Beware the Forex training come on

The past two decades have engendered astonishing progress in trading technology and communications. The ability to trade currencies on our smart devices from nearly anywhere in the world has opened doors to both profit and risk for retail traders. The opportunity to trade transcends borders and is itself revolutionary. People all over the world are paying thousands of dollars to become forex traders. In the United States, many aspiring forex traders are retired persons with time and money to pursue the goal of a second career. In response, the door also has opened for companies that prey open those people by offering trader training and trading systems that are hype-based and questionable. To reduce the risks to traders and discourage a trader gambling mindset, regulatory action in recent years has focused on banning high leveraged forex trades of 100:1. This reduced risk, but what is largely left untouched is questionable forex training schemes.

A multi-million dollar forex training industry has emerged that offers currency trading courseware and system signals, at high cost, without any evidence of success. In fact, the more successful a training company is, the more likely their products do not really work. Logically, the lack of consistent performance is actually a preferred outcome. If a course or system generated consistent trading profits, the company would not be able to effectively sell more courses or systems. The trader would not need another course, if the one initially purchased really worked. Also, the bigger a training company is, the more sales persons they have that need larger ticket items to extract larger commissions. As a result, performance effectiveness and quality control are not a focus of corporate spending, and are replaced by marketing. It is easier to sell to 1,000 students and earn $1million than to generate $1 million in trading profits. As a result, companies deliver minimally viable products that are developed without valid testing. Currency training companies have become virtual boiler rooms with sales persons posing as trading experts.

Fortunately, there are signals for the customer to watch to help detect potential training sales deceptions. The first and most salient sign that training companies prefer profits over performance, is the practice of upselling. This practice manifests itself when after a purchase of a course or system is made, often at a price north of $1,000, it is followed almost immediately by sales pitches for other courses and products. The customer doesn’t have the chance to get a return on their purchase of training without being badgered for more (see “FX deception checklist”).

A second warning sign is the multiplicity of courses or products. When a company offers more than a dozen alternative courses, they don’t believe any one of them is effective.  Instead, the sales beast must be fed.

A third feature of training firms that, may be successful from a size and revenue point of view, but lack credibility is the absence of proven results of methodology or signals offered.  Forex training firms often sell products without any track record at all, but imply thousands of pips result from the use of their products. Do these products have a vetted track record with real capital for more than one year? Marketing references to winning percentages of 80% or more are often provided but should be taken with a grain of salt. The customer should challenge any firm, coach, or instructor, that offers a product that does not include real trading results that include the level of risk taken to achieve those results.

A fourth warning flag is the lack of proven experience and expertise of instructors and trainers. Few have had real world multi-year trading experience and provide no experience-based understanding of the how current trading works.  Hedge funds often require a three-year track record for hiring traders. Does a trader want to be taught by someone who never participated in currency markets? Does the firm provide its trainers capital for testing new strategies or require its trainers to trade with real capital?

A fifth and critical flaw in the training industry is lack of performance-based training. Most training still is one-way content based in webinars. The instructor provides the training to large audiences in the form of scanning markets and identifying trading signals. Yet there is no link to whether the student is actually making profits. Firms spend millions on marketing, but how much capital are they setting aside to test methodologies and systems? Does the firm have an R&D budget and trading lab to test new ideas? When training is de-linked to performance of the student, it is not a training process but a deceptive strategy to capture capital from the customer.

Of course, in our capitalist market economy and culture no one forces anyone to purchase anything. But a free market depends and relies upon truth and transparency. Yet in the forex training industry, unsubstantiated claims of getting rich on trading, offered by presenters and not experts, is still in the Wild West stage. While the Commodity Futures Trading Commission and National Futures Association do provide guidance for monitoring potential bad actors, entities viewed as “educational” do not have to be registered and meet the requirements of registered entities. There are many online sources that rate forex training courses and anyone looking to learn more should perform due diligence, but the forex training industry likely will remain largely unprotected territory. Caveat Emptor.