The Commodity Futures Trading Commission and the North American Securities Administrators Association issued a joint investor alert to warn of the dangers facing retail investors who are lured into foreign currency trading frauds.

The regulators cautioned investors that off-exchange forex trading by retail investors is at best extremely risky, and at worst, plagued by outright fraud.

“The damage forex fraud has caused the investing public and the victims of forex scams is incalculable. If you have a phone or an internet connection, you are a potential target of fraudulent forex shops,” said commissioner Michael Dunn, chair of the CFTC’s Forex Outreach and Education Task Force, in a news release. “While the CFTC, NASAA and other state and federal regulators are working hard to stop and prevent forex scams from occurring, the first line of defense is an educated consumer and caution in the face of unknown investments.”

“Foreign currency trading isn’t for everyone,” said Joseph Borg, director of the Alabama Securities Commission and president of NASAA. “While Forex trading can be legitimate for governments and large institutional investors concerned about fluctuations in international currencies, and appropriate for some individual investors, the average investor should be wary when it comes to these complex markets. Remember, if you don’t understand an investment, don’t invest.”

The regulators note that due to the volatility in the price of foreign currency, losses can accrue very rapidly, wiping out an investor’s down payment in short order. “Even when purchased through the most reputable dealer, forex investments are extremely risky. If you are tempted to invest, make sure you understand these products and above all, only invest what you can afford to lose,” Dunn cautioned.

Forex scams attract customers with sophisticated-sounding offers advertised in newspapers, radio, television and the Internet. Promoters often lure investors with the concept of leverage: the right to “control” a large amount of foreign currency with an initial payment representing only a fraction of the total cost. Coupled with predictions about supposedly inevitable increases in currency prices, these promotions offer huge returns over a short time, allegedly with little or no downside risk.

“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists,” Borg said.

The CFTC and NASAA have prepared a list of warning signs investors should watch for before investing in a forex opportunity. The warning signs include: promises that sound too good to be true; unsolicited phone calls offering investments; and, high-pressure efforts.

The regulators also urged those who have recently acquired or have accumulated large sums of cash to be on guard. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. “Getting your money back once it is gone can be difficult or impossible,” Dunn and Borg said.

Investors should make sure that anyone offering a forex investment is properly licensed and has a reputable business history. The public can obtain information about any firm or individual registered with the CFTC.