What conflicts of interest commonly arise between foreign-exchange companies and their clients?

I've been on both sides of the coin, a Forex and Commodities trader and ran a Forex Company as well, so I can answer this question with a little more personal experience.

Well, first of all Forex trading is not something that is entirely simple. The trading itself is very simple, Buy low - Sell High and vice versa. The mechanics of prediction are quite complex. And herein lies the problem.

First, I blame the business itself, for advertising fast, unimaginable, monthly recurring wealth. This is false. Period. I used to do it. Its like the Casino. In the long run, the house always wins (will tell you why in a bit). No matter what you say, Forex companies make money on trades. There is no other way of making money. The amount of money a company makes = number of trades its customers carry out.

As a company operator we disassociate ourselves from how much losses (or profits) a client makes. The only thing we are concerned with is exposure and limits. Nothing more. Nowadays, the systems are robust enough to make sure all the players are within their assigned risk tables and do not trade over their payable capacity.

The story of how much money you will make (or not make) is what we try to sell all the time. The goal is to have more and more trades (preferably shorter times between trades), so we make more money. Clients that hold positions for a longer time, we make less money on them, as opposed to clients who do more day trades.

On the client side, I don't even know where to start.

People are very anxious to get involved in trading. In the early days of Forex trading, they will overwhelm themselves with information overload. They will subscribe to a dozen news letters, daily bulletins, get all the fancy computer hardware (esentially multiple monitors) and learn the science of reading tick-graphs, and real-time currency fluctuations happening around the world. All this seems very sexy, Wall Street-ish and uber-cool.

When you get into Forex trading, you are essentially given a false sense of connection with this...



This is the mirage most forex traders believe they are experiencing. This is how they imagine themselves to be...



Its a great thing to brag about and impress others, that you're a professional financial markets players (fancy words). The inner high people get from all this technology and money around them --- can be very misleading.

ON the days that they make money, they are like wow! Fast forward a couple of weeks later, when they make money, they think they have it figured all out. Their secret sauce on how to make money on Forex trading.

Days like this is what they imagine...



The truth of the matter is - you're a novice (and even I'm being generous with that word). You have no inkling on how the market will react - truly you don't. You're just playing poker. Hoping to have a good hand and hope to make some.

Clients, in about 1-2 months know of all the terminologies and the various markets, where to buy, where to off-load, where to hedge, where to go long, etc. But its still guessing at the very best. They eventually come down to a simple theory...

... if I do 10 trades a day, where I make $30 per trade, that's $300 per day for me, or $ 6,000 per month. Yeah, that's pretty cool.

Day trades are the epitome of what I would call, flipping the coin and betting on it. A select few who are absolutely patient, well-informed and disciplined - make money. Good money. But these are very few people.

How can a person, without investing years in money and trading markets, get to understand the whole system and start making serious money in weeks? It is just not possible. Even some of the best Economists and traders cannot tell what the 3-month long on the Dollar-Yen would be like, but someone you in your pajamas, have figured that out. You haven't. You think you have, but deep down inside, you know its 50-50.

Most traders, make a meager income, and the rest, just lose money. Seriously lose money and get addicted to the easy income (or loss) of the whole game.

The reality is, that most of your trades end up like this...



There is no conflict of interest per se, the goal of any Forex company, is churn in trades. The more trades, the more money is made. Between that statement and actually making money, we will do whatever is necessary (providing right or wrong information) to clients, for them to make their trades. The goal is to get them in, draw them in. Teach them a few tricks to make a few bucks (for example anyone can make money on a day or a week of bull-run), that's when they will tell you to buy and then sell, and say, "See how easy that was Mike! - now imagine if you were doing Ten Times that trade volume"

Think about it Mike.... Think about it...



Getting that individual connection now with traders is becoming inherently more difficult, with all the discount brokers who offer currency trading (i.e. DIY Forex Trading) from automated terminals. Getting access to clients on a group level becomes difficult. In the early days, you could go to one of the retail outlets of these forex brokers, sit there, have unlimited supply of coffee, cigarettes and chatter and trade. Now, everything has gone digital and to your computer screen. So the forex brokers have flooded the market with affiliates and resellers, who want to sell you the pipe dream...

They want you to think this is what you will be...

Happy couple, sitting on the couch, and ka-ching!


The work-at-home mom, who can operate out of her study and yet be with her family...


That if you do enough trades, this is the lifestyle you will experiencing...


So the real conflict of interest is that of what the portrayed mirage is and what the reality is. Most end up dipping their feet, because the temptation and alluring connection of being a Forex trader is too inviting.

I will add, most Forex Trading owners/brokers will disagree to what I have to say, that's okay. Feel free to disagree, but I will stand by what I have cited.