Category Archives: Tutorials


New method to achieve 90% modeling quality in MT4’s strategy tester

In a previous post I talked about how to achieve 90% modeling quality in your backtests by using Alpari’s databank files. Well I have good news! You no longer have to go such great length to get 90% modeling quality.

The makers of the MetaTrader 4  platform, MetaQuotes Software Corp, have decided to provide a data feed for everyone to use. The process of downloading history data from MetaQuotes’ servers is very simple. Just follow these easy steps:

1) Open up whatever MT4 platform you use

2) Go to Tools –> History Center (or press F2)

3) Select the pair you wish to download history data for and press the “Download” button

It will warn you that you are download history data from MetaQuotes Software server instead of from your broker and that there will be differences between the data provided by MetaQuotes and your broker.

That should do it! I would still highly recommend that you dedicate one MT4 platform to backtesting only. That mens do not load up any charts on  your platform. Just download the history data via the method I’ve outlined above and only use the strategy tester.

Short Term Trading Techniques for the Forex Market

Short Term Trading Techniques for the FX Market

Given my background as a scalper in the equities market for eight years I am often asked if those same techniques are applicable to the FX market. First, it is important to define how one defines scalping. First, recalling my days as a floor/screen based trader of equities in 90’s the definition was a technique whereby a trader could profit from very short-term moves in the marketplace by using a combination of 1 & 5-minute charts as well as a keen sense of tape reading.

When I made the transition to the FX markets exclusively back in 2001-02 I was keenly aware that this type of hyper strategy had 2 shortcomings:

  1. It was not scalable
  2. A scalping technique may not be conducive to the FX markets

While point 2 may be open to debate, one cannot argue that short-term strategies have a finite amount of capital you can deploy at any point in time without disrupting the market.
So with that in mind, the angle I decided to take on this article was to illustrate how some of the techniques and indicators used in a scalping strategy can still be overlaid on to a swing trading approach in order to maximize entry and exit points.

First some assumptions for the forthcoming analysis:

  • Trade selection is done using one of or a combination of a 60 & 240-min charts as well as a daily chart. A weekly chart is used merely as a way to identify long-term support and resistance areas.
  • I will discuss several indicators, mainly stochastics, fibonacci retracements and extensions, trend-lines and RSI, Elliot Wave analysis
  • Trade duration average is several days
  • I rely upon not only the G10 pairs but also several crosses
  • Risk is defined in advance of each trade and lot size is calculated based on stop-loss

There are limitations, as with any technical approach that combines a fair degree of discretion as rigid entry guidelines may prevent a trade from being executed. However the effectiveness and precision of the entry techniques will typically avoid costly draw-downs while the trade is playing out

Here is an ideal example of using a big picture viewpoint/analysis, but drilling down to a lower time frame in order to pinpoint the entry in an attempt to execute at a price that will perhaps provide immediate validation.

Japan Yen

In this instance I am anticipating that a retest of the bull trendline will fail, however, the ‘ideal’ scenario is to have the daily stochastic pointing down in order to have bearish momentum at our back. As you can see from the daily chart above, this is not the case. However, what if we could speed up the analysis in terms of drilling down a time frame or two and essentially forecast the turning of that stochastic lower?I rely heavily upon on the 60 & 240-minute in order to execute trades while frequently doing the analysis on the daily chart. Referring to the 240-minute chart below, it provides an ideal example of using the lower time frame for execution. Note the following:

  • Spinning top suggests a reversal is imminent
  • Stochastic cross lower igniting bearish momentum
  • Trend-line break (115.53) triggers ideal entry

If there is one question mark on this entry it is that the current trend on the 240-minute chart that is up. Trend is defined by 2 parameters:

  1. What is the slope of the 20-period ema over the last half a dozen bars?
  2. Are price bars above or below the ema?

Ideally, for shorts, price bars are below a downward sloping moving average and vice versa for longs.



Swing High

So now what, where do we take profits? In this case, given that the trend is up on the time frame that we used for execution there is not the luxury of letting the trade ride. In this instance, the logical exit points are seen at either the 50% fib retracement at 115.12 or the swing high at 115.24. These levels are easily achieved.AUD/NZD ShortThis cross has been ‘in play’ this year and continues to be a cross I have relied upon frequently. In this scenario we have a situation where the daily chart suggests a possible short, but does not provide all the points on the checklist for a high probability short.




