the simpler the better, since in their minds their core competencies lay inpicking stocks, not the direction of the dollar. This may seem like a reasonable26 Beat the Forex Dealer
 
approach when things are going well, but in times of uncertainty and low yields,every penny begins to matter.
After the bursting of the stock market bubble and 11 September, times gottougher for asset managers and they soon began to look at FX with kinder eyes.They realized that their FX holdings could actually be regarded as a separate assetclass, which had to be “optimized” in their constant search for alpha (excess return).
This change in perception proved to be a radical shift for the investment commu-nity, and continues to be a major driving force in the FX markets today. More andmore funds are now actively managing their FX exposure, either in-house or byemploying a currency overlay manager (COM). This renewed the focus on FX andthe search for yield has in turn led to the resurgence of the carry trade,’ which inturn often leaves strong trends in its wake. In an age of low yields and increasinglycompetitive (efficient) markets, this new brand of FX participant is here to stay.
Black Wednesday, 1992
Perhaps the most infamous FX trade was George Soros & Co's short sterling bet thatmanaged to "break the Bank of England.” By September of 1992, Soros and otherspeculators had begun to take increasingly large short sterling positions on the groundsthat the UK economy was suffering from high inflation and a slumping housing market.At the time, the UK had entered the ERM (forerunner to the Euro) at 2.95 Deutsche Marksto the pound, and the GBP/DM pair was allowed to trade a narrow range, with 2.778 set asthe bottom. If the rate fell below that level, the Bank of England would have to intervenein order to prop up their currency. On Sep.13th, now known as "Black Wednesday"several big players including Soros and Goldman Sachs realized that the BoE would notbe able to support the pound indefinitely, so they decided to stage a massive speculativeattack on the currency. The UK Chancellor tried to stir up some demand for the pound byraising rates not once, but twice in the same day, yet by evening it became obvious thatthey could not continue to prop up “Her Majesty” so they decided to throw in the towel andunceremoniously withdrew from the ERM. The pound was then free to trade outside ofthe fixed range and eventually fell to as low as 2.20 DM. The UK government is said tohave lost around 3 billion pounds in their effort to prop up their currency, while Soros issaid to have personally taken home around $1 billion in the process......not winning himmany friends in the UK!
Moral of the story: When everything is in your favor, go for the home-run trade.
 
Borrowing a low-yielding instrument and trading it for a higher yielding one in an effort to makemoney from the yield difference. For example, you take a loan from the bank at 5% and buy bondsyielding 7%, in effect keeping the 2 % difference.6The Players
 
Since FX prices are shaped by customer flows, in order to fully understand whatmakes the market tick we need to understand the players involved and their moti-vations. Although over half of all FX turnover is handled by the interbank market(essentially banks trading with each other) this percentage has been rapidly shrink-ing (it accounted for two-thirds of all trading 10 years ago) due to the increasedparticipation of sophisticated and varied investors. Where FX was once solely thedomain of global banks, nowadays a growing number of speculators such as hedgefunds and CTAs actively jostle for space alongside the more traditional players.In a way, it seems only fitting that the largest market in the world should alsohave the most varied group of participants, and everybody from the hedge fundcrowd to the frequent flier crowd now has an interest in foreign exchange rates. Inorder to simplify things, we can divide the FX market into the four major types ofparticipants: marker makers, corporate accounts, speculators, and central banks.
MARKET MAKERS (Dealers)
In contrast to the other FX participants, market makers are the only noncustomersin the market and are there instead to provide a service to paying clients. Banks arethe only ones with deep-enough pockets to handle the biggest of FX transactions,from billion dollar M&A flows to structured products for corporate clients, butsince not everyone can trade directly with a bank specialist brokerage houses havelong existed to handle the “leftovers”. Unlike bank dealers, whose primary purposeis to make markets for their corporate client base, a dealer for an FX brokerageshould play a blind third-party role by simply matching up the orders of their widecustomer base and collecting a spread for their trouble (much like a specialist onthe NYSE). Speculators can use them to gain anonymity while trading, prop desksmay use them for arbitrage, and individuals may use them because of their smallersize.28 Beat the Forex Dealer
 
