With the backdrop of the planned FXCM IPO tomorrow and pending Gain Capital IPO – we ran into a good article from the ft.com/alphaville blog pointed out by Barry Ritholz on the Big Picture Blog today, mirroring what we’ve been saying for years – that retail Forex trading is a scam. (they use slightly more polite language – a hustle)

The $100bn FX hustle – click here to read

With these big Forex houses going public, we get a glimpse into what a cash cow retail forex trading is;  and how they make their money.  In essence, they sell their product to you at a retail price, and buy it at a wholesale price – booking the difference. Now, there is nothing wrong with that, per se. After all, that is how the Walmart’s of the world make their money. (the FX houses have none of the risk of inventory or the like, however- as they simultanesouly buy at wholesale and sell at retail, and only when their is someone to buy their product)

The problem as far as we’re concerned, is that this is illegal in the futures industry. We can’t sell you a Corn futures contract at an inflated price, then simultaneously buy the same contract at the exchange for less – booking the difference. We would be arrested for fraud. But it is ok in forex??  (somehow that just doesn’t seem right)

Anyway, the article is worth a read. The $100bn FX hustle by Paul Murphy – click here to read