AUD/NZD Wave 3

  • Wave 4 completion is confirmed by a stochastic cross lower and a trend-line break
  • Price targets are calculated by a simple fibonacci extension of wave 3 using a 1.25 and 1.50 setting


AUD/NZD Wave 4 and 5

Regardless of the trade, I always respect the time frame that the trade was executed on. In this case, the execution was based on analysis of the 240-minute chart, as a result, exit points also need to be calculated from the same time frame.Given that our first target was 1.1740 we still want to give the chance for the trade to play out, however, given that the trade is in roughly 100 pips in the money and the stochastic suggest that the selling pressure is waning, it is prudent to take some of the trade off and adjust stop-loss to either break-even or some price that suits the traders risk tolerance, a trailing stop is ideal.


The chart below provides a perfect example of two time frames coming together that isolate a fantastic short opportunity. In this case, the daily chart is already confirmed as bearish, now, it is just a matter of isolating the entry point as a way to avoid the trade going against you while waiting for the downward trend to resume.Until the 60-minute charts stochastic roll back over prices are likely to drift higher. The better entry is to wait for pullback into fibonacci resistance at 5.2450-5.2500 and waiting for bearish momentum to resume by way of a stochastic cross.






  1. Bear trend-channel is broken.
  2. Prices fail at swing low at 85.00 and form right shoulder of inverted head & shoulders pattern.
  3. A fibonacci retracement of the move higher from 5/23 offers the ‘ideal’ long entry point for a test to break the neckline.
  4. Stochastic is expected to pullback; turn higher confirming point number 3.
  5. If all points above are confirmed the target price has a solid chance of being hit.

All of the above points were met and prices did move right into the target price at 85.60

By Dave Floyd

Dave Floyd is a professional FX trader based in Bend, OR and the President of Aspen Trading Group. Dave’s approach to FX combines technical and fundamental analysis that results in trades that fall into the swing trading time frame of several hours to several days. Aspen Trading Group provides managed FX accounts and FX research to institutional and retail clients.

5-Step System to Evaluate Any Forex Broker

Here is a very good article written by Felix Homogratus about how to evaluate forex brokers before you open up an account with them.

Step #1: Does forex broker provide natural trading environment?

First step is to determine whether the forex broker provides natural trading environment or artificial trading environment.

Let me explain…

Bids & Offers Example. Let’s say you are trading the GBP/USD pair. Let’s say you want to buy GBP/USD. Let’s say you login to your forex broker account, and you see that the price is 1.9950/1.9953.

That means that somebody out there is willing to buy GBP/USD for 1.9950, and somebody else out there is willing to sell GBP/USD for 1.9953. So if you wanted to buy GBP/USD, you would have to pay 1.9953 for it. If you wanted to sell it, you would have to pay 1.9950.

Let’s say you want to buy GBP/USD, and you do not want to pay 1.9953 for it, but you would be willing to pay 1.9952 for it. So you go ahead and you submit a limit order to your broker to buy GBP/USD at 1.9952.

If that forex broker has natural trading environment, you should immediately see the price on GBP/USD change from 1.9950/1.9953 to 1.9952/1.9953. Why? Because someone else was bidding 1.9950 for GBP/USD and now you are bidding 1.9952.

Your bid of 1.9952 is higher than 1.9950, so in natural trading environment, that should immediately be reflected in the price, and the spread must shrink.

Please watch the following video to see example of this:

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There are two major benefits that come from natural trading environment. First is that you get to benefit from true spread which can often be as low as ZERO. And second is that your stop/losses will get hit less often. Let’s look at each benefit in greater detail.

ZERO Spread Phenomenon. The ZERO spread phenomenon is a very interesting one and is only possible in non-centralized markets such as forex. Let’s discover how ZERO spread is possible in forex market.

In my opinion the goal of every honest forex broker should be to provide traders the best possible price available. The way they can do that is by choosing the best possible price from several different banks and from every trader on their platform.

So let’s say Bank A has price of GBP/USD as 1.9950/1.9952, and Bank B has price of GBP/USD as 1.9948/1.9950.

So what your broker does is it takes the lowest bid price from Bank A, which is 1.9950, and it takes the lowest offer price from Bank B, which is also 1.9950. Because bid is from one bank, and offer is from another bank, they can stay on your broker with ZERO spread without executing against one another.

Getting screwed on Stop/Losses. Let’s now discover why the stop/losses will get hit less often if you use a broker with natural trading environment.

