Ask eBay users about auction fraud and payment scams, and you'll hear different stories with the same theme: While eBay can be a great marketplace, both buyers and sellers need to beware.

PC World's contributing editor James Martin was nearly defrauded when he tried to sell a laptop and managed to avert disaster thanks only to a cooperative post office clerk who searched for and returned the package Martin had shipped a few hours earlier. Martin is not alone. The FBI tracks online auction fraud via its Internet Crime Complaint Center, and auction scams have averaged more than half of all online fraud complaints.

However, the actual numbers of fraud reports have gone down in the last couple of years, returning to 2003 levels. This may be due to better policing by eBay or to more awareness of fraud among the auction site's users.

And eBay has taken a number of steps to combat fraud. One of them is an antifraud toolbar for users, designed to identify attempts by phishers to obtain your eBay log-in information. Recently, eBay also partnered with Google to stamp out a major site-redirection vulnerability exploited by phishers.

Other tools in eBay's fraud-fighting arsenal include the eBay/PayPal Security Key, launched in February of last year, as well as several measures designed to safeguard member IDs and improve buyer protections introduced in April 2007. Also, to protect member ID information, which can be used to send phishing e-mail and fake "second-chance" offers, eBay now hides the IDs of bidders in big ticket auctions. And an expanded new seller feedback system gives buyers the detailed information they need to decide on the seller's bona fides.

Finally, a sweeping overhaul announced this week should lead to a new balance of power between buyers and sellers. Among other changes, sellers may no longer leave negative feedback on buyers, eliminating the fear of retaliation that many buyers had when deciding whether to leave negative feedback of their own. This fear resulted in under-reporting of bad transactions through the feedback system. And sellers in high-risk categories like computers, or those who have less than stellar feedback, will now be required to take payments either through PayPal or a credit card. In some cases, PayPal will even withhold payments to sellers entirely until the buyer has left positive feedback or 21 days have passed without a claim.

Even with all these safeguards, there are still risks to using eBay. Users put up with them because it's the biggest game in town, with 95 per cent of all online auction listings, according to Jupiter Research. Total auction sales were about US$30 billion last year, a big slice of overall US. Internet sales of US$116 billion. Local Craigslist classifieds and Amazon's Marketplace are gaining in popularity, especially for hard-to-ship items and books, but for many broad product categories, such as antiques and collectibles, eBay is still the best or only viable outlet.

So what can you do to protect yourself against auction fraud, and buy and sell safely on eBay? Read on.