Although a dealer’s role in the market should theoretically be limited to providingliquidity for their clients, in reality much more is expected of a good dealer, and anFX desk is expected to generate substantial “off-the-books” profits for the companyby actively trading against their client base.
CORPORATES
Multinationals are the bread-and-butter of the FX world and are, by and large, seenas the most logical participants in the foreign exchange market. Along with insur-ance and pension funds, they are known as “real money” accounts as opposed tothe leveraged crowd, which borrows substantial amounts to trade. The Coca-Colasand GEs of the world receive and make payments all over the world, which neces-sitates their involvement in the foreign exchange market. These corporate flowsneed to be carefully predicted and hedged in advance so that accurate budgets andprojections may be created. Since corporate clients are not a particularly specu-lative bunch, they are primarily interested in hedging flows through the forwardmarket. For them, the less volatility, the better.
A well-run and pro-active treasury can have a tremendous impact on a company’sbottom line, as in the case of BMW, which successfully avoided being hurt bya 13% rise in the value of the euro against the dollar in 2003 — unlike rivalVolkswagen, which had to take a €400 million hit because of bad hedging decisions.
SPECULATORS (Hedge Funds, CTAs, Prop Desks, COMs)
Speculative traders come in all shapes and sizes and tend to be the most interestingbunch in the FX world. Their primary aim is to generate profits through theirviews on the market, as opposed to simply collecting transaction fees (brokers) orusing FX as a means to an end (corporates). The big players in this group includeprop desks (banks trading their own proprietary accounts), hedge funds, commoditytrading advisors (CTAs), and currency overlay managers (COMs). These tradershave an appetite for risk and a put-your-money-where-your-mouth-is mentality,but their use of leverage also means that they are more prone to “blowing-up”than other participants. Along with dealers, they are responsible for the majorityof intra-day moves.
CENTRAL BANKS
The central banks of the world act as the administrators of the FX market. Eachnational bank is responsible for their currency, and it is no secret that they oftenplay active roles “nudging” the market in their preferred direction. Central banks areloathe to see their currency being used for speculation, and although their primaryThe Players 29
 
aim in the FX world is to reduce harmful volatility, if fundamental imbalancesexist they will sooner or later be reflected in the exchange rate. Since CBs love tosee speculators get hurt, interventions in the market are made at strategic momentsto catch the market off-guard, and smaller countries may choose to close the doorsto speculators altogether by limiting capital flows.
THE FOOD CHAIN
FX participants are arranged in a certain pecking order that ensures that the top rungalways feeds on the bottom dwellers. In this world, the bottom rung of the foodpyramid is occupied by the “public”, usually customers whose field of expertiselies outside trading currencies (corporates) or unsophisticated market participants(retail). Since everybody feeds off the public (especially banks and brokers) this isnot where you want to be, and if you are a retail trader paying a 5 pip spread fora 20 pip trade then you immediately fall into this category.
Hedge funds and other sophisticated speculators, on the other hand, are at the topof this food chain. Due to their speed and market insights, these advanced playersare able to prey on banks and brokers that are more concerned with collectingspreads than identifying arbitrage opportunities. It’s a speculator’s duty to takesome of the bank’s risk-free profits and pocket them for themselves.
 
THE RUBLIC .
Because a player’s positioning on the food chain is dictated by their level of infor-mation and speed, retail investors unfortunately often have a hard time overcomingthe disadvantages that keep them at the level of the “public”.
THE ROLE OF THE SMALL SPECULATOR
Small speculators occupy a very peculiar position in the FX world, and oftenfind themselves at the bottom of the food pyramid being preyed upon by moreexperienced players. Although the odds are stacked against them, some retail tradersdo, however, manage to overcome the odds with a mix of confidence and skill thatany bank trader would envy. Such is the story of Yukiko Ikebe, a 59-year-oldhousewife in Tokyo who was recently indicted for evading income taxes from her30 Beat the Forex Dealer
 
roughly 400 million yen trading profits, a story that inspired the head of foreignexchange at Société Générale in Tokyo to proclaim: “She must have made morethan us! Find her and hire her!” These outstanding individuals have learned notto “fight” the market, because the market is certainly not fighting them, so theyinstead focus their attention on taking whatever the market is willing to give them,and going by Mrs Ikebe’s example it is apparently quite a lot!
Unfortunately these bright stars seem to be few and far between, since the vastmajority of retail spot FX traders are just not very good in the long run. After all, ifmarket makers profit by trading against their client base, then their client base mustbe wrong most of the time for them to make money. Retail traders in any marketmake great contrarian indicators, and their positioning is in fact a valued commoditythat is actively traded upon by many funds and money managers. Although youmay think their chances of success are 50/50, somehow amateur traders have theinnate ability to pick tops and bottoms and consistently get chewed up by themarket because of their misguided trading decisions and lax money managementrules (see below).
 
