The increase of Margin level and its effects on FX market in Korea

On December 1st, Korea Financial Services Commission (FSC) and Financial Supervisory Service (FSS) announced drastic measures on the FX margin product for the purpose of leading a sound investment environment in the retail sector. The main point is to discourage individual trading by reducing Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term through increasing initial margin level to 10% from 5% and maintenance level to 5% from 3%.

Thus far, domestic broker industry of securities and futures firms held discussions and exchanged views several times with the financial supervisory authorities in order to relieve the shock of the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term changes which would lead to a steep fall in FX trading volume and to voluntarily provide a sound investment climate. The authorities called the huge losses of FX trading investors into question and the industry pointed out that the current trade size of 100k is the source of the losses as the current trade size exposes investors to an excessive risk. Therefore, the industry made a recommendation that introducing 10k trade size allowing a small-scale investment for individuals who are not familiar to FX trading can reduce the risk of loss. However, authorities thought that such derivatives product trading, not only FX trading but also KOSPI Option and ELW trading, which many individuals trade, are causing social problems. Hence, authorities firmly introduced a plan to reduce the amount of individual investment by lowering the leverage that triggers speculation.

The strong negative stance by the authorities toward the retail business has daunted the industry to actively engage in the business, leaving no choice but to inevitably accept the new regulation. Hence the industry concerns that the sharp shrinking of FX business would be unavoidable after March 5th, 2012 when the increase of margin level takes effect.

The ripple effects of the government’s December 1 announcement can be examined in two points of view between securities companies and futures companies. FX business is a small earning out of various revenue sources for the securities companies, whereas for the futures companies, the profit earned by FX business takes an important portion of total marketing revenue. So their action toward the announcement will be different.

Rest of the article is found in the latest Forex Magnates Quarterly Report.