Is Forex Legit or a Fixed Scam

Yes, Forex, or the foreign exchange market, is a legitimate marketplace where international currencies are traded directly between several financial institutions, including the banks, and in a speculative form (CFDs) by retail investors.

Learn in this article about the Forex market legitimacy, two of the possible ways that this market can be traded, who supervises and regulates it effectively and tips on how to avoid scams.

The foreign exchange market is commonly known by the term “Forex”. This term derives from the words “foreign” and “exchange”, and it’s used to refer to the global currency trading market. The short term “FX” is also widely used to refer to this market.

Forex trading activities are also legitimate, although the absence of a regulated and centralized exchange makes this legitimate market susceptible to scams and frauds.

How is the Real Forex Market Traded?

Operating 24-hours a day over 5 days a week (Sunday 10pm GMT to Friday 10pm GMT), the Forex market is the most liquid financial market in the world. Market participants include governments and their central banks, commercial banks, financial institutional and investors, commercial corporations, market speculators and individuals, referred to as retail investors.

The real foreign exchange trading happens via two possible ways

The first way is by an individual or a company representative going directly and physically to a bank or an exchange booth (like the ones found in most international airports) and exchange one currency for another.

The second way is by electronic form, via an ECN (Electronic Communication Network), over-the-counter (OTC) environment, where banks buy and sell currencies to match their own needs, or representing clients, and where licensed brokers, or dealers, negotiate directly with one another, taking orders on behalf of clients.

Whilst big financial companies and banks, such as JP Morgan, with a 9.81% market share and Deutsche Bank, with an 8.41% market share, can trade directly with each other, retail investors (the public) can only access this market via a broker or a dealer.

An FX retail broker offers the opportunity, services and the infrastructure for retail investors to speculate on the currencies price fluctuations, commonly known as CFDs (Contracts for Difference) trading. There are two types of retail investing brokers, genuine brokers and dealers (market makers).

A genuine broker provides the retail investor access to the real Forex market and acts solely as an agent on behalf of its clients, seeking the best price possible to fill a retail order from their pool of liquidity providers, who are, often, the main market players, or, the banks.

A real broker operates in the market via an ECN connection and charges a trading commission for submitting an order on behalf of the client, in addition to the best quote obtained from a liquidity provider. This trading commission is only due to the broker if the order gets filled.

Dealers, or market makers (including the ones offering ECN type trading accounts), typically act as the sole counter-party in the trading operations versus the retail investor and quote the price they are willing to deal at.

A retail investor trading with a market maker is actually trading against the dealer, so, every time a retail investor loses, the dealer gains.

Is Forex Trading a Scam?

Not at all! Statistics found on the internet point that 95% of retail investors, or traders, will fail and lose their capital (in some cases even more than the initial deposit). One of the possible first causes that a failed and unexperienced trader point at, to justify the loses, is to blame the Forex market as being a fixed scam. Fixed by the banks, fixed by the brokers, and so on. Well, the reality is slightly different.

Recent ESMA (European Securities and Markets Authority) regulations in Europe have enforced brokers and dealers to visually display on their corporate websites, together with the notice of the high risks involved in CFDs trading, the percentage of retail traders losing money whilst trading via that broker or dealer.

The average is below the claimed 95% found all over the internet. It is in fact an average of 70% with the brokers offering their services in Europe, with some brokers even stating that some 53% of their retail traders lose money.

These numbers are not just made-up and put together to attract clients by the brokers. Again, due to the stronger ESMA regulations, brokers and dealers are obliged to be independently audited and reveal their trading books, where traders are registered and transactions are recorded.

Still, even 70% is a considerable high percentage. This high percentage it’s not because Forex is a fixed scam, but instead due to trader’s poor money management planning and mainly due to trader’s lack of Forex education.

ESMA measures to protect retail traders

This average percentage in Europe has dropped (from the hypothetical 95% found on the internet) mainly thanks to the restrictive measures deployed by the ESMA regarding the maximum available leverage allowed for European retail traders, who are the least experienced, obviously.

