Forex Small investors flock
" Aformer mortgage broker, Raymond Firetag, now makes bets on the world's biggest currency pairs, such as the euro/U. S. dollar, U. S. dollar/Swiss franc and sterling/yen from his home "
After half his investment in emerging-market hedge funds evaporated, Cenk Utkan made a financial U-turn toward the most liquid market he could find. He's been trading in foreign currencies ever since.
"I got burned in Russia and China," said the 33-year-old managing director of London-based Connexion Capital, where he introduces hedge funds to institutional investors.
"In Russia, stocks got suspended. So I thought instead of locking my money up in a hedge fund, why don't I go to the most liquid end of the market, which is the currency market?" said Mr. Utkan, who trades currencies two or three times a day for his personal account.
Mr. Utkan has a lot of company. Small investors have fled stocks, real estate, emerging markets and other once-hot assets that have been battered by the worst financial crisis in decades and turned instead to currencies.
The global crisis has taught them that liquidity is king.
With more than $3.2 trillion in daily volume, the foreign exchange market is the most liquid market in the world. And unlike stock traders who often face rules on short-selling -- or betting that share prices will fall -- forex investors are free to go long or short since currencies are traded in pairs. The investor is always buying one and selling another.
"Retail investors around the world, particularly in countries where you have more controls over the equity markets, are definitely turning to FX," said Betsy Waters, global director of dbFX.com,the retail currency trading platform of Germany's Deutsche Bank. At dbFX.com,volume rose 37% in the first quarter from a year earlier and its customer numbers more than doubled in 2008.
After 14 years in real estate, the 43-year-old now makes bets on the world's biggest currency pairs, such as the euro/U. S. dollar, U. S. dollar/ Swiss franc and sterling/yen, on a laptop in his house in Sacramento, Calif.
"Real estate was really slowing down," Mr. Firetag said. "I've always had an interest in macro-economics, financial markets and geopolitics. Discovering I could possibly make a living at it was very compelling. It was almost like a fish to water."
But betting on currency pairs, which often see wild price swings, can be very risky, investor protection advocates warn. The use of leverage is a double-edged sword and can cause significant losses when things go wrong.
"If you want to have any chance of doing this long-term, the bottom line is risk management," said Mr. Firetag.
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