Currency of investment

With property coming off the boil, foreign exchange trading is being touted as the next best way to quick capital gains. Or is it the next best way to yet more pain?

You'd expect foreign exchange traders to be quick to put their case. And you won't be disappointed.

OM Financial head of foreign exchange Dallas Squires says people who invested in property for capital gain will now be looking for alternatives.

"Retail forex margin trading can do the same thing for investors, and right now the business is growing exponentially," he said.

LatitudeFX is the latest online forex margin trading business, launched late last year and now trying to build a client base in circumstances principal Mark Olly believes are made for it.

"With investors growing wary of failed finance firms, a slowing residential property market and turbulent sharemarkets, we expect the retail forex market to have an exceptional year," Olly said.

But wait on. Isn't forex trading something only for the experts? And isn't it a high risk game, anyway?

Forex business KVB Kunlun's Howard Wilcox distinguishes between market risk and capital risk.

"Forex margin certainly has a lot of the former currencies are hugely volatile," he said.

But he said foreign exchange margin trading businesses had done a lot of work to protect investors' capital.

If your forex position starts to lose money, you get out straight away, you don't wait for it to come right, said Wilcox.

And all reputable forex margin traders have developed systems that warn margin traders when things are starting to go wrong and cancelled them out when things got too bad.

And if they go right, then there is the prospect of a tidy capital gain in relatively quick time.

Kiwi property investors are numbered in their hundreds of thousands, Forex margin traders in their hundreds, if not thousands, but numbers are growing as several factors give forex margin trading a boost.

It's now a hugely liquid market about $50 billion a month in local home trade transactions alone, according to Olly and the Kiwi dollar is the eleventh most traded currency.

He also said the growth of uptake on broadband allowed internet traders constant access to currency markets and real-time data.

But while currency speculation has become big business and has turned forex trading into a financial asset class in its own right, there are still big gaps in its regulation.

Investors can go online and sign up to any one of the many overseas-based forex trading businesses and trade at will.

But while there are strict rules surrounding share and futures contract trading in New Zealand, there are none for forex margin trading.

Yet the Securities Commission has authorised OM Financial, Tricom Securities, WSD Financial, CMC Markets and KVB Kunlun as forex trading businesses. In each case they are also authorised futures contract dealers and members of the NZX.

Securities Commission general counsel Liam Mason said it had yet to be decided if forex margin trading (only one form of forex trading) was similar enough in nature to futures contract trading to allow rules applying to the latter to also apply to the former.

- © Fairfax NZ News