Banks scale back FX services amid rampant scalping

A growing number of commercial lenders are tightening foreign exchange (FX) rules for retail customers, in response to currency scalping, market watchers said Thursday. Some are placing a cap on the volume of fee-waived FX conversions.

Currency scalping refers to investors making a small profit after holding a sell or buy position for a very short time.

Behind the collective move is recent volatility in the valuation of the Korean won against the U.S. dollar. The local currency crashed to 1,400 won per dollar, April 14, buffeted by concerns of a wider war in the Middle East and dashed hopes of an earlier-than-expected rate cut by the U.S. Federal Reserve. The Korean currency registered an intraday drop of 20 won, April 19, and the intraday fluctuation has since averaged upwards of 10 won.

Some investors are sharing their success stories online.

“I was able to make some money thanks to the won-dollar volatility,” said a member of an online community of financial investors. “I don’t care about the economic fundamentals or other financial market conditions, as long as the fluctuation widens.”

Another community member said that the higher the volatility, the higher the returns.

“FX scalping usually does not generate that handsome a profit, since the fluctuation is very limited, but the recent plummet of the won proves a rare opportunity to risk-takers.”

Internet-only Toss Bank, the launcher of the waiver service, began to limit fee-free per-day trading to 10 million won, April 1. This is a tightened rule compared to the previous 10 million won per transaction cap.

The internet-only lender also lowered the monthly cap to 100 million won, about a third of the previous $300,000.

Toss Bank began waiving FX conversion fees in January, amassing 300,000 new customers within only six days of the announcement. The bank, at the time, offered an account that would provide a lifetime waiver of currency exchange fees.

Starting May 1, Woori Bank will service only up to $30,000 per month in FX trading. The limit will be $100,000 per year.

Similarly, KB Kookmin Bank will implement a 30-day $30,000 cap, May 20.

Many commercial lenders have introduced FX conversion fee waivers among other services to lock in a greater number of outbound travelers.

However, recent rampant scalping proves greater losses, far outstripping the expected benefits of an expanded customer base, according to industry insiders.

“Our service is apparently enabling FX scalping, an unintended and undesirable outcome,” an industry official said. “We launched the service to enhance service for outbound travelers, not short-term financial speculation.”