FEATURE-Small investors flock to forex trading amid crisis

By Wanfeng Zhou

NEW YORK, June 3 (Reuters) - After half his investment in emerging market hedge funds evaporated, Cenk Utkan made a financial U-turn toward the most liquid market he could find. He's been trading in foreign currencies ever since.

"I got burned in Russia and China," said the 33-year-old managing director of London-based Connexion Capital, where he introduces hedge funds to institutional investors.

"In Russia, stocks got suspended. So I thought instead of locking my money up in a hedge fund, why don't I go to the most liquid end of the market, which is the currency market?" said Utkan, who trades currencies two or three times a day for his personal account.

Utkan has a lot of company. Small investors have fled stocks, real estate, emerging markets and other once-hot assets that have been battered by the worst financial crisis in decades and turned instead to currencies.

The global crisis has taught them that liquidity is king.

With more than $3.2 trillion in daily volume, the foreign exchange market is the most liquid market in the world. And unlike stock traders who often face rules on short-selling -- or betting that share prices will fall -- forex investors are free to go long or short since currencies are traded in pairs. The investor is always buying one and selling another.

"Retail investors around the world, particularly in countries where you have more controls over the equity markets, are definitely turning to FX," said Betsy Waters, global director of dbFX.com, the retail currency trading platform of Germany's Deutsche Bank (DBKGn.DE).

At dbFX.com, volume rose 37 percent in the first quarter from a year earlier and its customer numbers more than doubled in 2008.

Gain Capital, which owns Forex.com, said new accounts have increased about 30 percent a month in the last six months from pre-September levels, while the number of trades per day has risen almost 50 percent. GFT Forex said trading volume rose 187 percent from late 2007 to late 2008.

The companies declined to provide further details.

After a slow start in the late 1990s, the retail FX market has taken off. By the end of 2006, average daily trade volume reached over $60 billion, a 500 percent increase from 2001, according to research firm Aite Group.

According to Greenwich Associates, trading volume generated by "retail aggregators" -- electronic trading platforms that cater to individual retail traders -- rose almost 43 percent from 2007 to 2008. That compares to a 15 percent rise in overall global forex volume, the research firm said.

'EXTRAORDINARY MARKET' -- WITH RISK

Wading into that mix are traders like Raymond Firetag, a former California mortgage broker who turned to online trading of currencies from his home a little more than a year ago.

After 14 years in real estate, the 43-year-old now makes bets on the world's biggest currency pairs, such as the euro/dollar, dollar/Swiss francs and sterling/yen, on a laptop hooked up to four monitors in his house in Sacramento, California.