Well…first of all, if the environment of the broker is not natural, it means that they constantly need to worry about the accuracy of their price.

Many forex traders trade during news, and when price gets very volatile during news, the forex broker with not-natural environment becomes afraid that the traders will take advantage of their price feed and will get filled on much better price than the real market price.

Because of that, the broker is forced to artificially raise their spread during news. It happens quite often that the spread is raised from 2 pips to 30 pips and sometimes more.

So if your stop/loss is 20 pips away, and the spread just got raised, even for 1 second, you will get stopped out on a price that you would never be stopped out on if you traded with broker that provides natural trading environment.

Every day is filled with many different news announcements, so if you do not have a broker with natural trading environment, you can get screwed on spread and stops very often.

Step #2 Does forex broker charge commission?

At first you may think that I am crazy. Why would I want to pick a broker that charges commissions over a broker that has only spread with no commissions? Let’s discover the answer to this question together.

Forex brokers are not charities. Their purpose is to make money. There are two ways brokers can make money. First is to charge commission. Second is to collect spread.

Charging commission is the only honest way a broker can make money. If the broker does not charge commission, that means they are making money from spread.

It should be impossible for forex broker to make money from spread in natural and honest forex trading environment.

The purpose of a forex broker should be to connect traders and banks. The purpose of the traders and banks is to compete with one another for best possible price. That competition is what determines spread in real trading environment.

The only way forex brokers can make money on spread is if they set their own “fixed” spread or add “extra” spread to natural spread. In either case it means manipulation of price.

There is only one party that can have control over prices. It’s either the traders or it’s the broker.

When traders control the prices, there is honest environment of supply and demand. When broker controls the prices, there is dishonest and artificial manipulation that is the root of many problems.

Manipulation of spread and prices is how most forex brokers screw their traders every day, and most traders don’t even know it. Most common way is to take out their stop/losses a lot more often than they should be taken out in normal trading environment.

But remember, many brokers that charge commissions also manipulate their spread, so they make money both ways.

The only way to know if the spread is real is to see if you can change prices with your orders as shown in video above.

Step #3 Is forex broker regulated?

What good is forex broker that you can trade and make money with, but when it comes time to take your money, they don’t give it to you, because they don’t have it?

Forex Broker Bust Story. Refco was the biggest forex broker that was worth around $4 billion dollars. In October of 2005, Refco shut down its operations and every trader who had money with them got screwed big time.

Refco was not regulated and for some time they were spending not only their profits but also deposits of their clients. The amounts of money that traders saw on their trading platforms and the amounts of money Refco had in their bank accounts were different by $400 million.

So when the news hit the wire that Refco is running at such deficit, traders panicked and started asking for withdrawals. The only problem was that Refco was $400 million short of what it owed to traders.

There was a trial of course, and whatever assets the company had the court ordered to distribute among traders. I knew some people that had money with Refco. As far as I remember, after all assets were sold they got around 10% of what was owed to them. That means if person had $10,000 in his trading account, he got only $1,000 of it.

Moral of Forex Broker Bust Story. What is the moral of this true incident? The moral is that we have to remember that every time we deposit money to any forex broker, the money goes into their bank account. Whatever balance we see on our platforms is not real.

The broker can spend all of our money, without us knowing it, and they can still run their operation for a long time by robbing Peter to pay Paul. But when there are no more Pauls to rob, Peters get screwed.

The purpose of regulatory agencies is to constantly audit forex brokers and make sure that they are running their business properly and that the funds that belong to their clients are in place.

There are private regulatory agencies and there are government regulatory agencies. Private agencies are usually less strict and not as serious as government regulatory agencies.

I suggest doing business only with those forex brokers whose parent company is regulated by at least one regulatory agency, preferably government one.

List of 5 Regulatory Agencies. Here is the list of some popular financial regulatory agencies in the US:

Name: US Securities and Exchange Commission
Abbreviation: SEC
Status: US Government
Website: You can find out whether a forex broker’s parent company has a filing with SEC by going to: There is also a search function on SEC website, but it does not go beyond 1994. Here is the link:

Name: Commodity Futures Trading Commission
Abbreviation: CFTC
Status: US Government
Website: You can find out whether a forex broker’s parent company is a member of CFTC by going to this link, opening most recent PDF file and searching by broker’s company name:

Name: National Futures Association
Abbreviation: NFA
Status: Private
Website: You can find out whether a forex broker’s parent company is a member of NFA by going to this link and searching by broker’s company name:

Name: Financial Industry Regulatory Authority
Abbreviation: FINRA
Status: Private
Website: You can find out whether a forex broker’s parent company is a member of FINRA by going to this link and searching by broker’s company name:

Name: Securities Investor Protection Corporation
Abbreviation: SIPC
Status: Private
Website: You can find out whether a forex broker’s parent company is a member of SIPC by going to this link and searching by broker’s company name:

Step #4 Does forex broker have good reputation?

