As the trend of 'overseas investing ants' continues, investing in overseas derivatives (futures and options), which can yield higher revenue than stocks, is also attracting funds. Individual investors are tempted by high revenue, while securities firms are creating a risky investment loop by recommending overseas derivatives that are unregulated and offer high commission earnings instead of the domestic derivatives market, which has become a high barrier to entry.
According to the Korea Financial Investment Association and Samsung Securities, last year, the transaction volume of overseas derivatives by domestic investors is estimated to have reached $9 trillion, a significant increase from the previous year, which did not reach $8 trillion.
The issue is that the transaction volume of individuals is much larger than that of institutional investors such as securities firms, which trade derivatives for hedging purposes while managing financial products like equity-linked securities (ELS) or exchange-traded funds (ETFs). Individuals account for over 80% of the total overseas derivatives transactions by domestic investors. It is estimated that the transaction volume of individual investors in overseas derivatives last year grew more than 10% from the previous year, totaling $7 trillion.
As funds pour into derivatives that can promise high revenue, the scale of losses is also expected to be large. A representative of a domestic securities firm noted, “Futures and options are complex and variable, utilizing leverage. It is difficult for individual investors with low expertise to generate revenue from derivative investments.”
Although it is a high-risk area requiring investor protection, securities firms are instead lowering the barriers to investment entry. To trade derivatives, one must open a separate account specifically for overseas futures options, as the transaction fees for derivatives are much higher than for general stock transactions.
Securities firms lower or waive fees for a certain period to attract customers, and they also provide foreign currency to those who open accounts for the first time or actively invest.
Mirae Asset Securities is offering up to $100 to customers who engage in extensive U.S. stock options trading on a first-come, first-served basis and significantly reduced online trading fees from $7.50 per contract to $0.89. They will also offer 3 months of free market price checks that would normally require a fee.
The reason securities firms are reducing fees is that securing as many customers as possible is expected to become a solid revenue source in the long term. When the fever for U.S. stock investment began, securities firms rushed to cut fees, and while they have not fully normalized fees since then, it has still become a significant source of revenue.
To invest in domestic derivatives, investors must complete certain hours of pre-training provided by the Korea Financial Investment Association according to their investment tendencies and must conduct simulated transactions; however, there are no such requirements for investing in overseas derivatives.
Securities firms are focused on highlighting the investment advantages of overseas derivatives over their risks. For instance, when opening an account at Kiwoom Securities, the guide states that futures can generate investment gains not only when the prices of various underlying assets rise but also when they fall, and that leverage effects can be utilized. Information about the potential for massive investment losses is presented in a less noticeable manner.
An office worker, Mr. A, who invested in the U.S. 'Nasdaq 100 E-mini' futures for the first time last year, said, “People around me often told me not to invest in futures and options, but I felt encouraged to invest because the securities firm's app frequently displayed pop-up windows promoting events.”