S. Korea to tighten rules on currency margin trading

SEOUL, July 16 (Yonhap) -- South Korea will impose tougher regulations on currency margin trading in an effort to prevent investor losses and speculation, the financial watchdog said Thursday.

Margin trading allows investors to place large bets on financial products with a
relatively small amount of money. If executed correctly, margin trading can yield
a huge profit but it can also inflict significant losses on investors.
Starting September, investors will be required to put up collateral, or margin,
amounting to 5 percent of their trading amount, up from the current 2 percent,
the Financial Services Commission (FSC) said.
The strengthened measure will lower the leverage in currency margin trading to 20
times of collateral from the current 50 times, it said.
"The tougher rule is designed to prevent investors suffering hefty losses from
sharp currency swings," the FSC said.
Since first permitted in 2005, currency margin trading gained popularity in 2008
here when global currencies registered volatile movements.
The value of currency margin contracts reached 361.4 trillion won (US$289
billion) in the fist five months of this year, compared with 453.8 trillion won
for all of 2008, according to the financial regulator.
Trading by individual investors took up 99 percent of the five-month total, while
they lost 44.9 billion won during the period, it said.