Terry Corbell, The Biz Coach
By Terry Corbell
Business Consultant

Forex Trading: Prevent Tragedy with Due Diligence



Forex trading is a daily marketplace in the trillions of dollars. But scandals serve as a reminder about due diligence.

In Canada, the B.C. Securities Commission accused Horizon FX Investments of illegally soliciting $34 million from 1,000 investors, according to The Vancouver Sun on Nov. 10, 2009.

Ten days later, The Wall Street Journal reported a new managing director was appointed to lead Chinese conglomerate Citi Pacific Ltd. to replace a predecessor in the wake of huge losses in a Forex scandal.

banker David Castillo DominiciThat’s not all. Enter the key words, “investor scandal,” on any search engine and you will find numerous references.

Reader’s question

So, I decided to focus on due diligence after receiving and answering the following question:

“Hey Coach, I’m a business owner and fairly new to investing in the stock market. I keep hearing about Forex trading, but I don’t understand what the buzz is about. Can you help?”

My response:

Especially since the Digital Age began to really take root, we’ve been seeing a whole of innovations, changes and advances – all thanks to globalization and technology. My earliest recollection is when I was a journalist in the 1970s long before the Internet.

Many have been great developments. Ask George Soros, a remarkable story, who has made mega bucks as a speculator.

But the scandals show the downside from not practicing due diligence.

Forex trading is exciting and fast-growing, and it can really get your juices flowing. I think it’s a rather sexy subject because Forex success necessitates staying abreast on a broad range of current topics including economic trends and political developments.

One of my business-professor buddies has taught it as a college-level class, which means it is a complex subject and I’ll only attempt giving you a basic primer.

Not to oversimplify, Forex trading mainly refers to the foreign exchange market for international trade and investment in currencies and cash via what’s called the interbank market. Forex trading is highly specialized and it isn’t available at every bank and financial center. It’s important to only deal with reputable people and use competent Forex software.

Traders include speculators, central banks, private-sector banks, and companies. Investment strategies can include algorithmic trading using software for price, quantity or timing.

For you as a business owner, this means you have the opportunity to make money throughout the world while simply sitting in your home or office. Of course, that includes Forex trading of any currency.

If, for example, you want to start trading with a country in the European Union, a foreign exchange deal will help you buy or sell Euros.

Perhaps a bit complex for you as a novice, essentially, it’s all about convenience and flexibility to make money across the globe in trading currencies.

That includes the variety of factors influencing exchange rates, market liquidity, 24-hour trading during the week, trading volumes, geography across all borders, and the use of debt or leverage to supplement investments.

Due Diligence

Before you get excited, please note: Don’t make any rookie mistakes.

Forex trading is transacted on margins, which means high-profit potential but nonetheless it is risky. Funds in an account are less than the amounts that are controlled. It’s worth noting that currency exchange rates on an average day are not large but can be small. However, trading on margin is risky.

So do your due diligence by studying in Forex exchange courses or reading blogs. Know your broker and check authoritative sources like Forbes.

A great source of Forex tutorials and information are blogs, which are easily updated with current information, which you can arrange for RSS feeds to your computer.

More on due diligence later.

OK, I feel better. Now that I’ve cautioned you, Forex trading is fun because there are continuous opportunities because of the high liquidity and other factors.

Countless enthusiasts invest in managed Forex accounts. Because of the Forex-market dynamics, a managed Forex account is usually ideal for someone who doesn’t have the expertise and time to stay current.

Investors choose among such spot transactions (the spot market is the largest) or forwards, which are basically deals to buy or sell in the future for an agreed-upon price now.

Most nations allow Forex derivative trading although it is not acceptable in third-world countries. There are tier-levels of participation, which depends on the amount of money being traded. It is unlike when you trade in the stock market.

Institutional investors from pension funds to insurance companies have been a pivotal part of the growth.

Forex is highly speculative and focuses on what is anticipated in terms of movement of currency. So again, I advise caution.

ETFs

You’ve probably heard the acronym, ETF. That stands for exchange-traded funds. Many will follow or track the trends of currencies vis-a-vis the dollar.

For example, when comparing the dollar to the Euro, an ETF can increase its value when the dollar drops vs. the Euro.

For pricing, in essence, individual investors rely on Internet market makers.

To get credit with banks in the interbank market, such Forex brokers use their own money in participating in foreign exchanges. They land the most competitive pricing – if they have good credit relationships with banks because they are then-better capitalized than their competitors.

Again, there have been many unsettling events. Scandals have resulted when predators have taken advantage of unsuspecting souls.

As in all business issues, relationships are important. This is especially true during challenging economic periods. In other words, if the marketplace is volatile, respected brokers continue to get the best deals. So, deal with a respected Forex broker.

In conclusion, that’s your Biz Coach primer. Have fun. But did I mention due diligence?

From the Coach’s Corner, suggested reading:

“Diligence is the mother of good fortune.”

-Benjamin Disraeli


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo courtesy David Castillo Dominici at www.freedigitalphotos.net

Seattle business consultant Terry Corbell provides high-performance management services and strategies.