SFC must cut margin limit if Hong Kong is to compete with Singapore as forex hub, say traders
The financial regulator says the 5 per cent FX trading margin, which compares to Singapore’s 2 per cent, is to shield brokers from volatility
Hong Kong’s financial regulator should relax margin trading requirements if the city is to compete with rival Singapore in foreign exchange trading, as the internationalisation of the yuan provides a good opportunity for the city to climb the world rankings, according to veteran traders.
Hong Kong overtook Tokyo to become the world’s fourth-largest forex trading centre in April this year, but it still lags behind London, New York and Singapore.
Jasper Lo, chief executive of King International and a forex trader of 30 years, said the tight margin trading is a key reason Hong Kong is losing out to other financial centres. The Securities and Futures Commission currently sets the minimum forex trading margin at 5 per cent, compared with 2 per cent in Singapore and the US, while London has no margin limit. The industry average is about 0.5 per cent.
For the [Hong Kong] forex market to become active again, the SFC must let currency brokers freely negotiate margin with customers
“This means investors can trade 20 times their initial deposit on forex trading in Hong Kong, 50 times in Singapore and New York, and 200 times in London,” Lo told the South China Morning Post. “This means investors can use much less money to trade the same amount of forex in London, New York and Singapore. This is why Hong Kong has lost out.”
The SFC says the margin is designed to protect leveraged forex brokers against volatility in the foreign exchange markets.
Wilson Chan, a former currency trader who is now an associate director of the MBA program at the City University of Hong Kong, said: “In Australia, the margin requirement is only 1 per cent and many Hong Kong investors trade forex via the Australia market. If Hong Kong would reduce the margin level, it needs to cut it substantially to get closer to Australia or it won’t be able to compete for business.”
However, Chan said the regulator would need to consider risk issues as the forex market could be very volatile.