What is the foreign exchange market (FOREX)?

FOREX (short for “foreign exchange”) is a market where investors, including banks and pension funds, exchange currencies.

For example, an investor may promise to exchange a certain number of Canadian dollars for a certain number Japanese yen promised in return by another investor.

Investors can make a profit on the FOREX market if they can correctly predict movements in the exchange rate between two currencies. Using the previous example, if the value of the yen increases, the investor receiving the yens can resell them at a higher price. Investors who trade on the FOREX market usually use an Internet platform. The platform is often operated by a dealer or by a provider on behalf of a dealer.

What are the risks?

The value of currencies is influenced by several factors, including:

• political events
• economic events
• natural disasters

Investors who trade on the FOREX market must have enough time and knowledge to analyze a large volume of information.

Some strategies used on the foreign exchange market are complex. For example, leverage involves borrowing money to invest. Investors who use this strategy must repay the borrowed amount, even if the investment isn’t profitable. Investors can also lose more than the initial investment if the foreign exchange market doesn’t behave as predicted. It’s a risky strategy.

How to protect yourself against fraud on the foreign exchange market

The foreign exchange market isn’t for every investor.

Don’t listen to anyone who tells you otherwise. Don’t believe ads touting sure-fire methods, expensive software or training seminars and promising to turn you into an expert so you can earn quick cash.

As a general rule, be very careful if you’re guaranteed high returns without any risk. There’s no such thing as a risk-free high-return investment.