Forex Trading is Unsuitable for Most Retail Investors


A lot of retail investors are getting involved with Forex trading, according to Stephen L. Bernard’s Wall Street Journal article entitled “Is Currency Trading Worth the Risk?” It is only worth the risk if you can afford to lose every penny you put into it, and quickly. Regulators are seeking to warn retail investors of the risks, but retail forex trading is increasing.

The article relates the experience of one man who has had his account wiped out three times, but he returned for more. “There seems to be so much money that can be made,” he says. Clearly, something ugly is overpowering the frontal lobes of these peoples’ brains.

Retail forex trading is gambling, pure and simple. Assertions by brokers that it is diversification or hedging are misleading come-ons. The brokers that solicit and service such accounts are taking advantage of investors’ worst instincts. Tips on how to trade safely, in this article, and elsewhere, are akin to tips on how alcoholics can drink safely.

Only about 30% of all retail forex trades are profitable, according to the article, citing Aite Group. But that is not the same as saying that 30% of all retail accounts are profitable. Even wiped-out accounts may have had a profitable trade at some point.

Trading programs marketed to retail users often collapse. Those that advertise the largest returns in the shortest periods are likely to crash and burn the fastest. Bad trades are made far more damaging by leverage, which can be as high as 50-to-1. Even a small move the wrong way in this volatile market can wipe out an entire account.

In addition to the market risks, some forex trading operations are fraudulent. The Massachusetts securities division reportedly filed two Administrative Complaints against unregistered broker-dealers that allegedly perpetrated foreign-exchange investment scams. The cases are: (1) In the Matter of Eagle Trades, Ltd., Eagle Trades Ltd., LLC, and Terrance William Osberger, Docket E-2010-0005, and (2) In the Matter of Osiris FX, Evan Andersen, Glenn Anthony Manterfield, Alberto Sciola Jr., and FX Capital Services, Docket E-2010-0077.

“In these uncertain economic times, it is tempting to range far and wide in search of better returns,” Massachusetts Securities Commissioner William Galvin was quoted as saying, adding: “But the searchers can fall prey to schemes that flourish in just such times.”

Page Perry has over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry is actively involved in forex cases.