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The dangers of online shopping are well known. Horror stories abound of people who have lost loads of money while shopping online. You may be tempted to shun all online shopping, because you just don't want to take the risk.

However, as our lives become and more intertwined with activities on the Internet, it will become increasingly hard to avoid all online financial transactions. Instead of avoiding the issue, why not take steps to protect yourself?

I'll outline steps I take to limit my online risk. Following these steps are no guarantee that I'll never lose money. But they greatly reduce the chances that I will lose significant amounts of money with my online activities.

To start it's important to recognize two levels of risk:

1. My Immediate Purchase Risk - the risk that I will lose money with the transaction I am currently making.

2. My After-the-Fact Financial Risk - the risk that my financial information will be stolen and used subsequent to the transaction I am currently making, possibly repeatedly.

While both kinds of risk are important, the second can lead to far greater losses of money than the first. We'll cover steps to avoid both kinds of losses, but you'll want to be especially diligent about lowering your After-the-Fact financial risk.

Reducing My Immediate Purchase Risk

In making a purchase, the merchant's reputation is everything. When I consider purchasing from an unfamiliar online merchant, I do my my best to establish that the merchant has a good reputation. Most legitimate retailers work hard to avoid cheating their customers, and their reputation will reflect that effort.

Reputation on Online Auctions

With online auctions, establishing a merchant's reputation is usually pretty easy. Generally each seller will have a score indicating how well they've done in satisfying their customers. Don't under estimate the value of this information. It's very revealing. I usually make sure that the seller has been involved in a large number of transactions -- no less than 30 -- but a much higher number if I want to be really safe.

Further I read the feedback that the seller has received from their buyers. It's important to take particular note of any neutral or negative comments. If the percentage of negative comments is greater than a couple percent, I will probably avoid this seller. Additionally, if the negative comment percentage is low, but there is a consistent theme of poor shipping performance or of buyers not receiving what they expected, I also will likely move on.

Reputation Through the Better Business Bureau

If the merchant is not selling through an auction, establishing it's reputation takes more work. I'll usually take a quick look at the Better Business Bureau web site for online businesses (http://www.bbbonline.org). It's pretty rare to find an online merchant listed there, but if it is listed and it has poor performance, I immediately know to avoid it.

Further, if I can find the physical address of the business, I can use the main Better Business Bureau web site (http://welcome.bbb.org/) to find the local Better Business Bureau responsible for the merchant's geographic area. Many times the local Better Business Bureau will have a listing for the online merchant.