You’ve heard the joke, How do you make a small fortune in ________?
…Start with a big fortune.
There’s no place where this joke is more appropriate than currency trading. My good friend Meb Faber found an article in the LA times highlighting the madness. And an estimated 615,000 Americans are dabbling in foreign currency trading.
Here’s some of the money quotes (so pun-ny):
FXCM and Gain are the two biggest brokers with a combined 260,000 accounts. Roughly 75% of customers lost money every quarter (both are public and have to disclose such stats to the CFTC). This is exacerbated by one simple metric: 50 to 1 leverage (that is down from 100-1 of a few years ago but still 25 times leverage allowed to stock traders). You can also make a deposit by credit card.
FXCM made $2,641 for every active trader, while the average customer had $3,658.
….”The business model for forex trading is to burn the customer and then find another one,” said Larry Harris, a USC professor and the former chief economist at the SEC.
Michael Greenberger, a University of Maryland professor and head of trading and markets at the CFTC said, “Once you have things that are done off exchange you are pretty much at the mercy of the dealer – telling you what the price is,telling you what you owe. Anybody I cared about – I’d say, ‘Stay away from this.’”
CFTC chairman Gary Gensler recently said it was the “largest area of retail fraud” his agency oversees.
So, remember kiddies– if you get the urge to start trading currencies to make your fortune– just say no.
Source: Foreign currency trading is easy — an easy way to lose money – LA Times