Effective from Monday 30th November 2009, a new NFA compliance rule will go into effect for all US regulated firms. The new rule dictates a 1% margin requirement for the major currencies, capping the maximum available leverage at 100:1. The new margin requirement for all other currencies will be 4% or 25:1 leverage.

The new NFA regulation is intended to protect retail investors in the US by preventing excessive use of leverage by traders who may not have an adequate understanding of the associated risks. Currently, some firms offer leverage levels as high as 0.5%.

Forex traders who have a forex trading account directly with US-based firms will be affected by the change and will need to monitor their margin levels carefully.

In a landmark case, Oei Hong Leong, the man with the Midas touch, is suing Citigroup for negligence and mispresentation over his loss of $1 billion (!) due to trades in foreign exchange and US Treasury bonds.

Oei Hong Leong claimed that Citigroup gave him inaccurate and inconsistent reports on his trading positions, leading him to take on bigger positions than he would have done.

When he realised the extent of his positions, he had no choice but to close all of them during a very volatile time in October last year.

While Mr Oei had correctly predicted the economic downturn as early back as 2007, it seems he has been badly caught on the wrong side of foreign currencies.

It is unclear how much of a dent the $1 billion loss would have made on his net worth. Mr Oei commented that he had planned last year to set aside $1 billion for charity. That plan has now obviously been delayed.

Now we also know that Forbes’s estimate of US$210 for Oei Hong Leong’s networth last year is way off the mark.

Many people have asked whether it is possible to make money by trading forex.

Every day, you can see advertisements promoting forex trading (or other instruments) seminars with the promise of making a full-time income using the techniques they teach.

I have not paid money to attend any of these seminars so I am unable to tell you for sure whether the methods taught at these seminars actually work. Personally, I don’t believe that attending a two or three-day event will make anyone a consistently profitable trader. It takes much more than that.

What I can tell you for sure is when the claims on the advertisements are untrue to the point of being ridiculous.

Here’s one:

Generate 20-40% returns monthly.

Let’s work out an example. If you start with just $1000, the numbers below show the money you have at the end of every year if you can achieve a 20% return every month.

1 year $8,916.10
2 years $79,496.85
3 years $708,801.87
4 years $6,319,748.72
5 years $56,347,514.35
6 years $502,400,097.98
7 years $4,479,449,738.82
8 years $39,939,223,824.27
9 years $356,102,131,442.61
10 years $3,175,042,373,780.32

At the end of 5 years, you will have $56 million dollars.

At the end of 8 years, you will have $39 billion dollars.

At the end of 10 years, you will have $3.1 trillion dollars.

At the end of 20 years, you will have $10,080,894,075,300,600,000,000. There is an outside chance this could be an amount greater than all the money in the world put together.

If anyone makes these kinds of claims to you, be wary – very wary.

Hopefully, MAS will one day start regulating such kinds of advertisements.

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Here’s a nice tip if you ever need any sizeable amount of foreign currency for investment purposes or funding your children’s education.

Instead of changing it at the banks where you pay quite a huge spread, Phillip Futures has a currency exchange function where you can change it at very tight spreads.

For example, if the SG/AUD is trading at 1.29/1.305 in the banks (a spread of 150-200pips). Philips might be quoting you a rate 1.2955/1.2995 (40 pips). The exchange is transacted at live rates and can be done anytime you want, so it is pretty convenient.

Futhermore, Phillips only charges a flat fee of US$30 for any telegraphic transfer.

One example of application is for funding your foreign currency fixed deposits. You can use Phillips to change the currency you want, before transfering it to your bank account. As long as the forex savings is more than US$30, it is worthwhile.

I’ve done some calculations and found that if you are changing anything in excess of S$10,000, it will probably be worthwhile to go through the hassle of opening a futures account at Phillips Futures. They do not require you to maintain a minimum balance in the account, so you can use it purely for foreign exchange as and when you need it.

Edited: Please check with your bank whether they charge you any fee if you were to fund your account with your own foreign currency. 

For higher amounts, the savings can be significant.

For transfers to 3rd parties (eg university, offshore investments), you might need to provide some documentary proof that the transaction is legit before they allow your transfer to go through.

Please note that the currency exchange function is different from their forex trading utility. The former is mainly for clients to change currency at competitive rates without any form of leverage, while the latter is more for speculative trading. Unless you are an experienced trader, you are advised to avoid the other products inside the Phillips Futures account.

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The post on Kishore M has been removed due to a request from Powerup Capital.