The B.C. Securities Commission is warning people about the risks of trading in the “spot” foreign exchange market amid reports of a growing interest in this type of investing.

“For several reasons, we are seeing the spot foreign exchange market, or so-called forex trading, becoming more popular as an alternative to more traditional investments, such as equities, bonds or mutual funds,” says Steve Wilson, BCSC executive Director.

The BCSC says people should be careful when getting involved in forex trading — especially when it comes to speculating in currencies through leveraged forex contracts.

Wilson warns that the risk of loss is even more pronounced for those who engage in leveraged forex contracts.

“You’re in a position to not only lose what you have invested but, because it involves trading on margin, your loss may exceed your investment,” he says.

Often, in forex trading, brokers or dealers ask clients to give them money, which they refer to as “margin.” This amount of money may be as little as US$500 but it actually controls a dollar value much larger than the investment. Because of this, there is a risk that investors may lose more money than the margin amount that they deposited into their trading accounts.

The BCSC says investors should not trade on margin unless they are prepared to accept losses that exceed the margin amounts that they paid.

Wilson says the forex markets can be volatile and contain substantial risks for unsophisticated investors. He cautions against trading in forex instruments with money that an investor can’t afford to lose.

“You certainly do not want to be using your retirement savings for these types of investments,” he says.

He also says that investors should be aware that dealers or brokers that open trading accounts for B.C. clients are required to be registered in British Columbia, either as an IDA-member investment dealer or an exchange contracts dealer.