Before doing business with any forex broker, it is very important to check on their reputation. When checking on reputation of a forex broker, you should ask three questions.

How long has forex broker been in business? First Question is how long the forex broker has been in business. First you should search their company name on their local government website, and see date of their incorporation.

Second you should check and see when their domain name was registered. You can check on the domain by going to this link:

If either their company name or their domain name has been around for less than 3 years, I think it’s very risky to be doing business with that forex broker.

Media Coverage. Second Question is whether the forex broker had any articles in any major financial newspapers. The easiest way to check that is to ask them. Most companies that had positive media coverage will save that information and post it on their website.

I think that doing business with forex brokers that did not have any articles in major financial newspapers is risky, because that usually means that they are either too small or haven’t been around long enough.

Reviews of Clients. Third Question is what do former and current clients say about the forex broker. Best thing you can do is go to, find your forex broker in the list and read reviews about them.

I would avoid forex brokers that have less than 20 reviews, because it means that they are very small. I would also avoid forex brokers with a rating of 2 stars or less.

I suggest reading through the reviews with great discretion, and look for reviews with specific details about certain issues and problems

Step #5 How much does it cost to withdraw money?

In my practical experience as a forex trader for quite a few years, I think it is very important to find a forex broker that allows you to withdraw money as often as you like at no cost or very little cost.

Perhaps you are different, but for me one of the keys for keeping my profits was to constantly withdraw them. If I left profits in my trading account, I had a tendency to take more reckless trades and lose them much quicker than normal.

But when I was back to core balance or below, somehow I would get more conservative and more careful and bring the balance to positive again. Even if you want to grow your account by keeping the profits there, I suggest withdrawing them first, and then re-depositing them. This way, mentally your profits become as core balance.

I have dealt with some brokers that charged a lot for withdrawals and even penalized for frequent withdrawals. Even if I had thousands of dollars in profit, and it cost $30 for a withdrawal, psychologically I was not inspired to withdraw profits. I would wait, and try to consolidate my withdrawals, and every time I did that, I usually regretted it.

So to make the long story short, before opening an account with a forex broker, call them and tell them that you are planning to withdraw money 10 to 15 times per month, and ask them how much it would cost.

You may be surprised to find out that with such withdrawal activity, you may be losing extra $500 to $1,000 per month just in withdrawal fees.

I believe that we as human beings are conditioned to efficiency, so if we have to pay money to withdraw profit, we won’t do it as often as we should, and it can end up costing us thousands and tens of thousands of dollars in lost profits due to psychological effect this will have on us as forex traders.

So I think it’s best to find a forex broker that will allow you to withdraw money as often as you wish. In addition to that, they must have at least one withdrawal option that costs under $10 per withdrawal, and takes 1 week or less to receive.

Running MetaTrader 4 (MT4) on Mac OS X

Here is how to get MetaTrader4 (MT4) Forex trading platforms to work under Mac OS X.

Requirement: You must be using a Mac with the Intel Duo Core Processor.

1. Download CrossOver
Download a 30-day trial version of CrossOver from CodeWeavers at

(the for-sale version only costs $60).


2. Install CrossOver and quartz-wm
At the end of the installation it will request you insert Disk 1 from your Mac OS X install disks which came with your Intel Mac. This is important as a small file (quartz-wm) needs to be extracted from the X11 package. If for whatever reason you don’t see a dialog indicating that this was successfull (happened to me 2x), delete all installed CrossOver files and try again.

3. Create WinXP Bottle in CrossOver
At Configure/Manage Bottles within CrossOver create a new winxp bottle. You can name it anything you want. For here, I’ll refer to it as the winxp bottle. This will create a bottle stored within your user folder (see path below).

4. Copy/Paste MFC DLLs
From within your valid, licensed copy of Windows XP, navigate to the system32 folder and locate the following DLLs: mfc40.dll and mfc42.dll. Copy these to your Mac and then move them to the equivalent WinXP “bottle” within your user folder. The path is username/Library/Application Support/CrossOver/Bottles/winxp/drive_c/windows/system32/.

