Retail investors keep faith with forex

Japanese retail investors are pouring into the yen carry trade despite being battered by the recent sharp rise in the country's currency against the US dollar.
For many individual traders, the yen's surge against the dollar has been a rude awakening to the dangers of forex trading. Stories abound of housewives losing their lifetime savings within days as the yen value of highly leveraged dollar holdings plummeted.
Contrary to expectations, the currency market turmoil has not significantly dented the appetite of Mr and Mrs Watanabe to play the foreign exchange markets.
According to research by Yano Research Institute, the number of foreign exchange margin trading accounts almost doubled last year to 644,802 and is poised to grow another 62 per cent in the year to March, to 1.05m accounts.
Although the survey was published in June, long before the latest yen up-swing, Kazuhiro Shirakura, senior researcher at Yano, said: "The number of acc-ounts has not been affected at all [by the yen's recent rise] and has continued to increase." This was because new forex traders usually began by buying foreign currencies and the strong yen made it a good environment to start trading, he said.
Even traders who had been hurt by the yen's rise had generally taken a long-term view and stayed in the market, said Junichi Katsuno in the financial markets division at Himawari Shoken, which specialises in foreign exchange trading.
"There are many people who take a long-term view and are waiting to buy [dollars]," he said. "There aren't that many people who expect the yen to strengthen that much more."
Retail investors were generally willing to participate in the yen carry trade as long as the yen did not rise above Y105 to the US dollar, Mr Katsuno said.
Individual traders are also becoming more sophisticated in their trading strategy.
Since the summer, instead of taking large positions in one currency, which can lead to huge losses, investors are taking smaller positions and trading frequently and flexibly to minimise any potential losses.
What is more, not all retail traders have lost out in the latest currency turmoil.
One housewife who uses the online handle "Forex-loving Mama" to blog about her trading, said she had made profits by taking both short and long positions in the more than 20 currency pairs she tracked daily.
The woman, who declined to be identified, said she closed her positions each day before going to bed and was not phased by the latest currency moves that had left many retail investors nursing huge losses.
She also expects other retail traders to stay in the market. "Surprisingly, there aren't many people who say they will quit. I think it's because people remember how good it can be. It's like a gambling addiction," she said.