FOREX SCAMS

Unfortunately there are some people on the Internet (as wel as in real life) that wil give their best to take advantage of
others. Forex market is very lucrative and tempting opportunity for anyone and therefore most scam artists wil use it to
lure people into their schemes and steal money from them. That is why I decided to dedicate this entire chapter to forex
scams.
Why is it easy to get scammed on the Internet?

1. Because everyone and I mean EVERYONE can purchase a domain name and set up a website for less than $100.
Even if they decide to hire someone to create professional website design for them, they stil can get it done for no
more than $200 - $300.

2. Most people don’t know much about forex market which makes them easy targets for potential scammers as it is
very easy to promise dreams and manipulate the numbers and information presented on websites.

3. It is also very easy to hide from public and, once you are scammed, geting your money back can be very dificult or
imposible.

The most common schemes relating to forex market are various investment programs, also known as High Yield
Investment Programs or HYIPs. The owners of these programs often present themselves as financial experts that can
bring unrealistic income through investing in forex, stocks, sports beting, etc. and ofer potential investors a chance to
profit on their “expertise”.

People who visit their websites see great opportunity for quick cash and decide to invest money hoping to make a
profit. Unrealistic returns they ofer are sometimes 200% - 400% within days! But there is a catch. Every investor must
wait a certain period of time before he can withdraw money. For example, if the program says the return is 200%
within 5 days, it means that if you invest $100, you have to wait 5 days before they “earn” you $200. During that time
your investment is locked which means that you can’t withdraw even single cent. Of course this time is necessary for
owners to “trade with invested money” and “generate profit” to investors.

What is realy happening nobody knows for sure, but here is most likely scenario:

You invest certain amount of money and have to wait for 5 days before you can withdraw any money. During that
time, scammers promote their program to find more potential investors. Scammers also ofer you and others
commissions for every new investor you bring to their program which makes promotion of their website easy.

Each and every one of new investors decides to invest certain amount of money and each and every one of them has to
wait 5 days to withdraw any money. After first 5 days scammers usualy colect enough money to pay you your profit
and to pay their first investors. You and other first investors are happy for your profit and decide to tel everyone you
know about this program.

The number of investors grows exponentialy and the money scammer is receiving grows also. At one point of time,
scammer has enough money to retire young and cannot aford anymore to pay investors their profits and usualy HYIP
colapses.

In this scenario only first investors made profit, while many more that joined this program later lost their money.

There are also scenarios where no one gets paid and scammer just colects money, makes empty promises and
disappear with his program. Also many scammers return later with new looking program, under diferent name and scam people again.

Some of them even ofer realistic income and use that to atract more investors. But one thing you never know about
these programs is WHEN it wil stop making payments or WHEN it is going to disappear.

You may probably wonder if there are any honest investing programs that realy trade with forex or stocks and make
profit to their investors. There are, but probably les than 1% of al HYIPs and these programs are usualy private and
rarely accept new investors. Also their returns are low.

If you wonder whether you should invest in HYIPs or not, know this that it is nothing more than a gamble with a lot
more chances of losing money and NEVER geting it back!

Besides High Yield Investing Programs there are also other programs, that may seem legitimate, but with only one goal
– to take your money.

These programs involve various companies and shady brokers who ofer foreign curency futures and option contracts,
unregistered firms no one even heard about that ofer unrealistic return or absolutely no risk involved. Be also very
careful of any “opportunity” that guarantees success as there is no such thing.

Source: forex-trading-secrets.net

Forex Experimental Analysis

Buying and selling stocks and derivatives have increased
enormously over the last decade. An occupation, earlier restricted
to a few well-situated capital owners, has now become almost a
national movement, involving a majority of the Swedes. There are
reports estimating 80% of the Swedes, 16 years of age and above,
to be shareholders, directly in the markets or indirectly by pension
funds (Modig, 2001).
The stock market is a popular subject of discussion at work, at
home, and in the tabloids. Media are reporting of people gaining
huge amounts in the markets, but also giving hindsight descriptions
of how one could have made millions, or more recently, how much
capital that was lost in the latest decline. During the last quarter of
1999 and first quarter of 2000, when stock market indices around
the Western world soared to new highs, there seemed to be one
question on everyone’s mind; what stock should I buy to get the
best profit? However, since March 2000, during the decline, the
focus has somewhat changed to how one should avoid getting
ruined. Why do some people succeed in the markets, while others
are going bankrupt? Some possible clues can be found when
reviewing the psychological research that has been made within
the domain of behavioral finance.
When participants of the markets are studied in real life, they seem
to present a number of shortcomings, one of them can be
characterized as overconfidence (Scott, Stumpp & Xu, 1999).
Camerer and Lovallo (1999) found that overconfidence presented
by business managers leads to excessive business entry. When the
results were based on the participants' abilities, individuals tended
to overestimate their relative success and enter more frequently.
This was not because of irrational information processing or
neglecting the competition they were up against. They were just
overconfident about their relative skill. Studies made by Kahneman
and Tversky (1973) show that humans have a tendency to
overestimate the probability of one’s forecasts. Among other
reasons, such as a prolonged bull-market, huge financial resources
and numerous media reports of rising markets and big gains, an
overconfidence effect could be a contributing factor to the great
number of “new” and inexperienced investors entering the stock
and derivatives markets.
Investors adjust their expectations slowly (Daniel, Hirshleifer, &
Subrahmanyam, 1998), and as a possible effect, they did not see
when the bull-market turned into a bear-market, leading to holding
on to their positions longer then expected.
Further, when we as humans make decisions under uncertainty,
our choices are influenced by the way we describe, “frame”, the
situation rather than the absolute value of the result. When we
perceive the situation as a loosing scenario, a negative framing, we
tend to be risk seeking. Consequently, if a scenario is perceived as
positive we will become risk-averse (Kahneman & Tversky, 1979).
This could have caused investors to take greater risks during the
big decline than they otherwise would judge as reasonable.
Altogether, these human foibles make investing or trading in the
stock markets a difficult task. How could one possibly become a
successful market player?
One of the recipes of success, at least according to non-academic
literature, is to control one’s risk and utilize proper “money
management”. The definition of money management is not
perfectly clear and according to trading coach Van K. Tharp, it is
not “risk control” per se, “diversification" or “how one makes
trading decisions” as sometimes stated (Tharp, 1998). Risk control
and maximization of profits is rather a result of implementing
money management strategies. Tharp emphasizes that money
management or position-sizing (this term will be used in the
following) answers the question: “How much?” or “How many?”
(Tharp, 1997). In the meaning of “how much of available capital is
to be put at risk?” or “how many contracts or shares are to be
bought?” In this paper the following definition of money
management will be used: Money management determines how
much of available capital is to be allocated in a specific market
position, that is, the number of shares bought or percentage of
total capital spent.