5. Copy/Paste wingding Font
To properly show symbols and arrows, locate the wingding.ttf file in your Windows proper installation and copy it to your CrossOver installation in the /windows/fonts/ directory.

6. Install MT4
Download the MT4 installer (e.g. mt4setup.exe) from your broker. I tested using FXDD’s latest MT4 build 205. Double-click on the .exe and it should take you to CrossOver and begin running the MT4 installer the same as you’re familiar with when running on Windows. Select all of the default options for where MT4 will be installed. At the end, de-select (this is important) the option to auto-launch MT4 after installation is completed. (This doesn’t work.)

7. Launch MT4
From within the CrossOver application, go to the Programs menu and then select the MT4 application (it may be within a sub-menu with a symbolic link to the actual terminal app).

MT4 should launch and look just as good as from within Windows! And, MetaEditor launches as well! Check out this screenshot:



UPDATE: Make sure the broker you are downloading from still has version build 218 and not 220. Also once you’ve downloaded version 4.00 build 218 don’t update it.

Version 220 has added security and will not work with crossover. (See comment #18 below)

If you can’t find build 218 any more use the link below to download a copy of FXDD’s MT4 Installer.

How to Achieve 90% Modeling Quality When Testing Expert Advisors

Update: See this post for a newer (and I would argue better) method.

How to Achieve 90% Modeling Quality When Testing Expert Advisors on MetaTrader 4 Strategy Tester

Rule #1: You MUST use a separate installation of MT4 for testing Expert Advisors. This is not an option. This special installation of MetaTrader 4 is the one that you will use from now on to test your Expert Advisors.

Summary of procedure
•   Install separate instance of MetaTrader 4 for Expert Advisor testing only
•   Update your installation of MetaTrader 4
•   Delete demo account and .hst files
•   Download Alpari data
•   Import Alpari data into MT4
•   Convert M1 data to the different time frames
•   Restart MetaTrader 4

Install separate instance of MetaTrader 4

Install MetaTrader in a separate folder. If you already have MetaTrader 4 installed for trading then you will want to download the MetaTrader installer and run it again. During the installation, the wizard will ask you what directory to install on. Make sure you specify a new directory here when you get to this part. Then just run through all the default values of the installer. At the end of that process you will have installed a new instance of MetaTrader 4 on your computer. This one you are going to use for testing only.

Update your installation of MetaTrader 4

After the installation open a demo-account so MT4 can update itself. (Note: You will do this only once!)

Delete demo account and .hst files

After MT4 has updated itself, delete you account by selecting it from the left menu and selecting “Delete” you will be asked for confirmation. Say OK to delete the account. If you do not do this your history data will be overwritten every time you open a chart. Make sure you never have an active account on the instance of MetaTrader that you use for testing.

Navigate within Windows Explorer and find the folder where you have installed your test
version of MT4. Open the folder called “History” and delete everything that ends with *.hst.

Download Alpari data

Now you’re ready to import the historical data for the pairs that you want to test. But first you must download the data. Here is where you will find it.
Go to the Alpari site listed above and download the one minute (M1) data for the currency pairs that you want to test for.

For the sake of this example we will use the EUR/USD

Click on the EUR/USD symbol. You will be asked if you want to open or save the file. Chose to save the file. Remember the location where you saved it to.

Save the zip-file and unzip the file. You now have M1 historical data for the EUR/USD for more than 2 years.

Import Alpari data into MT4

How to import historical data in MT4

Open the test version of MT4. You will get 2 screens wanting you to open an account. Cancel both as we do not want any accounts for this test-version as previously stated.

In MT4 click Tools and History Center and look for the EUR/USD. Double-click the 1Minute button. There should be no data in this screen.

Now click the Import-button and go to the folder were you have saved the file

Be certain that you have selected the correct file-type (MetaQuotes files) When the data is imported, close the Import-screen with the OK-button. You now have the data imported in the History Center. You can close this screen with the Close-button.

Convert M1 data to the different time frames

Now we have to convert the M1 data to all of the other time frames (M15, M30, M60, M240,
M1440 and M10080).

To do this click on File => Open Offline and look for EUR/USD, M1. Select this and click the Open button. You now have a offline chart for the EUR/USD M1 on your screen. Change the Max bars for your History and your Charts: To do this click on Tools, Options, and Charts and add all nines (9999999) to your Max Bars.