In the past, a retail trader in Europe could use higher leverage rates, in some cases even up to 1000:1. It’s part of human nature not to accept defeat, even when we are wrong, and if that trader was caught with a losing position contrarily to the market direction, instead of closing it and suffer the loss, that trader would be opening more and more trades against the main market trend, hoping for a market reversal and to recoup the losses.

But the Forex market is a highly volatile market, and together with a high leverage rate, eventually that trader would max out the available margin and end blowing-up the account and completely losing its funds.

Currently, brokers operating in Europe can offer a maximum leverage rate of 30:1 to retail traders, and that measure set by the ESMA in 2018, seems to be slowing, but efficiently, reducing the percentage of traders losing money with CFDs trading.

And other measures are being deployed in Europe to try and cut down that percentage even more. Recently, in November 2020, some European countries regulators have banned, and completely blocked the IP addresses of some brokers and dealers offering trading to the unregulated cryptocurrencies CFDs market.

The Forex market is not a scam

So, Forex trading is not a scam, but there are situations where traders can, and will be, scammed by unscrupulous brokers and dealers, with a special reference to the ones registered and regulated in countries and sovereignties with weaker Forex regulations and less restrictions on how brokers may conduct business.

The lack of stronger Forex regulations in these countries are a magnet for brokers and dealers, not necessarily scammers, to settle shop and to offer higher leverage rates to retail investors (as high as 2000:1!), or to claim being an ECN broker, when in fact they are dealers, and the trading is happening on their B-Book where prices can be manipulated, and not in the real Forex market.

Although Forex is a legit market and not a scam, the high leverage rate offered, the trading via a B-Book, where price manipulation could be a reality, and the lack of vigorous regulations is an explosive mixture that can be used to scam traders.

How is the Forex Market Regulated?

How is the Forex market regulated

Forex is a very particular market due to its unique characteristics. To start off, is the most liquid financial market in world. Secondly, with hundreds of thousands of participants, possibly millions, scattered over the four corners of the globe, it’s also almost impossible to manipulate, still, market manipulation can happen.

Due to its global and highly decentralized nature there isn’t a universal regulator to oversee all Forex market activities, or to protect participants who might incur losses, in case that a market manipulation event happens.

The Forex market is regulated locally, at country level, normally by a government watchdog body set to oversee and regulate the activities of brokerage houses in the financial markets, including the foreign exchange market.

Each country where Forex trading is legitimate, and not yet banned, has its own financial regulatory body with powers to set the independent guidelines that registered companies must respect in order to get licensed for the promotion of such activities.

Who regulates the Forex brokers?

These financial regulatory entities also have the power to fine the companies infringing those guidelines or caught in clear market manipulation activities. Ultimately, these regulators can revoke the license of a market participant, and expel them from the register of authorized companies.

Unfortunately, for retail investors, not all regulatory bodies are equal. Some offer a higher degree of protection, while some, no protection at all.

Financial regulatory entities can be categorized from tier-1 to tier-5, depending on the level of protection offered to retail investors and based on the guidelines set, with the first-tier type offering the maximum protection to retail investors.

A tier-1 regulator enforces a strong set of rules and guidelines that Forex market brokers and dealers must implement, from adequate capitalization, and external independent audits to an Investors Compensation Funds (ICF).

Amongst the financial regulators, the industry standard is the tier-1 UK FCA, the Financial Conduct Authority, seconded by the also tier-1 Cyprus CySEC - Cyprus Securities and Exchange Commission.

A financial regulator with a lower tier level means less protection for the retail investor and less severe disciplinary proceedings for brokers and dealers who are caught contravening any regulations. Also, to note, that traders classified as professional investors are not covered by the same safety mechanisms offered to traders classified aa retail investors.


To wrap up, and definitely answer the question if Forex is legit or a fixed scam, yes, Forex is a legitimate market, and, no, it’s not a fixed scam at all. Far from that, it’s one of the financial markets where manipulation is almost inexistent. Despite these facts, less legitimate or scamming situations can happen if traders, allured by the wrong kind of advertising, fall prey to an unscrupulous broker.

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