Why You Can’t Make Money in FX: An Industry Insider Bares the Hard Core Truth About the Myth of the Retail Forex Market – Part 1

In response to my earlier post The Truth About Trading, the following is a guest article written by my friend Andrew, who has been working in the retail forex market for over 25 years.  We look forward to his future contributions further exposing the retail forex market for what it really is.  Feel free to directly ask Andrew questions in the comment section.

Virtuoid, I promised you my thoughts under the teaser “why you can’t make money in FX” or words to that effect. It’s time I wrote something, I have some spare time. But it won’t be the Opus I wanted, I simply can’t afford the time.

Your recent comment on another posting:

Also, if you’re using such bots at online casinos, beware that online establishments have capital preservation sensors in place and will not hesitate to deactivate accounts which exceed the expected norm of winnings. They may let you win when the stakes are relatively small, but if you start winning larger amounts, they will simply close your account. Land based casinos do something similar by barring extraordinarily winning players. Casinos are in the business of making money, and they will do whatever they have to to preserve their profits. For online casinos, it’s extremely easy to detect and shut down the winners due to having direct access to your personal account information and history.

(Ref: comment reply in Why Any Progression Must Fail For Negative Expectancy Games In the Long Run)

…  has spurred me to write something.

Because your comment is EXACTLY what FX companies do against their clients. I cannot say it loudly enough – the reason why you can’t win in FX is not because you’re a genius and not because your strategy is the best thing since sliced bread – it’s because your “Broker” won’t let you!

And there are a hundred ways they do this, and if your a genius you might be able to spot (maybe) 5 of those ways.

Lets get rid of the biggest myth of all first. “The FX market is the biggest market in the world” – Um no, actually it’s quite small. The futures on tomatoes would be a bigger market. Whoa !!!! This guy is crazy!

Really? When you hear the FX market is the biggest market in the world what you don’t hear is that that is technically true. FX is the biggest market in the world – but you will never get to trade it. The market your trading in is the Retail FX market – and it’s tiny!!!

And if that’s not bad enough wait till you hear the next bit – there is no “Exchange”, you are not trading against “the market” or other participants – there is just your “Broker” and THEY ARE NOT PLACING YOUR TRADES! Oh no, they are not. They are running a giant sim – and they completely control your profit/loss – aka they control the “Signal” and the signal is what ever they want it to be.

Some bullet points –

Assuming everyone reading this has a bank account ask yourself: When was the last time my bank rang me and offered free trades/1 pip all majors/ double your deposit as a bonus/ make 10 trades no commission etc – really, when did your bank ever ring with a silly promotion? Then ask yourself why your “Broker” is doing it? Why are they asking you to deposit more money? Or to trade more? The brutal answer is that “Brokers” view your deposit as income. And re read that last sentence a hundred times. And how do I know this? Because I’ve been involved in FX since 1988.

As Virtuoid has previously stated any book store contains hundreds if not thousands of book on “how to beat the market” – AND EVERY SINGLE ONE OF THEM IS RUBBISH.

You must understand that there is no market. It is entirely OTC. (I’m referring to retail FX here), and once you understand it’s entirely OTC then you will understand the Broker controls your feed/signal and then you will understand you are never betting against someone else, you are only ever betting against your Broker,  Aka”The house” and they will never let you win.

And now I hear a thousand replies, my mate won, my wife won, I won. Um, if you did win, did you withdraw? That’s when you won. The psychology behind letting a client withdraw is an exact and black science – I know – I’m the one who authorizes the withdrawals – and you’re never getting any money from me. Because that’s how I make money – stopping you withdrawing, that’s how I make commissions. So you can make all the money you want – but just try and withdraw it. Yes you can withdraw, but not without a fight.

Trading strategies – I’ve heard a million of them – and all worthless – because of what Virtuoid touched on at the top of this rant. Brokers have dealing rooms and they have algorithms which will spot your winning strategy in the blink of an eye – and they will never let you win in any meaningful way. Sure there are mistakes and some people might make a few hundred grand – but you will never make millions – and if you did they will just say its an error, sorry, take us to court.

I previously wrote to Virtuoid recalling a story that my friend and I devised a Bot (in our lunch break !) that took 10,000 to 300 million in about 9 days. Pretty amazing huh ! So why don’t we act upon it? Because we work in the industry and we know no broker will ever let us do it. What everyone reading this article must understand is that if we could really make 300 million then that would come from the broker – not the market. THERE IS NO MARKET !

But what about ECN? That’s just the market right? And the Broker is just making the spread which is their commission ? Yeah right! Ever heard of “slippage”? There is no such thing. Nothing. Completely made up. Brokers have to make money, so they use slippage (robbing money from you) and the spread to make money. But that’s just the public knowledge.

Remember I said there is no market? So who are you playing against? Mostly the house. Not always, but mostly. And it is at this point that the greatest marketing trick in history is introduced. Leverage. And plenty of it. All those big hedge funds you here about and all the banks and Geoge Soros etc, the max leverage they would use is 10 – and that’s the max!

Leverage is how the industry makes money. 300-1, not a problem. 500-1, sure. It’s this playing on greed that makes this industry so profitable. What most people do understand is that greater leverage equals greater risk, what they don’t understand is that greater leverage equals greater commission (or spread). The spread is how the industry makes money, and exploiting the ignorance of this is how they decimate clients.

I have so much more to write, but must go now. I welcome any questions.