Close this screen with the OK-button.

On the left side of your screen you have your Navigator screen. If not you can open this with CTRL N. Under Scripts you will see a script called “period_converter” Double-click on it. You will get a pop-up screen asking for settings.

To begin the conversion from M1 to M5, set the Variable ExtPeriodMultiplier to 5 and click the OK button. The screen will disappear and it will look like nothing is happening. But something is happening. In the background, the script is converting the M1 data to M5 data and it needs some time to do it. The script needs some time for the conversion so you have to wait at least 30 seconds before moving on to the next time frame. Do not give into the temptation of rushing through this process.

After the wait-time, double-click the script again. You see a warning-screen asking if you really want to stop the script. Say “Yes” Now you have the start-screen of the script again and you can use the next time frame (15). So change “ExtPeriodMultiplier” to 15 and after that repeat all this for the rest of the time frames. (5, 15, 30, 60, 240, 1440 and10080)

Restart MetaTrader 4

When complete, restart the MT4 application and now you will have 90% Modeling Quality for the EUR/USD the next time you test an Expert Advisor for MetaTrader 4

You have to repeat this procedure for every currency pair that you want to test.

If you do this, you will have as near perfect a back-testing ‘engine’ as you can get with MT4.

Want to run an EA but can’t leave your PC on all the time?


Hi everyone. If you’re like me, you probably want to run a few expert advisors here and there. However, not everyone wants to leave their PC running all the time to do this. There is a solution, but of course it’s going to cost you. I’ve been hunting around the net for quite some time and came across a fairly cheap provider of Virtual Private Servers (VPS) that caters specifically to Forex traders like us. They even have some of their own EAs you can subscribe to for a reasonable fee. I haven’t really looked that much at their EA subscription offering but feel free to look into that if you’re interested. I was mainly interested in their VPS offering.

Here is what they’re offering (quote from their website):

  • 64 bit Windows for maximum performance! [especially traders]

  • Windows Virtual Desktop hosted in a major US datacenter

  • Accessible from any Windows PC, Mac, web browser
    or Windows Mobile Phone!

  • Your programs keep running, even when your PC is shut off

  • High speed Internet to your desktop – even for dialup users

  • No maintenance at random hours

  • Subscription EA’s and/or upload your own!

  • 24/7/365 support, trusted by subscribers in 67 countries

  • Virtual Desktop Feature & Security Pack for FREE!

Virtual Private Server Detailed Specs:

  • 384MB RAM
  • 5G Hard Disk
  • 5GB Backup Hard Disk
  • 2.5x Power (CPU Share)
  • 250 Processes
  • Windows 2003 Enterprise Server 64 bit
  • 2 Remote Desktop Sessions
  • Online Trader Software Application Templates
    MetaTrader, VTTrader, iqChart, Speed Trader, Mig Trading Station, TCNet…or install your own!
  • Dedicated IP Address
  • Remote Desktop Sound & Printing Support
  • Free .com/net/org Domain Registration
  • Virtuozzo Power Panel Included
  • Dual Firewalls
  • ClamWin AntiVirus
  • Virtual Desktop Feature & Security Pack

The price is a modest $30 per month.

They do have a “Power Edition” package but that’s gonna cost you $65 per month. I think for me (and probably for the rest of you) the $30/month package is good enough.

If you’ve got an EA that earns you over $30 per month (which I hope you do) then your forex earnings will pay for the VPS service easily. I intend to give this company’s services a try in the next few weeks or so.

All interested parties please visit this link to sign-up or to find out more details.



How to Spot a Forex Scam

Start researching Forex and you’re likely to see several ads proclaiming ridiculous guarantees such as “2,000 pips a Day!” or “400% Profits in 3 Days!!” Before you quit your day job and start trading Forex fulltime because of these outlandish claims, let’s evaluate how to spot a Forex scam.

Unfortunately, many people associate Forex trading with scams, and perhaps for good reason. The number of unscrupulous companies has been increasing. The number of Forex-related scams has increased abruptly over the last few years, and it is important for you to be able to identify a hoax.

Currency trading is an exciting and potentially profitable investment option, but as with anything involving money, there are people out there who will rob you blind if you don’t know what you’re doing. Let’s take a closer look at Forex scams, so you are properly equipped to spot one.

