The Alberta Securities Commission (ASC) is warning Albertans about potential hidden costs and the high degree of risk related to seminars or computer programs promoting foreign currency exchange trading, known as FOREX or FX Trading. While advertisements claim one can learn to trade quickly and easily on the foreign exchange market, the fine-print disclaimer invariably states otherwise.
Through newspaper, radio, television and Internet advertisements, Albertans may be solicited to purchase software or sign up for trading courses to learn to invest in the foreign currency exchange market. Advertisements often promise large profits on currency trading; however, consumers should be aware that foreign exchange contracts are extremely risky ventures. In addition, companies may promote foreign currency trading software packages that cost thousands of dollars. Free demonstrations of the software are often accompanied by high-pressure sales tactics.
What the Ads May Promise:
- You won’t find an easier, more tested and flexible way to put dollars in your portfolio.
- You can make profits with as little as $300.
- You trade without commissions and trading is available 24 hours a day, six days a week.
- The FOREX market is the largest financial market in the world and provides more opportunities than you’d ever get in the stock market.
- The seminars will prove how easy it is to make money from currency trading.
What They Don’t Tell You:
- The software being promoted looks at past performance to identify trends in currency trading. It uses these trends to predict the currency’s value in the future. As helpful as the software seems, it cannot accurately predict market fluctuations, nor can profits be guaranteed
- While there may be no commissions, the promoters make money from the sale of the software and on the “spread” between the buy and sell quotes made on each purchase and sale.
- Individuals who attend free demonstrations may experience high-pressure sales tactics and be asked to purchase software programs for thousands of dollars.
The Fine Print
The ASC advises consumers to be aware of the fine print on any offer making extravagant claims about investment returns as the ad may not be telling the whole story. However, the fine print provides a wealth of knowledge about what the software actually delivers:
- Trading in foreign currencies involves substantial risk.
- Investors should have the appropriate financial and business experience before investing in the FOREX market.
- Software is a tool that tracks past performance. It does not replace research or licensed investment advice.
- Past performance does not ensure future results.
- No system that analyzes trends in foreign currency is free of risk. The system cannot factor all the variables capable of influencing market fluctuations.
In general, foreign currency can be traded legally; however, investors should be aware of the potential risk involved in FOREX trading. Should you decide that FOREX trading is suitable for you, the following seven steps are useful in safeguarding yourself in the foreign exchange market:
1. Be wary of opportunities that sound “too good to be true”
Be cautious about any opportunity promoting exaggerated returns on investments. Be especially careful if you have recently acquired a large sum of cash either through a retirement fund or other means. These funds are attractive targets for fraud.
2. Stay away from offers that promise little or no financial risk
Be sceptical of any company that downplays the risks or asks you to sign a risk-disclosure statement, secrecy, or confidentiality agreement. Trading in foreign currency is volatile and poses high risk for consumers. You should not invest money you cannot afford to lose.
3. Avoid margin trading (leveraging) unless you understand its consequences
This type of trading makes investors responsible for far more money than they have invested. If you trade on margin, be prepared to accept losses that exceed your investment. In some cases that amount may be 100 times the original investment.
4. Be suspicious of “intrabank markets”
Fraudulent firms will often tell customers that their funds will be traded in the “intrabank market.” Be suspicious of this offer as this market is normally reserved for banks, investment banks and large corporations.
5. Don’t send or transfer cash on the Internet
Be alert to the dangers of trading online. It’s easy to trade but often impossible to get a refund. Fraudulent companies can set up Internet websites easily to reach a large audience. Many of these companies will transfer your money overseas where it will be difficult, if not impossible, to trace or recover.
6. Get the company’s track record
Get all the information you can about the firm or individual’s performance record. Remember that it could be very difficult to verify the information you receive. Even a glossy brochure or a stylish presentation may contain false information. Ask presenters to be specific about what makes them experts in the subject matter. Just because they appear or claim to have made a lot of money investing in foreign currency doesn’t mean it’s true (a fraudster may have made hundreds of thousands of dollars off the backs of unsuspecting investors who never bothered to ask questions).
7. No background, no investment
Check any information you receive to make sure the company is and does what it says. Call the Alberta Securities Commission (and Better Business Bureau or Investment Dealers Association) to get as much information about the organization as you can. Ask for written information from the company. Be wary of confidentiality agreements as this often means the investment is a scheme. If they cannot satisfy these requests, it is best to avoid investing through this company.
Click here to learn more about how to conduct a background check.