Investor Bulletin Issued on Retail Forex Transactions

The Securities and Exchange Commission has issued an investor bulletin highlighting some of the most significant risks that foreign currency exchange (forex) transactions may pose for individual investors.

The forex market is a large and generally liquid financial market. Banks, insurance companies, and other financial institutions as well as large corporations use the forex markets to manage the risks associated with fluctuations in currency rates. However, the risk of loss for individual investors who trade forex contracts can be substantial.

“Forex trading can be very risky and is not appropriate for all investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Individual investors considering forex trading need to fully understand the unique characteristics of this market and consult their financial adviser before making any investment decisions.”

Before this, the Commission issued an interim final temporary rule to permit registered broker-dealers to continue to engage in retail forex transactions for up to one year under the existing regulatory framework that applies to them when effecting such transactions.

Under Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, retail forex transactions would have been prohibited as of July 16, 2011, in the absence of Commission action. The interim rule provides the Commission with time to collect additional information regarding the retail forex activities of broker-dealers and take such regulatory action as may be appropriate to reduce forex risk for investors purchasing or selling foreign securities.

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