 
 
 
 
 
Retail Flow Indicator USDJPY Daily Price
              
BUYING TOPS
foe
CATCHINGFALLINGKNIFES had
FADING TRENDS
 
 
Se a a
MIGFX's proprietary sentiment indicator overlayed on USDJPY chart. Retail flow data is shown in grey bars.Retail trader's relative positioning (long/short) Is indicated by the distance from the zero line, with flow-size reflected
See et
in bar width. Notice retail trader's extreme positioning tends to correspond to market top/bottoms(arrows).
Retail positioning data provide a great contrarian indicator.The Players 31
 
This chart illustrates some of the erroneous logic that is habitually exhibited bythe retail crowd and exploited by professionals. Creative Technologies (CREAF)is the maker of the “Zen” mp3 player, commonly seen as the biggest competitorto the iPod. Of course, being number two does not count for much in a marketdominated by Apple, and the stock price has reflected this sentiment by trendinglower for much of the year. One day in late August, however, Creative announcedafter the bell that it had won a patent-infringement lawsuit against Apple and thatit would receive a one-off payment of $100 million in the settlement.
On the back of the great news, Creative’s stock gapped higher the next day andtraded as high as 7.60, having closed around 6.00 the previous day. The volumetraded was almost ten times the daily average, indicating large retail participation.Dealers were well aware of the news, but maybe surprisingly they begin to sellsoon after the opening bell (they were selling while the masses were buying).Why did they choose to go against the tide? If you look at the bigger picture yousoon realize that although $100 million may be a nice chunk of change, it willin no way alter the prevailing trend — i.e. the iPod will continue to dominate themarket. If the lawsuit had changed the fundamentals of the industry (forcing Appleto stop producing their product, for example) then their reaction would probablyhave been different, but in this scenario they were happy to sell all day long tothe unsuspecting buyers and finish the day with a healthy profit when the buyingsubsides and the price returns to its pre-news level.
 
CREAF (Creative Technology Ltd.) Nasdaq 6S @ StockCharts. com25-Jan-2007 a _____ Open 6.80 High 6.84 Low 6.75 Close 6.75[CREAF (Daily) 7.60
Ky =
Wig -
6.75
   
6.25
6.00
5.76
3M} 5.50
| 6.262M1M
News Released
  
Feb Mar Apr May Jun Jul Aug Sep Oct
Dealers in any market know how to make money off retail traders.32 Beat the Forex Dealer
 
caekae | Mow —_
&) 2006 Yahdo! Inc.2004 Nov Dec 2005 Mar Apr May Jun Jul Aug Sep Oct Nov 2006 Mar Apr Jun Jal Aug
The trend is obvious, and the market has clearly decided that Apple has brighter prospects. 
THE RETAIL SIDEOF THINGS
“A broker will only make you broker”Wall Street saying
etail FX is not interbank FX, no matter what any broker may want you to
believe. The prices are not interbank, the size is not interbank, the counter-party is not interbank, and the rules are not interbank. So what exactly about it isinterbank?34 Beat the Forex Dealer
 
How a retail FCM's profits are divided
Retail Clients
   
eee cusPits
  
The generous spread paid by retail traders is the bounty divided up by yourbroker, the manager of your account, and some large banks. Their motivation isobvious, since the more you trade, the more they make. In a scenario like this,who’s looking out for your best interests?7Card Stacking
 
