SFC Scrutinises Leveraged FX Trading in Hong Kong

This Thursday the Securities and Futures Commission (SFC) published a report on the leveraged foreign exchange trading (LFET) activities conducted by licensed corporations from the period between January 2018 until the 31st of December, 2018.

In particular, the report focuses on a survey from the Hong Kong regulator which found that 98 per cent of active LFET clients were retail investors and more than 99 per cent of turnover in the LFET market was rolling spot forex contracts.

The survey data covered the 32 firms licensed for Type 3 regulated activity in Hong Kong – leveraged FX trading, which reported on their LFET activities in 2018, the statement from the regulator said.

For more complex FX products, turnover was quite low, such as options and forward contracts. All LFET products were traded on an over-the-counter basis. As part of the survey, a selection of brokers were chosen to give more detailed information.

According to the Hong Kong regulator, the selected brokers made up 77 per cent of market turnover and their clients accounted for 41 per cent of total active LFET clients. From these brokers, more than 60 per cent of their LFET clients made net trading losses, with some investors incurring losses of more than $1 million.

SFC: leveraged FX trading might not be for everyone

Commenting on the survey results, Mr Ashley Alder, the SFC’s Chief Executive Officer said in the statement: “Leveraged foreign exchange trading may not be suitable for everyone. It is done on a margin basis and these products may involve complex or non-standard features. Even experienced investors may suffer huge losses in such trading, especially in times of high market volatility.

“Brokers should ensure that their clients fully understand the nature and risks of these products and have sufficient financial resources to assume the risks and bear the potential losses.”

(Photo: Bloomberg)

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