Banks, brokers and exchanges eye more gold, currency products
Hang Seng Bank says it has expanded its gold and forex trading departments to meet increased demand from clients over the past two years
Banks, brokers and the stock exchange are all launching new gold trading services, as investors turn to it and foreign currency trading as alternatives to volatile stock market trading, according to leading industry players.
Hang Seng Bank said it will expanded its gold and forex currency trading to meet increased demand from clients over the past two years.
Rosita Lee Pui-shan, its head of investment products and advisory business, said from next week it would officially launch a new online trading platform called as FX2-FX and Precious Metal Trading Services, to allow investors to trade gold and 10 major currencies without leverage.
“There has been a strong demand for gold and forex trading over the past two years due to the increased volatile stock and currency markets.
“We have seen strong demand from customers wanting to have more products linked to gold and forex trading,” Lee told the South China Morning Post, “so this is the right time to launch such internet trading services in both to satisfy the growing demand.
“The bank already allows customers to margin trade on gold and forex online at 2 to 15 times, but not for trading without leverage.
“Some sophisticated customers already use our online trading platform to trade gold and forex using margin trading with leverage. However, for investors who do not want to take too high a risk and prefer not to margin trade with leverage, they can only buy in gold bars or hold time deposit for currencies.”
Lee said this is far from ideal because customers can do nothing if they believe gold or a particular currency could fall.
The new platform allows customers to short sell gold and any currency without leverage although they would need to pay interest for borrowing money to cover the short position.
If gold or the currency falls, they can then buy more to cover the position and pay the interest, and profit from the price gap.
However, they may also lose money if they bet the wrong way, she warned,
“This platform is available for trading via the internet for Hang Seng customers. This would be easier than trading at counters,” she said.
She said the products would also be suitable for investors who already have existing assets in foreign currencies, to hedge their risks.
Lee said the existing leverage trading platform shows gold remained most the popular among all traders last year, with 36 per cent of investment, 17 per cent in Japanese yen and 8 per cent in pound sterling.
All of the investments, however, had a bumpy ride last year, the pound for instance dropping some 15 per cent after the Brexit referendum in June, when the British voted to leave the European Union.
The Japanese yen rose 8 per cent in the second quarter from the first quarter also due to the Brexit vote but dropped 13 per cent in the fourth quarter compared with the second quarter as the US dollar strengthened after Donald Trump was elected US president, vowing to increase interest rates.
Gold rose 6.5 per cent in the second quarter from the first quarter as the market viewed it as a safe heaven after Brexit. It dropped 12 per cent, however, in the fourth quarter from the third, due to the strong US dollar.
Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said last month the exchange this year will also relaunch a gold trading contract denominated in yuan, as well as more currency contracts.
Jasper Lo, chief strategist of King International, set his company up midway through last year to capture the growing demand for gold and foreign currency trading.
“The stock markets in Hong Kong and China were not doing well in terms of market turnover which had dropped almost 40 per cent in the previous year. The stock exchange, brokers and banks all needed to find more new sources of income,” he said.
“In addition, a variety of political tensions have led to high volatilities in many currencies, such as Brexit’s effect on the pound,” Lo added.
“This has led more investors to pay attention to gold and foreign currency trading and why we have seen more banks and brokers launching gold and forex trading for customers. The trend is likely to continue.”