South Korea’s financial watchdog said Sunday it is mulling a set of measures to limit retail investors’ trading of derivatives in a bid to keep them from suffering heavy losses.

Currency margin trading is viewed as one of the riskiest derivatives for retail investors as losses from their excessive bets on currency volatility have increased, prompting the financial watchdog to study steps to curb it.

Margin trading allows investors to place heavy bets on currency volatilities with a relatively small amount of money. Currency margin trading can yield huge profits, but it can also inflict huge losses on investors if wrongfully bet.

The financial watchdog said it is considering pushing brokers like securities or futures firms to sufficiently notify individual investors of investment risks.

Whether to restrict a new entry into the FX margin trading market is also being studied, according to officials.

“The regulator is considering measures over how to overhaul the derivatives markets as retail investors are suffering from major losses,” said an official at the Financial Services Commission. “The watchdog is expected to announce stricter steps within this year.”

In July 2009, the FSC imposed tougher regulations on FX margin trading by raising the value of collateral, but currency volatility, increased by the global financial crisis, has made more retail investors place excessive bets on derivative trading, exposing themselves to highly speculative trading. 

(Yonhap News)