Forex trading is setting social media ablaze, with many lured in by its promises of making big money with minimal wikifx effort, particularly as a lucrative side hustle. So, whats the deal behind all the hype？ Is it simply a get-rich-quick scheme or is it really possible to start earning megabucks？
Arthur Procopos, Strategic Business Architect at Metropolitan GetUp, believes that it is important to understand what forex trading is, while what it is not.
What is forex trading？
The foreign exchange (forex) market is a global marketplace where foreign currencies are traded, and it is the largest and most liquid market in the world. It is certainly not a scam in itself, but it is becoming increasingly occupied by scammers, for several reasons.
Forex trading is conducted in currency ‘pairs’ (i.e. USD/ZAR), and these currencies increase and decrease in value relative to each other every day. The act of trading involves selling one currency and buying the other, just as with any other stock, says Procopos.
“As an example, lets say the exchange rate between the British Pound and the Rand is 1 to 20 (1:20) at a point in time. If you bought GBP1000 on the forex market at that moment, you would pay ZAR20000. If the exchange rate later fluctuated to 1:21, you would be able to sell GBP1000 for ZAR21000, meaning that you made a profit of R1000.”
Seems simple, doesnt it？ Not so, says Procopos. “Bear in mind that trading is conducted online, which means that all transactions occur through computer networks, between one trader and another, rather than via a centralised exchange. Given its decentralised nature, forex trading is an easy way for unethical online traders to take the money of unsuspecting individuals, because it has low entry requirements, explains Procopos. ”This means that you can start trading with very little money, and so it is easy for these traders to show some evidence that they are actively trading.
Another reason that forex trading is susceptible to scammers is the matter of ‘leverage’. What is leverage？ One law site explains: “This is basically a loan by the broker to the trader allowing the trader to trade at a margin. A typical margin ratio will be around 50:1, 100:1 or 200:1 depending on the amount of currency being traded. At 100:1 the trader only needs to put up £1000 to cover a £100,000 trade.