Retail participation in the FX market is nothing new. Before the advent of theeuro, Europeans were accustomed to dealing with foreign exchange all the time,and anyone who has lived in a country with a volatile currency will tell you thatthey always like to keep one eye on the exchange rate. In the UK, spread-bettingshops have long offered “punters” the chance to bet on exchange rates! and in Asia“Japanese housewives” and their $10 billion of daily trading have been the baneof market professionals for some time, yet the real explosion in on-line currencytrading that we have seen in the last five years can be directly attributed to thederegulation in US markets.
Throughout the 1990s, US futures exchanges complained to the governmentthat they were drowning under a mountain of red-tape and outdated reportingmeasures, which increased their transaction costs and stifled their growth. In orderto help the exchanges streamline their operations, the CFTC? passed the CommodityExchange Act and Commodity Futures Modernization Act (CFMA). Under theCFMA, over-the-counter markets were kept exempt from US government oversightand some of the more restrictive regulations on futures exchanges were removedto ensure their global competitiveness. This, combined with the internet revolution,opened the doors for FX brokers (also called FCMs) to target a retail audienceand begin offering on-line margin trading accounts. Retail FX brokers thus gainedlegitimacy by placing the “regulated by the NFA” logo on their website, and thepower of the internet meant that these start-ups needed little more than a Reutersline and a toll-free number in order to compete with traditional brokerage houses.
The early years of the retail FX market featured a number of rag-tag outfits con-sisting of over-caffeinated dealers in tiny Manhattan offices offering their clientsspreads wide enough to drive a truck through, and most would surely have contin-ued to live an uneventful life had it not been for the collapse of the internet bubble.
'Fittingly, these operations fall under the umbrella of the UK’s gambling laws.2Commodity Futures Trading Commission.36 Beat the Forex Dealer
 
With the burst of the bubble, FX brokers now had what they had been lacking allthis time: a client base in love with day trading that was dying to try somethingdifferent. The three or four firms that recognized this opportunity and focused allof their attention on their marketing efforts quickly became the market leaders andhave never looked back.
These retail operations that have mushroomed in the last five years sit in astill-to-be-defined gray area within the FX market. In theory they should act aslittle more than middlemen between the true interbank market and their retailclient base, but unfortunately because of the nature of the FX market and the lackof regulation some of these outfits bring to mind the unscrupulous “bucket shops”that operated in the early part of the 20th century.
In a time when stock market euphoria was gripping the nation, the typical bucketshop of the 1920s catered to the small investor with big dreams but little marketexperience. All of the transactions they handled were off-exchange (with the firmtaking the other side of all trades), and in order to increase speed customer orderswere simply taken at the counter’ and dumped into a “bucket”, to be matched andfilled at a later point. Because the orders where not immediately offset in the market,the shops could either wait until the price moved in their favor before filling them(keeping the difference) or wait until the end of the day to match buys and sellsat their own “adjusted” price. The dealers that ran the shops knew that in a timeof delayed quotes and nontransparent pricing, clients had little way of knowingwhere the market stood at the exact moment they placed their orders, and thus theywould likely be satisfied as long as their orders were filled within the high/lowof the day. Because of these advantages, bucket shop operators found it relativelyeasy to shade prices and take large chunks from both the buyers and the sellers.
Unfortunately, today’s retail FX brokers share many traits with these outlawedoperations, including:
Nontransparent pricing. The FX market is an over-the-counter market, meaningthe price your broker gives you is the price you get. You have no choice in thematter. Pricing is not done through a central exchange, so it may be difficult forthe trader to determine if their broker is quoting them “fair” prices or if they areshading the price in their favor.
Encouraging overleveraging. Like the bucket shops, retail FX brokerage firmsprey on the small, unsophisticated investor. By extolling the virtues of 200-1 lever-age, traders are encouraged to overexpose themselves and be quickly wiped out bysmall price moves.
Trading against your clients. It is standard practice in the FX world to tradeagainst your client base. Retail trade sizes are too small to be immediately offset in
Hence the term over-the-counter (OTC) for nonexchange transactions.Card Stacking 37
 
the interbank market, so your broker is forced to take the opposite side of the trade,at least temporarily. The broker may then wait until the client flow is sufficientto offset with their market maker or they may choose to hold the position andeffectively trade against their clients. A “no dealing desk” policy simply meansthat dealers have been replaced with machines, but the fact that they trade againstyou remains.
Order book information typicallyavailable to your market maker:
OLE (olor)
Tm UVITOR GIeestor nome) alts)
This information is actively upon andoften shared with ‘ a] nts/partners
 
