deposit? Perhaps they don't look at it as your deposit but as mount that will be you loss

7- The Spread - As buyers and sellers continuously change the price they bid and ask the difference between the price the best buyer is asking and the price that the best seller is offering always changes. This is nature of a comparative environment.

Whenever you see a fixed a spread you must yourself think why and how the spread is fixed. It shows that the buying price and the selling price are being determined by one source.

We felt the moral obligation to warn you about it as well as an important part of our marketing policy as this phenomenon is causing huge losses for people in the name of financial markets. It is not always very easy to differentiate such computer programs that simulate financial markets from real trading platforms that actually provides access to real financial markets.

One of the most important checkpoints is that in a market simulator you can usually see only one buying and one selling price. This means the counterparty is only one .On DMA trading platforms (Direct Market Access) you should be able to see what is called DOM (Depth of Market). That is the queue of best buyers and best sellers. However we have encountered a market simulator that simulates DOM too. The other thing you must insist to know is the name of the market you are actually trading that contract on. In simulators this is usually not mentioned but in a DMA platform the name of the market is part of the name of the contract that you trade i.e. DGCX Gold futures contract delivery 5th of December 2008. In case you have encountered a similar case that makes you suspicious and you are not sure about it, we will be glad to provide you with our experience.

Trading currency contracts is very exciting as they normally have high leverage and volatility. If this is what you decide to do, we will provide you access to real Foreign Exchange Market trading.

Real Foreign Exchange Market and its Simulators on Web
Article Type: 
Forex Learning