Leveraged Dual Currency Investments

[Hishercar]

I have been advising people to avoid Dual Currency Investment for the past year. My views are stated in this FAQ: http://www.tankinlian.com/faq/duali.html

 

This type of investment allows you to bet on currency movements. You stand the chance of a big loss when the currency moves against you. You only get a small return (in the form of a higher interest rate) when currency moves in your favour.

 

Recently, the AUD dropped by 30%. Those who were "long" in AUD lost 30%. But those who were "short" in AUD did not gain 30%. They only gain 1% or 2% in higher interest. The bank keeps the remainder of the profit.

 

I learned to my horror that unsophisticated investors were asked to invest in "leveraged" dual currency investments. The bank lends them 4 times of their investment, so that they can take 5 times of the risk. If the currency drops by 20%, their total investment is wiped out (i.e. 20% X 5 times).

 

The relationship manager of the bank who sold the leveraged DCI earned 5 times of the commission on this product. But, it wiped out the total savings of the investors.

 

Someone told me that her mother lost $500,000 on this type of investment. Another retiree told me that he lost $150,000 in 2 months, out of the invested sum of S200,000.

 

Do not invest in any of these products. Be careful about the advice of the relationship managers.

 

 

 

Now I know that why my RM can afford to drive a bigger car than me.

 

 

 

Do you the difference between a finacial banker and a pigeon today?

The pigeon can STILL make a "deposit" on a BMW.

 

 

 

 

I tried to get cash from the ATM today but it said "insufficent funds". I dont know if that meant them or me.

[Throttle2]

Well you are right and wrong.

 

Right:

IT is very dangerous.

Leveraged DCI = FX margin trading

(in this case selling a put on a currency you dont have)

 

Wrong:

The bank only make a commission, it does not participate on the upside nor downside

Meaning, whether the investor makes or not, the bank only earns the upfront commission and does not hold any other risks. This goes the same for all other bank "products".

 

The best rule in the book is

"dont know dont do"

[Duk33d]

Yes, its effectively selling a put option to the bank. So the bank has the option to repay in either of the worst off currencies.

 

The downside is obvious. Well, what about upside? The interest rate is much more attractive than normal, of course, this is compensated by receiving a option premium on the put option sold.

 

Cant really complain, its like underwriting a STI Put warrant. Well, you receive premium for underwriting the warrant, you need to pay if the market goes down.

 

No free lunches in the world. Traders in the bank does delta hedging on each movements, how the layman know how to??

 

And the bank will give a lousy put premium for doing just that.

[Throttle2]

Ahem, I assume you are not replying to me but just posting in general.

 

becos I'm aint complaining at all.

[Genie47]

When it comes to investments,

 

1. Own real stocks of real companies.

2. Buy into unit trusts especially low cost ones like ETF.

3. When you need to safe keep money up to 5yrs, use a real fixed deposit account or buy SG government bonds of Tbills.

 

There are no such things as low risk, high return.

[Hishercar]

thanks lesson learnt

 

actually the Minibond saga brings out the worse in people

 

it seems so fair yet unfair

 

the criteria used is so subjective in my opinion

 

elderly >62 years low education more likely to get back money

 

look Mr Li Ka Shing fits the description and he has enough money to buy all of SIngapore including the million dollar civil servants

 

you may be educated but may be financially illerate

 

like myself (have to be humble and admit) because I expect the bank staff you recommend me something to know what he or she is talking about because that is what MAS has regulations installed

 

I bought alot of tech funds from OCBC recommended by their RM s r e w e d the fund close shop bye bye money

 

so as a consumer how to prove we are really stupid (financially) when authorities make an assumption that if you can make a living you must be "smart" enough

 

 

 

then on the other side of the coin, some of these elderly are really savy and they know what they want that is higher interest at all cost

 

now they can act bodoh (stupid)

 

 

 

some of my banking friends told me

 

 

is like being in the same lift with a young girl who is poorly covered (clothing that is) and there is no one else, she scream molest HOW

 

how to prove you are innocent especially most of us have this "dirty-old man look"

 

 

some of the elderly are using the same technique

 

 

 

 

as to dual currency

 

rm as me to put my money into high interest bearing currency rather than sing dollar he told me 6-7% for australian dollar versus 0. something % for singapore dollar

 

I asked if there is any risk, he assured me that the bank research that they are very confident that the australian dollar not fall by so and so many basis point and never happen in the history of thte australian dollar, so i am very very save

 

b l o o d y h e l l my singapore dollar is now worth less than 70% than I had in the first place

 

so who to blame

 

no record on paper that they said is very very safe

 

I am so very s c r e w e d

 

i hate myself for trusting these people

 

 

any of you got bad experience

[Genie47]

You read and you attempt to understand.

