Ontario Securities Commission Investor Alert - April 2004

If you're playing the FOREX market, make sure you can handle the risk

Toronto - As a follow up to a previous alert on investment software, the Ontario Securities Commission (OSC) is warning the public that currency trading and foreign exchange trading, also known as FOREX or FX trading, is for those that can afford to take the risk - and may be fraudulent. The Commission notes that the inexperienced public may be solicited through newspapers, radio, television and the Internet to trade currency, buy software or to sign up for trading courses. The ads promise that these programs will make you a winner, but the fine print provides a more accurate picture of what you can more likely expect.

What the ads may promise you:

• "You can trade without commissions, trade 24 hours a day, six days a week", whereas the stock market provides a much smaller window of activity.
  
• "You simply won't find an easier, more time-tested, flexible way to put dollars into your portfolio."
  
• The seminars will prove "how trading currencies can dramatically diversify and reduce the risk in your portfolio."
  
• You "can make profits with as little as $300, in rising and falling markets."
  
• "Don't lose any more money!"
  

What they don't tell you:

• While there may be no commissions, the company makes its money on the "spread" between the buy and sell quotes, which impacts your profits
  
• Software looks at past performance to identify trends in currency trading. These trends are the basis for predicting if the currency's value will increase or decrease. As helpful as the software or a trading course might be, profits can't be guaranteed.
  
• Foreign exchange trading is dominated by large international banks with highly trained staff, access to the best technology, and million dollar trading accounts. It is extremely difficult to consistently beat these professionals at their own game.
  

What's in the fine print?
The fine print can provide you with a wealth of knowledge about what the software or course actually gives you, and about the risk involved in the foreign exchange market. Often, the disclaimer text contradicts the ad's claims, and provides tips such as:

• "Trading stocks, options, and spot currencies involves substantial risk."
  
• "Never trade in the Spot FOREX market unless you have the financial and business acumen appropriate to do so."
  
• Software is an "analytical tool only and is not intended to replace individual research or licensed investment advice."
  
• "Unique experiences and past performances do not guarantee future results!"
  
• "No system for identifying trends in foreign currency...is free of risk, nor can any system factor all the variables capable of impacting currency fluctuations."
  

The following tips will help you protect your money:

• Check the fine print in the ads. Often it's a better prospect for investment tips than the software or seminar itself.
  
• Investigate the person or company offering the software. Sometimes companies change their names when they get complaints, so look into the company's history.
  
• Any person or company selling securities or offering investment advice in Ontario must be registered with the Ontario Securities Commission, unless an exemption is available. This also applies to people involved in any act, advertisement, solicitation, conduct or negotiation in furtherance of a trade. Call the OSC at 1-877-785-1555 to check registration.
  
• Watch out for investment promotions that offer high returns and low risk. If an investment has a high return, you are taking a large risk with your money.
  
• When an ad makes extravagant claims about software performance or seminar results, take a careful look at what the claims are based on. Are the testimonials representative of all clients (see fine print)? If not, make sure you get the whole story.
  
• Recognize that investment software and trading seminars do not take the place of advice from a licensed industry professional.
  

In reality, the only people guaranteed to make money are the people selling the software or offering the seminars. Not even the experts can consistently predict what the market is going to do - these programs won't either.

You can learn more about investment fraud and other investment topics on-line at www.investorED.ca.

Related US. Commodity Futures Trading Commission article.