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Five Christmas trading scams - part 1: Bank R100,000 with just R10,000 OVERNIGHT!

by , 22 December 2015

Forex markets are among the most active and profitable trading markets, in the world. And where money lies, so do opportunities for fraud, profit and manipulation. You need to watch out for those serpent companies out there. Their sole purpose is to generate profits for themselves and for NO one else. And sure business is business at the end of the day. But ethics are also ethics. And when a business promises too much and leaves a customer worse off, I'm afraid it's a scam!

And so today I'm going to address the first Christmas trading scam you have to watch out for when signing up with a Forex company.

Trading scam warning #1: It sounds too good to be true!

Stay away from Forex companies that tell you their win/rate is 100%.

In a $5.3 trillion a day industry, no body, fund or institution will ever predict the Forex market moves with accuracy, the movement of currency pairs EVERY TIME.

If they tell you they can make you rich overnight, I want you to remember one thing.

The correlation between risk and reward. They have a positive relationship.

With any investment or trading opportunities, the same principle applies.

The more you risk the more you can expect to be rewarded.

And the less you risk, the less you can expect to be rewarded.

Here’s an example so you can see what I mean. 

How you can make R100,000 with just R10,000 overnight!

Let’s say you have a portfolio value of R10,000. And you sign up with company MACS Forex ltd. 

They tell you, they can turn R10,000 of your money into R100,000 overnight. 

Right! Sounds damn exciting and why would you need a job. 

So you quit your job and give them R10,000 to trade. They tell you a trade is lining up on the EUR/USD. 

They send you the specifics for the trades:

Trade size=R10,000
Go long EUR/USD
Entry level: $1.0860
Stop loss level: $1.0820
Take Profit level: $1.0900

This means you’ll risk 40 pips in your trade (1.0860 – 1.0820).

And you’ll make 40 pips in your trade, should it hit your take profit. (1.0900 – 1.0860).

So the Risk to Reward is 1:1, as you’re willing to make and lose 40 pips in your Forex trade. 

If you’d like to know why a Risk to Reward of 1 is very dangerous when you trade, I highly recommend you take a look at my new Six Forex profit Patterns report by clicking here. 

Ok so the trade is live and now you wait for that R100,000 to be put into your pocket. 

Here are two scenarios that can happen. 

Scenario #1: You BANK your R100,000 and find that it’s not a scam!

You know that in your Forex trade, once it hits your take profit at $1.0900, you’ll bank 40 pips and more importantly R100,000…

But for that to happen, you need to risk a certain rand value per pip.

Ah huh! So every pip that goes up, your portfolio should go up as well. 

How many rands will each pip be worth then? Very easy here’s the simple formula you’ll eed to calculate the rands risked per pip. 

Rands risked per pip=Trade Size ÷ (Entry – Stop loss)
                                     =R100,000 ÷ (1.0860 – 1.0820)
                                     =R100,000 ÷ 40 pips
                                     =R2,500

By having a rands risked per pip value at R2,500, means one thing. Every pip the currency pair moves, you’ll make or lose R2,500. 

So scenario one continues. 

You put in R10,000 into your trade, and you know you’re willing to risk R2,500 per pip movement. 

The EUR/USD moves 40 pips for your favour, hits your take profit at $1.0900. And you bank R100,000 pure profits! (40 pips X R2,500 rands risked per pip). 

Congratulations! The company is not a scam and you can go boast to all of your friends!

But don’t even think about opening an account with them yet, until you’ve read scenario 2.

Scenario #2: You make a R100,000 LOSS!

I think you know where I’m going with this. 

When you put R10,000 into your trade, you know you were willing to risk R2,500 per pip. 

So here are the specifics for your trade:

Trade size=R10,000
Go long EUR/USD
Entry level: $1.0860
Stop loss level: $1.0820
Take Profit level: $1.0900
Rands risked per pip: R2,500 

The trade is on, the market moves to 1.0890. You’re in the money by R75,000. 

But all of a sudden, Janet Yellen opens her mouth and raises interest rates. The market makes a nasty turn and falls through our entry level. 

Down.

Down. 

Down.

Stops you out at $1.0820.

You had R10,000 to trade Forex. And now you’re sitting with a portfolio value of. 

-R100,000 

You’re in huge debt now. And you need to find away to make R100,000 just to be back to square one. 

Was it worth it? Do you feel proud now? But an even more important question, will you ever trade again?

Probably the answer is no…

So the next time you see how much MONEY you can make in a Forex trade, please remember the risks involved. 

There's no such thing as a low risk high reward investment or trading scheme. 

Make sure you don’t miss out on any Trading Tips articles going forward. It might just save you a fortune. 

Always remember, "Wisdom yields Wealth"

Timon Rossolimos
Senior Editor: Trading Tips 
Head Analyst: Red Hot Storm Trader
Author:           94 Top Trading Lessons of All Time 






Five Christmas trading scams - part 1: Bank R100,000 with just R10,000 OVERNIGHT!
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