HOLDING high percentage margin deposit accounts when trading on the leveraged forex market, protects investors from adverse overnight currency fluctuations, says a top banker. Local leveraged forex investors would not be able to protect market positions overnight, said Fung Chi-kin, vice-chairman and general manager of Bank of China Group Securities. The more funds held in a forex margin account, the less chance there was of trading being stopped and an investor's position being cut when currency rates in New York or London slipped, Mr Fung said. 'Normally, banks want a seven to 10 per cent deposit of a total forex contract held in a margin account,' he said. 'With more money in the account there is more protection for banks and investors and less chance of a contract being cut when markets drop at night while banks are shut. 'It is difficult for investors to top up margin accounts at 4 am to protect their market position.' A new ordinance, drawn up by the Securities and Futures Commission (SFC), sets a minimum margin requirement of five per cent of a total forex contract. Mr Fung said the five per cent margin deposit requirement reduced risks for investors dealing with small trading houses and gave extra protection during overnight trading. Prior to the law, small investors were attracted to bucket shops, or small trading firms offering low deposit margins, he said. 'Investors with a two or three per cent deposit margin are more likely to have their position cut and their contract stopped than investors trading on a 10 per cent margin,' he said. 'The Government decided to draw up the ordinance, the first in the world, after receiving a lot of complaints from investors with two and three per cent margins.' Although commercial banks were exempt from the SFC licensing regulations, the Hong Kong Monetary Authority (HKMA) monitored banks' leveraged forex trade. The HKMA hoped to introduce laws governing banks' internal controls and records similar to SFC rules for margin forex trading, he said. 'Licensed traders submit monthly and quarterly reports to SFC, a practice which has boosted the territory's forex market reputation in Southeast Asia and Europe,' Mr Fung said.
