And wealth management firms have also grasped that playing the currency markets can save their clients money and add an additional slice of returns. And the trend is also proof that enthusiasm for alternative assets has further to run.
Last week, Barclays Stockbrokers, part of Barclays Wealth, the UKs biggest wealth management business, launched an online spot-trading platform, a service that is open to retail investors for stakes of only 1,000, giving them leveraged exposure of up to 100 times. A clients exposure is protected: when exposure reaches 90 times the stake, a trade is automatically closed out, guarding against the risk of a severe loss.
Although Barclays says it is breaking fresh ground because of the range of currency rates that investors can trade on its platform -- 19 rates -- other firms also offer spot-trading accounts for private investors staking a few thousand pounds.
For example, GFT Global Markets UK, which is part of the US-based financial services company Global Futures & Forex, offers private clients an online currency trading platform. Clients must keep at least $2,500 (or foreign currency equivalent) on deposit. Like most online trading platforms, there is no annual fee or transaction charge. As in the case of Barclays Stockbrokers, GFT earns a profit from the spread, or difference between which they buy and sell currencies.
As the Barclays Stockbrokers example shows, clients can leverage their initial exposure by many times which also raises the risk, of course, of suffering a heavy loss unless the client has arranged a sell clause to close out a bet. In the case of GFT, investors can multiply their exposure by up to 400 times.
Another prominent player in this field is the Copenhagen-based Saxo Bank. In April, Saxo, launched a free online education service for retail forex traders and traders of contracts for difference. In February this year, as part of its drive to expand its market reach, Saxo finalised its friendly take-over of Synthesis Bank, turning the latter into Saxo Bank (Switzerland) headquartered in Geneva and with an office in Zurich.
A number of spread-betting firms offering spread-betting and contracts for difference accounts enable investors to punt forex rates; other derivatives that can be bought online or through a broker include covered currency warrants, which enable investors to profit from forex moves or hedge exposure to adverse movements.
Foreign exchange is a significant part of our business, no doubt about its foreign exchange is a deeply liquid market in terms of ease of access and tight [bid/offer] spreads, Tim Hughes, head of sales trading at IG Index, one of the UKs largest spreading companies, told WealthBriefing.
The growth of forex trading by private individuals is global. In Japan, for example, the phenomenon of women trading currencies from home to add to their income gave rise to the expression, kimono traders. Such people have tried to exploit the carry trade borrowing in low-interest rate countries like Japan and reinvesting the proceeds in higher-yielding currencies such as the Australian dollar.
Trading and hedging forex moves online is only part of how HNW individuals and even less affluent households are exploiting foreign exchange. A number of wealth managers have also launched products aimed at clients who want to boost returns on deposit accounts, for example, or cut the cost of repaying loans by playing in the forex market.
Last week, for example, Citibank International Personal Bank, part of Citi, the giant US bank, launched a currency option product designed to boost the returns investors can earn from short-term cash deposits. Citis Dual Currency Placement is a fixed short-term, fixed-interest investment which uses options to enhance returns. Other banks may follow suit with similar products, WealthBriefing has learned.
Meanwhile, private banks, such as HSBC Private Bank and Kaupthing Singer & Friedlander, now also offer clients the ability to repay their sterling-denominated mortgages in a different currency, hopefully repaying a smaller sum overall. Unfortunately, this ploy has not worked recently as sterling has fallen against a basket of currencies. Such currency strategies should be considered as a long-term investment, not a quick fix for a heavy mortgage bill, argues UK currency management firm ECU Group.
Currency trading is also benefiting, says Barclays Stockbrokers, as an alternative asset class to volatile stocks and bonds. But as any investor would do well to remember, forex trading can also throw out nasty surprises, even if events such as Britains ejection from the European Exchange Rate Mechanism in 1992 are thankfully relatively rare. For the time being at least, as investors hunt for returns in a difficult market environment, expect more currency-related products to emerge. invergy forex
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Tom Burroughes, Editor, WealthCareers.com Specialists in Wealth Management Jobs, Asset Management Jobs and Private Banking Jobs, http://www.wealthcareers.comforex auto pilot: forex straddle strategy
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