Over The Counter

Forex is currently on over-the-counter market without central regulation. It means you buy directly from the broker on the quotes offered to you.

Different brokers can offer different prices (click on the picture). As you can see one of the buy price of USD/JPY is 118.638 while at another broker you can sell USD/JPY for 118.64. Instant profit of 0.002? If we would trade real money moving between these brokers, it would probably be a profitable trade, unfortunatly, you cannot do that with these accounts.

Scamming you with Forex is very easy. The broker might offer you "personalized quotes" designed to result in loosing trades. The broker might never make a real Forex trade in the background.

Another way broker companies take advantage of people is to offer a leverage of 1:200, 1:400. Without proper training in risk management the average investor is expected to loose money fast. Everybody knows that buying shares on margin (on borrowed money) is high risk. Yet, that is only 1:2 leverage. In Forex, the leverage, meaning risk, is 100 times greater.

The good news, however, that on Forex, you will only loose the money on your account and not the house from over your head because the electronic systems can close your positions in time.

Brokers usually retain the right to change the spread. They might advertise "2 or less pips" but they might change it during the course of the day.

Some brokers fail to update the price chart often enough, while others provide you a system that is just very slow to use.

Another post will explain the most important factors on how to choose a Forex broker.