 

The Minibonds prompted me to read up on credit derivatives. When the book was available from Queenstown library and the fact that it was not borrowed for over a year already gave me an idea that nobody knows this stuff.

 

The reading gave me a headache. I understood the whole idea but it scared me so much due to the headache of understanding it.

 

That was a year ago when I was presented with them.

 

To be financially educated you got to read. After reading you got to know yourself by reading yourself.

 

Set yourself a plan and stick with it. Meet the objective and redraw the plan. As simple as that. If it is not meeting the objective, then it has to be relooked again.

[Throttle2]

Sorry Bro,

 

Let me dispense some reality.

If your question is : who to blame?

Then answer: You and Yourself.

 

Nobody held a knife to your neck and say "sign here or else"

 

They say very safe, base on?

Base on their analysis of the movements?

Come on, you are not a kid.

You willingly took the risk for the returns so dont point fingers.

 

It is true , it has never happen in the history of mankind.

but does that mean it confirm wont happen? Of course not.

 

How can something paying you 5 times the riskfree rate be safe??????!?!?!?!?!?!?!?!

wah piang. Think first, next time.

If Megan Fox wants to date you, you must know that it's in a dream right?

 

Anyway, enough of "teaching" you a lesson.

I also like to give you words of encouragement.

i believe you are still young and have many more things to do and mountains to climb (just like myself) Strive harder than ever becos the tough times will be here for a while. Easy come Easy Go, remember that.

 

I lost $XXX,XXX myself, but I fully accept it, not matter how painful.

No regrets absolutely. turn back time and I'll still do the same becos it was then the right thing to do. No such thing as, "should have" or "Should not have". Let's move on and strive for the times ahead.

 

Thats all. Take care.

[Samshio]

I follow the philosophy, if it takes me more than 30 mins to understand the finacial product, then it's probably not for me. I like to keep it simple so that I can control and predict the outcome easily.

 

That's probably why I did not make a lot of money during the boom time, nor did I lose a lot during this period.

 

If fact, now waiting to go in again.

[Cheekg98]

it's supposed to be a stable investment instrument if there's no too much volatility in the FX market. With subprime, the FX are getting wild !

[Throttle2]

Dude, The FX market is known for it's volatility lah. Thats why people get into it.

If you get into FX, dont even think it's stable at any point.

Where got such thing as "suppose to be" in life.

otherwise, I'm suppose to be Hugh Hefner, hee hee

 

 

anyway without subprime , it was volatile already.

Of course with this craziness going on, it's gone even more ballistic.

[Cheekg98]

that instrument is supposed to reduce volatilty of FX instruments ...

[Throttle2]

nope, you are absolutely wrong.

A DCI DOESNT reduce volatilities of any kind.

 

A DCI exposes you to the full extend of the downside and caps your upside.

as mentioned it is writing a put option.

When you write an option, your downside is unlimited.

 

Please go read up somewhere and understand before you make your comments and look silly OK, bro?

[Cheekg98]

same to u

 

seems like u are badly burnt

Edited October 26, 2008 by Cheekg98

[Throttle2]

To clarify, my losses are in the Stock market, not DCIs.

I do write or buy FX exotics, so DCIs are elementary to me.

 

Making or losing is never the issue for me.

The best of the best will make and lose.

Victory or Defeat is but another common experience for the Soldier who presses on.

It's how one makes or loses it that matters more.

 

Looks like you're another fella i have to write off in this forum.

 

Dont take it personally please.

 

Over and out

Edited October 26, 2008 by Throttle2

[Genie47]

Everyone is being burned.

 

Your retirement funds in the CPF are being burned as we speak. The reason they are not is because they are guaranteed by the garhment.

 

It is affecting everyone. Just that some don't feel it because they think they didn't invest and so didn't feel it. Believe me, everyone is being affected.

 

As long as investments are not liquidated at this time of paper losses. You do not fear anything.

[Hishercar]

actually you are right

 

everybody is burn, bakar

 

therefore we need to have a strategy to prevent further loss by investing wisely and averaging down

 

at this times

 

the person who did not loose any money is the winner

[Hishercar]

dont like that leh

 

all of us sometimes win and sometimes loose

 

lets keep our cool and

keep coming with your advice

 

actually i keep coming back to see what you advice you have written

 

actually I know nuts about DCI and so on

 

but it is strange how we leave our hard earn money to complete stranges will be bargain like crash for a tiny gain when we buy stuff