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Retail Investors Suffer Huge Losses from Investment in Overseas Exchange-traded Derivatives
Investors Advised to Use Authorized Brokers
Retail Investors Suffer Huge Losses from Investment in Overseas Exchange-traded Derivatives
  • By Yoon Young-sil
  • February 12, 2019, 11:03
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Retail investors are found to have been losing tens of billions of won every year by trading futures and options in overseas exchanges.

Retail investors are found to have been losing tens of billions of won every year by trading futures and options which are traded in overseas exchanges or are designated as quasi overseas exchange-traded derivatives. Financial authorities said that individual investors should take care not to make transactions through unauthorized brokers.

Retail investors had an annual average loss of US$81.86 million (92.13 billion won) from 2011 to 2017, according to the data from the Financial Supervisory Service on domestic investors’ investment in overseas exchange-traded derivatives, excluding FX margin. Induvial investors made a loss of US$87 million (97.92 billion won) in the first quarter of 2018 alone, which was higher than the annual average loss. They have been suffering a loss from the investment regardless of market conditions.

A bigger problem is that the percentage of retail investors is on the rise. The trade volume more than quadrupled from 11 million transactions in 2011 to 45.10 million in 2017 and the number of retail investors surged from 13,300 in 2011 to 46,000 in 2017 as well. In particular, the number of retail investors increased to 40,800 in the first quarter of last year, accounting for 93.6 percent of the total.

The steady growth in retail investors’ transactions of overseas exchange-traded derivatives is attributed to their demand for various products that are not listed in the domestic market, such as crude oil and jewelry, for investment or hedging purposes. FX margin transactions have been decreasing after financial authorities introduced market soundness measures in 2011. The trading value of FX margins grew from US$76.5 billion (86.1 trillion won) in 2005 to US$665.4 billion (US$748.91 trillion won) in 2011 but the figure shrunk back to US$72.3 billion (81.37 trillion won) in 2017.

An official from the FSS said, “Illegal brokers, including futures account lenders, pretend to be an authorized one and involve in illegal brokerage activities, attracting investors with a higher leverage and refunds. Investors should trade overseas exchange-traded derivatives, including FX margin, through domestic authorized investment brokers, such as securities and futures companies.”