Is it safe to buy foreign currency online?

Written by Kathryn Flores on October 22, 2010 – 10:03 pm

If you are looking to buy an overseas property or already own one, then no doubt the recent collapse of a major currency firm set alarm bells ringing – what protection do you have when buying currency online?

Thousands of foreign exchange speculators have lost their money following the collapse, and there are fears that other companies could follow due to the difficult trading environment.

The majority of people buy currency using a cheque or bank transfer to avoid paying fees, plus these are the preferred payment methods of many traders. However, by not using a credit card, transactions are not covered by the Consumer Credit Act. How can you protect your money?

What about regulation?

Many currency websites say they are registered with the Financial Services Authority FSA – however, this means little in terms of regulatory supervision. Registered payment institutions do not have to safeguard customers’ funds so that in the event of administration, the funds are protected for from other creditors.

The lesson appears to be that FSA authorised and regulated forex specialist that keep client money in segregated ‘ringfenced’ accounts (as opposed to their main business account) are a safer bet than those who don’t.

It’s also wise to use a well established company with a sound trading history.

There is an obvious need for the FSA and the foreign currency industry to improve regulation practices and consumers protection.

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