Understand Genuine Forex Operations

So, where are Forex scams likely to occur? Advertisements for scams can often be spotted in online pop-ups, newspaper advertisements, and the classified sections of financial magazines. How do you weed out the good from the bad?

A first step is to learn how legitimate Forex trading is conducted. Generally, Forex traders can place orders through an exchange or board of trade, a bank, insurance company, registered securities broker/dealer, or other financial institution.

This means that you should search out these types of institutions in order to trade currency. It also means that many scammers will masquerade as one of these types of companies in order to trick you. So where can you turn for help? Is there anyone out there tracking down and punishing these evil-doers? Never fear, the CFTC is here to help you.

Meet A powerful Ally – The CFTC

Even though Jack Bauer doesn’t work there (that’s CTU), the CFTC or Commodity Futures Trading Commission is a great source of information for Forex scams. They have been working tirelessly to crack down on the number of scams, and while it has taken longer than 24 hours, their efforts have produced solid results which Forex traders can utilize.

In the United States, the CFTC has federally mandated authority and jurisdiction to investigate and take legal action when appropriate against corrupt Forex brokers. Additionally, they have the ability to prosecute any firm registered with the CFTC if the firm’s actions violate any CRTC-mandated rules.

The CFTC was empowered in December 2006 with the passing of the Commodity Futures Modernization Act. Their efforts have centered on educating potential Forex traders about currency trading’s best practices as well as keeping tabs on the people who offer Forex services.

CFTC Guidelines

The CFTC has issued several reports concerning the offering and trading of foreign currency futures and options contracts. Some of the main points of advice from the advisory are the following:

  1. Stay Away From Opportunities That Sound Too Good to Be True
  2. Avoid Any Company that Predicts or Guarantees Large Profits
  3. Stay Away From Companies That Promise Little or No Financial Risk
  4. Don’t Trade on Margin Unless You Understand What It Means
  5. Question Firms That Claim To Trade in the “Interbank Market”
  6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
  7. Currency Scams Often Target Members of Ethnic Minorities
  8. Be Sure You Get the Company’s Performance Track Record
  9. Don’t Deal With Anyone Who Won’t Give You Their Background

Additionally, the CFTC warns to be careful of unsolicited phone calls about “can’t miss” investments from offshore salespersons or companies that don’t sound familiar.

The following are some of the steps prescribed to identify a potential scam by the CFTC, and we encourage you to follow them:

  • Contact the CFTC.
  • Visit the CFTC’s forex fraud Web page.
  • Contact the National Futures Association to see whether the company is registered with the CFTC or is a member of the National Futures Association (NFA). You can do this easily by calling the NFA or by checking the NFA’s registration and membership information on its Web site. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
  • Get all information about the company and verify that data, if possible. If you can, check the company’s materials with someone whose financial advice you trust.
  • Learn all possible information about fees charged, and the basis for each of these charges.
  • If in doubt, don’t invest. If you can’t get solid information about the company, the salesperson, and the investment, you may not want to risk your money.

No Free Lunch

One of the basic principles of economics is the concept that there is no such thing as a free lunch. This concept is for the most part true (soup kitchens excluded) and particularly applies to any type of investing, especially Forex trading.

If a Forex claim seems too good to be true and a broker is seemingly giving money away, then don’t invest. This doesn’t mean you shouldn’t try to find low commissions or low bid/ask spreads, but remember there is no invincible Forex formula or brokerage which will enable you to instantly make huge amounts of money trading currency.

Never Stop Learning

The only foolproof method to avoiding currency scams and to become a successful Forex trader is to gain as good an education as possible. The more you learn about Forex trading in general, the easier it will be to spot currency trading scams.

For example, what would happen if on your way into your favorite electronics store, someone stopped you and said not to buy that Plasma which you’ve been saving all year for, because they could guarantee you a better television at half the price? They explain all you have to do is give them $1000 in cash and they’ll present you with the TV.

Would this get your attention? Of course. Would this be a good idea? Not unless you want to wave goodbye to one thousand hard-earned dollars. How do you know? You’re a well-informed and responsible consumer with years of purchasing experience. In order to identify Forex scams you must also become a well-informed and responsible Forex investor.

Some good places to enhance your Forex scam-spotting abilities are:

Do Your Homework

A crucial part of any education – and the primary source of agony for kids over the age of 5 – is homework. But before you take anyone up on an offer or enlist the services of an enticing broker, do your homework. Thoroughly research all aspects of the action you’re about to take, and don’t act until you are absolutely certain the offer is legit.