Unfair practices. Although the odds were stacked against the bucket shop client,smart traders could, and did, make money from them. Jesse Livermore,’ forexample, became so good at picking stocks that he was soon banned from allthe bucket shops in the East Coast. Casinos do not like winners and neither doFX brokers. A casino may send a crooked dealer to stop the winner’s streak andretail FX firms may resort to denying service or complicating execution to such adegree that it makes trading impossible. If anything, this should be a clear signthat your broker is trading against you, since it becomes evident that your brokeris losing money if you are posting profits.
The question that comes to mind is, “Why would brokers behave in this manner?Isn’t it in their interest to see traders prosper and have them as long-term clients?”
4Commonly known as the “greatest trader of all time” for his tape-reading ability and his correct timingof the stock market crash of 1929. After a series of ups and downs Livermore ended up taking hisown life in a NYC hotel room in 1940, helping solidify the notion that great traders often make formiserable individuals.38 Beat the Forex Dealer
The simple answer is “no”. Since statistics show that most traders blow-up theiraccounts before reaching their first anniversary, it is in a broker’s best interestto get as much as they can as quickly as they can. There is no such thing asa “long-term” relationship between a market maker and his clients, and while thedegree of dodgyness may vary from shop to shop, the capital markets were foundedon greed, not charity. Stories of big investment banks ripping off large corporateclients routinely make the news, so is it really any surprise to hear that retail tradersdo not fare any better? Since dealers routinely change jobs and live on a day-to-daybasis (or bonus-to-bonus, actually) it should come as no surprise to learn that theyfocus purely on short-term profits. A trade is a trade and a deal is a deal, so do notexpect any sympathy from your broker/dealer anytime soon. After all, he is notexactly selling ladies shoes, either. A dealer’s job is a risky one, and he knows thatif you could, you would probably rip him off in a second, so why should he treatyou any differently? Although I am sure squeaky-clean shops exist somewhere, Ihave yet to come across any.
MARKETING MACHINES
Traders have to realize that behind all of the smoke and mirrors retail FX brokersare, above all, marketing machines. The more accounts they open, the more moneythey make. Because the average survival rate for traders is so low, in order tosurvive they need a constant flow of new or returning clients, and although somebrokers may claim to have over “SOK-+ clients” in reality the vast majority of thoseaccounts have been dead for quite some time. The actual figure is probably closerto a 10% retention rate, and even the people running the trading houses have noproblems discussing the dreadful odds their clients face. According to Drew Niv,chief executive of FXCM, “If 15 % of day traders are profitable, I’d be surprised.”>
To secure this constant flow of clients, brokers spend vast amounts of money onmarketing schemes that I am sure you have been the target of in the past. They willtry everything from huge internet advertising campaigns to direct mail offerings,even going as far as holding trading “conferences” or “seminars”. In the end, youcan rest assured that they want a return on their investment: your money.
Take, for example, their much-hyped “forex trading contests” that promise toreward the best traders with monthly cash prizes. What could possibly be wrongwith rewarding good traders? A lot, actually. Trading contests and dreams of a largepayoff place people in direct competition with each other, which, as you may know,tends to only encourage risk taking and lead to terrible money management deci-sions. If you are trading to beat your neighbor, not simply to make money for yourown account, then you can rest assured that you (and your neighbor) will soon findyourself broke. Even if we manage to put aside the ethical dilemma these contests
Currency Markets Draw Speculation, Fraud. Wall St Journal, 26 July 2005.Card Stacking 39
 
bring up and focus squarely on the dollars and cents, we still find brokers comingout on top even when they are the ones paying out to traders on a monthly basis.
Layers between the retail traderand the interbank market
IB / Agent
Teac
 
