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South Korea ups margins after retail surge

Financial regulator decides to increase margin requirements on retail FX trading

South Korea’s financial regulator, the Financial Services Commission (FSC), has decided to increase margin requirements on retail FX trading from 2% to 5%. The move, effective 1 September, is largely as a result of the high rate of losses among retail punters. The FSC says that the vast majority – more than 90% - of retail accounts incurred losses.

"To prevent the equivalent of the ‘Mrs Watanabe Syndrome’ in Japan from taking hold in Korea, the financial supervisory authority will raise domestic investors’ awareness of FX margin trading to ensure the transparency of the market," the FSC states.

Margin FX activity has surged in South Korea, expanding by 594% from 2007 to 2008. The FSC says that activity in the first five-months of 2009 exceeded activity in the whole of 2008 by 85%; it adds that retail FX accounts for 99% of margin trading. The regulator states specifically that over leverage is a significant contributor to the losses. "With a low margin requirement of 2%, even minor fluctuations of 1-2% in the other direction of the currency in question causes significant losses to accrue from forced settlement and loss-cuts," it says.

The FSC is also concerned about the number of transactions done with foreign companies – retail investors are required to trade through authorised domestic brokers.

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