MW: Currency trading gets a retail investor following
Stocks’ lost decade raises appeal; a new market for U.S. day traders
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Andrew Weissman started trading currencies last spring after he graduated college with a finance degree Aand found it hard to get a traditional job.
“When I started trading currencies, in the first few days I made money but didn’t know why, and I thought it was the greatest thing,” he said. “Then I went on a two-week losing streak and thought, ‘I’m terrible at this!’”
Weissman is part of a growing number of individuals who are starting to trade currencies, a market that has grown to $4 trillion a day. (SPZ10 1,134, +3.90, +0.35%)
Retail trading makes up a small portion of that total volume. But the share is expected to triple in coming years as more individuals look for alternatives to stocks after a money-losing decade and find themselves dissatisfied with low bond yields. For some, forex trading and its opportunity for sudden, leveraged moves, has the attraction stock day-trading once held.
“We’ve seen a lot of people coming into this who want to do this for themselves, on a personal level,” said Weissman, who is now helping his father run a currency trading training service called Forex New York City. See Forex New York City’s site.
“Currency trading is great because you have the potential to completely control all of your money, and maybe don’t need a 9 to 5 job.”
Once the domain of professional investors and the very wealthy, foreign currency trading is now getting popular with small U.S. investors. At FXCM,Inc., which operates an online foreign-exchange trading site, the average account size is $6,000 to $10,000. The median age of clients is 35, and most are male and in the middle- to higher-income brackets. See FXCM’s site.
Average daily currency volume from retail traders globally jumped to $125 billion this year, up 12-fold from $10 billion in 2001, according the Aite Group.
Retail trading could rise to account for up to 10% of the global currency volume in the next five years, from about 3.5% currently, depending on how much the sector becomes regulated, the research firm predicts.
Still, some types of investors are likely to stay away. Trading currencies tends to be driven day-to-day by technical levels and positioning, which could frustrate investors looking for longer-term diversification. Trading also typically employs high leverage, and the swings can be jolting. Read ‘How I lost $100,000 trading currencies.’
Some would-be investors may also worry about getting caught in another currency crisis. The 21% plunge in the euro (EURUSD 1.3410, +0.0015, +0.1120%) from December 2009 to its June lows is the most recent example, but the Asian financial crisis and Mexican peso crisis in the 1990s are also hallmarks of currency upheavals.
The dollar index (DXY 79.74, -0.09, -0.11%) , a measure of the U.S. currency against a basket of six major currencies, gained almost 16% during the European debt crisis, but has given back half of that since June.
Stock-market refugees
Still, for the adventurous, the allure is simple. The volatile, and ultimately money-losing direction of U.S. stocks since 2000 has shaken many small investors out of equities.
Investors have pulled a net $50 billion from U.S. stock mutual funds this year, extending a three-year exodus, according to TrimTabs Investment Research. And inflows in 2005 and 2006 were relatively small.
Since 2000, the S&P 500 Index (SPX 1,134, -5.50, -0.48%) has fallen about 20%.
And investors who sought to protect their principal in the bond market, saw government bond yields fall to all-time or multi-year lows. One selling point for currencies: One party in the trade always gains.
“Forex retail trading is definitely a bigger hope for people to make more money than from stocks,” said Leon Yohai, chief executive of ZuluTrade, a trading site that lets individuals piggyback on successful currency traders. See ZuluTrade’s site.
“In forex, you can make money going long or short and you have more leverage and more tools,” Yohai said.
The field has grown as technology has enabled Internet-based trading platforms to offer currency trading to individuals with small purses.
Growing interest from North American individual investors marks a shift in investing attitudes.
U.S. retail investors have lagged their global peers when it comes to currency trading -- perhaps a function of cultural attitudes toward short-term investments and the country’s relative geographic insulation compared to some Asian or European countries.