Each layer represents an extra cost. The morelayers between you and the market,the higher the costs.
Going by the figures posted by one prominent broker in their “mini” tradingcontest, four hundred participants with a minimum of $500 in their accounts wereinvolved in the monthly trading contest, which gave out cash prizes to the topthree performers ($2500, $1000, and $500) as measured on a monthly percentagereturn basis. Out of the four hundred accounts, the top three winners al] recordedmonthly returns in excess of 200%. Most probably these guys simply leveragedtheir accounts to the max, picked a volatile pair, closed their eyes, and bought.Not much skill was involved in that brilliant strategy. The really interesting partcomes when we shift the attention away from the winners and focus instead onthe results of the rest of the field. Out of four hundred participants, less than 150finished the month above breakeven (a surprisingly high number, actually), and therest finished with a losing record. Of those with losing records, 55 recorded lossesin excess of 95 %; in other words, their accounts were completely wiped out. Nowif we compare the payout the broker made to winners ($4000) versus the accountsthat were blown-up (at least $27 000) you quickly get an idea of who exactly thewinners in this game are. This type of game where lots of small accounts vie fora big payoff is not new; it is usually just called a lottery.
In this sense, forex brokers are simply great at twisting the truth and transformingthe laughable into something deemed valuable by traders. Such is the case with their40 Beat the Forex Dealer
now-popular “hedging” capability. Who else could convince traders that payingtwice the spread simply to be flat is actually of benefit to them? These guys shouldrun for Congress!
PRICING
Since retail FX brokers do not have to offset client transactions in an exchange,pricing decisions become critical. Large retail FCMs have their own market makers,a Citi or Goldman for example, which offer them a | pip spread or less on the mostliquid pairs, which they use as their indicative price. To this rate, they add their 2or 3 pips (or more!), which is the rate clients see in their trading platforms, whichenables them to capture a nice 3 or 4 pip risk-free profit on a round-trip trade —not bad for simply acting as the middle man between the FX “wholesalers” andthe retail buyer.
However, because these middlemen are free to manipulate their price feed, theycan essentially show their clients any price they want, and the same person that isdoing the buying and the selling also becomes the person that controls the prices. Ifthis smells fishy to you, it should; after all, it is the primary reason why exchangeswere created in the first place, since the lack of transparency always plays into adealer’s hands.
Price shading occurs when a broker either deliberately stalls their price or showsslightly higher/lower rates in anticipation of a move. If a broker is convinced thatthe euro is going higher, for example, he will shade his quotes slightly higher tobenefit from the move. This is all fairly common practice in the FX world, yet evenmore appalling manipulation takes place when brokers deliberately spike their feedin order to take out customer orders. If a dealer notices that a bunch of good-sizedstops have gathered nearby (remember, they know where your stops lie!), he maychoose to mount an attack on them with his buddies or momentarily spike his pricefeed just enough to take them out.
Naturally, the move will be seen as single blip, not enough to be traded on,but enough to trip the client stops (see below). If a client complains, brokersare shielded by the fact that there is no central exchange from which to comparesecond-by-second pricing, and are free to offer up any excuse for the move: “Therewas a large order that pushed through the market” or the classic “Our feeds arefaster and reflect true interbank movements.” In reality what they are dying to tellyou is, “Thanks for noticing; that was a great move! We nailed you!” I’m suremost retail traders have experienced such infuriating behavior, but the nature ofthe market makes it hard to enforce such downright fraudulent actions.Card Stacking 41
 
NO SPIKE SEENON ANOTHER
02:50 PRICE SPIKE PRICE FEED
TAKES OUT THE STOPS.
SET BELOW THE
PREVIOUS LOW
BS UD Ow OB HH OI HD CID Oe EH Cw Ga Gee
FEED 2
02:50l,7se1  GBPUSD Tick Chart a0
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An example of price manipulation. With two feeds from two different FX brokers, you cansee how at the same moment one price spikes while the other one does not.8Don’t Trust Your FCM
 
As the Chinese general Sun-Tzu once said, “Keep your friends close and yourenemies even closer.” All traders should heed this advice and keep a watchfuleye on their FX broker. These days, dodgy activity seems to be more often thenorm than the exception, so it is imperative to conduct your own due diligence onyour broker before opening an account. Do not assume that because they proclaimto be large and “well respected” in the industry that that makes them upstandingguys.
According to the NFA, before choosing a broker you should keep some of thesethings in mind:
You are relying on the dealer’s creditworthiness. Basically, if they go down,you go down. Since retail off-exchange forex trades are not guaranteed by a clear-ing organization, the funds that you have deposited are not insured and do notreceive a priority in bankruptcy. Even customer funds deposited by a dealer in anFDIC-insured bank account are not protected if the dealer goes bankrupt (remem-ber REFCO anyone?), so you should first check with the CFTC’s website and seethe state of their balance sheet.
There is no central marketplace. Unlike regulated futures exchanges (CBOT,CME), in the retail off-exchange forex market there is no central marketplace withmany buyers and sellers. The forex dealer determines the execution price, so youare relying on the dealer’s integrity for a fair price.
The trading system could break down. If you are using an internet-based elec-tronic system to place trades, some part of the system could fail. In the event ofa system failure, it is possible that, for a certain time period, you may not be ableto enter new orders, execute existing orders, or modify or cancel orders that were4 Beat the Forex Dealer
 
previously entered. A system failure may also result in loss of orders or orderpriority.
You could be a victim of fraud. As with any investment, you should protectyourself from fraud. Beware