Don’t get me wrong, I don’t blame folks for this innovative way to hedge exchange rate dependency, but they are lambs to the slaughter for the bevy of shady dealers out there.
As the economy becomes more global, it’s not just Fortune 500 companies that have a presence or connection with overseas markets and currencies, but it’s businesses as small as a local travel agency specializing in Australian travel or an online retailer selling products made in France that are vulnerable to swings in the value of the U.S. dollar. These mom and pop shops (and I use that phrase with the utmost respect) have increasingly taken on a dangerous new business venture: Forex trading.
Increasingly, and particularly since 2008, these businesses have been hit hard by the decline in the value of the U.S. dollar. In an attempt to soften the fluctuations in the market and counteract their dependency on the dollar, they have followed the lead of behemoths (such as Google) into the Forex markets. By buying foreign currency using U.S. dollars, these entities can profit when the dollar’s value drops relative to the other currency. Sounds simple enough, right?
Hear me please: it is not worth it.
The Wall Street Journal reported this trend among small businesses but they forgot to mention that you can lose every penny. One small-business-owner-tuned-Forex-trader warns to “make sure you don’t take a bath” when the U.S. dollar drops, not realizing your other option (Forex trading) may be drowning in the ocean.
Don’t get me wrong, I don’t blame folks for this innovative way to hedge exchange rate dependency, but they are lambs to the slaughter for the bevy of shady dealers out there. Even for an experienced Forex investor it can be difficult to identify the wolves among the sheep. A company like Google, which has its own department devoted to Forex trading, can afford to take the risk (and has famously made over $700 million in Forex trading since 2008).
Hoping to make a few thousand dollars in the event of a drop in the dollar isn’t worth the risk of running into a shady broker, and trust me there are plenty.
What’s more, if the Journal has caught on, you can bet that the sharks are circling in the Forex pond. I’m no criminal mastermind, but if I’m seeking out naïve investors to scam, there is no more appealing group than small business owners just entering the world of Forex. They have little time to devote, little experience, and there are millions of them.
Small business owners, especially those dependent on the international value of the U.S. dollar, I can see the allure of Forex trading. But I assure you, the drastic risks outweigh the modest rewards.
Assisted by David Martin