Investing in FOREX

What is FOREX?

FOREX stands for Foreign Exchange. The FOREX market, also referred to as the currency or FX market, is basically the changing of one currency for another by simultaneously buying one and selling another. Your profits and losses are dependent on the fluctuations in the exchange rate between the two currencies.

What should I know about FOREX?

Before you invest in the FOREX market be aware that:

1. The FOREX market is complex and volatile  - it takes expert knowledge to track and understand the many variables that affect currency exchange rates. Without this knowledge you are likely to lose your money.
2. There are FOREX scams  - the promise of high returns with low risk in the FOREX market is a red flag that the opportunity may be a scam.
3. Trading on borrowed money can increase your losses  - the more money you borrow to invest in the FOREX market, the higher the risk of losing your investment and possibly more.

Understanding these facts can help you identify some of the risks of investing in the FOREX market. Knowing the risks of an investment before you buy is key to making an informed investment decision.

The FOREX market is complex and volatile
From world affairs to the weather, many things can affect currency exchange rates. To speculate how these variables will influence a currency's value requires an expert's ability to monitor and interpret complex data and to implement strategies to help safeguard against inaccurate predictions. This takes time and practice. Dealing with the extreme volatility takes experience and requires the capacity to accept and bounce back from possible losses. Easy access to the FOREX market at anytime via the telephone and the internet does not mean that it is an easy market to understand. It simply means that it is a greater risk to those who are not a FOREX expert.

Seminars and software programs cannot replace the need for research and expert knowledge
In some cases FOREX seminars can cost thousands of dollars and may be nothing more than an emotionally charged sales pitch to get you to buy more services and products. These seminars appeal to your desire for quick and easy profits by claiming they can teach you to be an expert in FOREX trading.

Seminars and software may be used to assist with your own analysis, but neither can accurately predict where the market will go. These strategies do not take into account real world events that affect the FOREX market. Most seminar and software providers are aware of the limitations and risks of these services and programs as evident from the risk warnings found on some of their products. For example:

No system can guarantee profits or freedom from loss. Hypothetical or simulated performance results have certain inherent limitations.
The products referenced at this site are analytical tools only, and are not intended to replace individual research or licensed investment advice.
Foreign exchange trading is only recommended for those who are experienced and/or have knowledge of the market and the inherent risks involved.

There are FOREX scams
Be aware that there are FOREX scams. The scam artists portray themselves as FOREX experts and promise to get you high returns in the FOREX market. They are not experts. They will take your money and run or gamble it away in the stock market. Either way, victims lose their money with little chance of getting it back.

How to avoid FOREX scams
Learn to recognize the red flags of a scam, such as promises of:

• Guaranteed high returns, no risk!
  There is no such thing. The higher the potential returns, the higher the risks.
• Profit like the experts!
  To be an expert in anything takes time and practice and even experts lose money. Just because someone says they are an expert or sound and dress like one does not mean they are one. Testimonials are not always true nor do they mean that you will have the same results. Do not accept their word or that of your friends and family without doing your own background checks.
• Offshore investment - tax free!
  Be cautious about these kinds of promises. Tax evasion is illegal. Remember, the further away from home that you invest your money the harder it may be to recover it.

If you suspect a FOREX scam
Call the Manitoba Securities Commission’s Investigation Department at 945-2548 or toll free 1-800-655-5244 about the suspicious opportunity to find out what you can do.

 

Trading on borrowed money can increase your losses
One of the attractions of FOREX is the option to pay only a small percentage of the purchase price up front. This is sometimes known as trading on margin. In effect, you are borrowing money to make a purchase. Don't get caught by the lure of making big profits with only a small initial deposit. Trading with borrowed money can lead to large losses that accumulate quickly.

For example, if your account allows you to borrow at a rate (more commonly known as a leverage ratio) of 100:1 you can trade $100,000 worth of currency with a $1,000 deposit. If the currency you purchased goes down in value by just 1%, you will lose your entire $1,000 deposit. If it continues to drop in value you can lose more than your deposit and end up owing money.

Find a qualified person to help you manage the risks
If you want to rely on another person to be your FOREX expert, then you need to carefully review that person's credentials and track record. Here are a couple of things you can do:

• Check to see if they are a registered adviser in Manitoba by doing a simple online registration search  at the Manitoba Securities Commission's website www.msc.gov.mb.ca or by calling our Investigation Department at 945-2548 or toll free at 1-800-655-5244. A person must register under Manitoba securities laws to give FOREX investment advice to a Manitoba resident or to trade a FOREX account for a Manitoba resident. Registration in the U.S. does not satisfy the requirement to register under Manitoba law.

Manitoba registered advisers have an obligation to ensure that the investments they recommend to their clients are suitable for their clients' needs. In addition, you can check with a registered person's branch manager or compliance officer to ensure that they are qualified to advise you on FOREX trading. You should take notes of all your meetings. You can use the CSA's broker's notepad to help you.

• Do a background check on them to find out if the person or company is:
• involved in a relevant law suit or regulatory action,
• bankrupt,
• referred to in a relevant news story, and
• who they say they are.

More information about how to choose a financial adviser is available at www.msc.gov.mb.ca
It is important that you choose a qualified adviser who is a FOREX expert. They can help you assess your investment needs and determine if FOREX trading is right for you. If you and your adviser decide it is, then your adviser can help determine what amount to invest, what leverage ratios to use, and what investments to stay away from.
Proper expert advice about FOREX trading can lessen the risk of you suffering losses in the FOREX market that may be detrimental to your retirement plans and investment goals.