Investing in the foreign exchange market (FOREX) has its risks. You should find out about them before making a decision.
- What is the foreign exchange market (FOREX)?
- What are the risks?
- How can you protect yourself against fraud on the foreign exchange market?
- Thinking about investing on the foreign exchange market?
What is the foreign exchange market (FOREX)?
FOREX (the abbreviation of “foreign exchange”) is a market where investors, including banks and pension funds, exchange currencies with one another.
For example, an investor can promise to exchange a given number of Canadian dollars with another investor, who promises a given number of Japanese yen in return.
Investors can make a profit on the FOREX market if they are able to properly predict how the exchange rate between the two currencies will fluctuate. To return to the same example, if the value of the yen increases, the investor receiving the yens can resell them at a better price.
Investors who trade on the FOREX market generally 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. For example:
- the weather
- political events
- economic events
Investors who trade on the FOREX market must have the time and knowledge to analyze a large volume of information.
Some strategies used on the foreign exchange market are complex. For example, leveraging involves borrowing money for investment purposes. This strategy requires the investor to repay the amount borrowed, even if the investment hasn’t been profitable. An investor could also lose more than his initial investment if the foreign exchange market doesn’t react according to his forecasts. It’s a risky strategy.
Beware of enticing promises!
- Become a FOREX pro in under a month!
- Open a no-risk account!
- The easiest way in the world to make money safely!
- Get rich from the comfort of your own home!
- This is the most lucrative market in the world!
- Avoid taxes!
These promises are too good to be true. Even if people on the Internet and social media sometimes praise the merits of the foreign exchange market, it is complex, volatile and very risky.End of the warning
How can you protect yourself against fraud on the foreign exchange market?
The foreign exchange market isn’t for every investor. Beware if someone tells you otherwise.
Don’t believe ads that sing the praises of sure-fire methods or try to sell you expensive software or training seminars. These ads say they’ll turn you into an expert so you can make a quick buck.
As a rule, be very careful if you’re guaranteed high returns without any risk. There is no such thing as a high return without risk.
Investor warnings from the AMF
The AMF routinely issues investor warnings against unregistered companies that solicit Québec investors to invest on FOREX.
Always check whether the person or firm offering you an investment is registered with the AMF and therefore authorized to sell you this type of product. If you have any doubts, contact an agent at our Information Centre.
If you receive this kind of offer or if you’re being solicited by a firm that is not registered with the AMF, we urge you to report the matter.End of the insight
Thinking about investing on the foreign exchange market?
Before investing, you should fully understand FOREX and its characteristics and risks. Do FOREX investments match your investor profile? How would a loss impact your financial situation?
Check that the firm and person you are dealing with are authorized to offer you the investment. Call the AMF Information Centre at 1-877-525-0337 or consult the Register of firms and individuals authorized to practise on the AMF website.