Retail Investors Betting on Crude Oil and Exchange Rates... FX Margin Trading Surges 200%

Impact of Increased Volatility Due to COVID-19... Surge in Investments in High-Risk, High-Return Products

[Asia Economy Reporters Bomryeong Geum, Minji Lee] "Try FX margin trading easily." "I suffered huge losses from FX margin trading." (Online community)

Due to the increased volatility in stock prices, international oil prices, and exchange rates caused by the COVID-19 pandemic, the number of individual investors entering foreign exchange arbitrage (FX margin trading) has surged following crude oil exchange-traded notes (ETNs). Experts warn that speculative trading aiming for a 'big win' carries very high risks and can lead to sudden bankruptcy.

According to the Korea Exchange on the 27th, as of the 22nd before leveraged products were suspended, the premium rate based on the closing price of the 'Shinhan Leverage WTI Crude Oil Futures ETN(H)' was 847.8%. Considering that this product recorded a premium rate of about -0.1% in January this year, the product price is excessively higher than the actual value of crude oil (indicator value·IV).

Despite warnings from financial authorities and securities firms urging caution due to the increased premium rate, individual buying momentum has not weakened. Even though the Financial Supervisory Service issued a 'risk' consumer alert for crude oil investors on the 9th, individual investors net purchased ETNs and ETFs betting on rising oil prices worth a total of 1.3649 trillion KRW from the 10th to the 24th.

Recently, as expectations that crude oil price volatility may increase further have strengthened, buying has also concentrated on inverse leverage products betting on price declines. On the 23rd and 24th, 12.23621 billion KRW and 17.338 billion KRW flowed into the 'Shinhan Inverse 2X WTI Crude Oil Futures ETN(H)' and 'Samsung Inverse 2X WTI Crude Oil Futures ETN' products, respectively.

Speculative trading by individuals has also surged in FX margin trading. According to the Korea Financial Investment Association, the total FX margin trading amount by individuals last month was 21.35443 billion USD (approximately 26 trillion KRW), a 200.1% increase compared to the same period last year. The FX margin trading volume last month was 194,212 contracts, up 193.9% from the same period last year. The FX margin trading amount increased from 5.46774 billion USD in January to 9.85893 billion USD in February, and last month it explosively exceeded 20 billion USD.

FX margin trading is a foreign exchange transaction method of simultaneously buying and selling two countries' currencies, classified as a high-risk, high-return financial investment product aiming for exchange gains. Due to the COVID-19 pandemic, volatility in exchange rates increased like stocks and crude oil, causing a rapid rise in individual investors. The KRW-USD exchange rate rose from 1,191.74 KRW on January 31 to 1,214.73 KRW at the end of February and 1,218.54 KRW on the 31st of last month. Especially last month, the KRW-USD exchange rate showed sharp fluctuations. On the 18th, it was 1,245.65 KRW, surged to 1,285.73 KRW on the 19th, then dropped to 1,245.63 KRW on the 20th.

Although it is a highly speculative product, many individual investors suffer losses due to insufficient risk awareness. There are many cases where short-term trading is conducted without sufficient understanding of foreign currency volatility and profit-loss structures. In 2012, the financial authorities raised the FX margin trading margin rate from 5% to 10% because investors suffered large losses due to forced liquidation even with 1-2% market fluctuations caused by high leverage.

This content was produced with the assistance of AI translation services.