Analysis: Australia Has the Largest FX/CFD Market Per Capita in the World

After a record surge in activity in 2020, the past year has maintained a very high number of Australian retail investors actively seeking to multiply their funds using contracts for difference (CFDs). Finance Magnates Intelligence has analyzed the historical growth in the number of traders, which shows that Australia has one of the highest percentages of investors globally.

More than 100,000 Australians Traded FX/CFDs in 2021

Australia is one of the largest countries in the world in terms of land area but has 'only' 25 million inhabitants. It ranks among the world's largest economies in terms of nominal gross domestic product per capita (ninth) and is one of the best places to live in terms of the Human Development Index (HDI).

It has a strongly developed investment market, with at least 1.4 million retail investors actively involved every year. The number has more than doubled over the last decade and was estimated to be around 650,000 in 2010.

The Australian Securities Exchange (ASX) is among the world's 20 largest by total market capitalization. In December 2021, it amounted to USD 1.9 trillion (in comparison, the world's largest NYSE capitalization was less than USD 28 trillion).

In addition, the buoyant financial market and a large number of retail investors translated into high interest in investing in leveraged derivatives markets, including forex (FX) and contracts for difference (CFDs).

According to the latest Investment Trends report data, more than 100,000 Australians have entered into at least one FX or CFD transaction in 2021.

"On a per-capita basis, this is amongst the largest penetration of CFD/FX in the world. To put things in perspective, the US margin FX market is only twice as big for a population more than an order of magnitude larger," the Investment Trends representative stated.

ASIC Is One of the World's Most Respected Financial Regulators

The Australian Securities and Investments Commission (ASIC ) is responsible for regulating financial markets in the country, including the retail FX/CFD industry. The institution officially implemented regulations in late 2020 that significantly restricted the sale of CFDs to retail investors, limiting maximum leverage for FX majors to 30:1 and 2:1 for cryptocurrencies.

Australia has one of the best-regulated derivatives markets, and the regulator's license is highly respected and recognized within the industry. In order to operate a legitimate financial business in the country, a company must obtain an AFS license, which is detailed on the regulator's website.

The latest report published by ASIC on the number of licenses issued shows that the institution granted 339 new AFS authorizations in the 2020-2021 fiscal year, receiving 565 registration applications during the same period.

A Large Number of Retail Investors in Australia. An Increase of 40,000 in Four Years

The Investment Trends report published in January 2022 showed that the number of active retail CFD traders stood at 100,000 last year, slipping from the record high of 117,000 reported the year before.

However, this is still a considerable increase compared to previous years. In 2017, 61,000 Australians made at least one transaction in this market; in 2018 and 2019, the figure hovered at around 75,000 to 79,000.

The year of the Covid-19 pandemic, which brought above-average market volatility, boosted retail traders' activity, allowing a record number of active investors.

"The widespread outbreak of COVID-19 in early 2020 has triggered unrelenting waves of unforeseen market volatility. This volatility has brought about a new generation of investors and traders that look to capitalise on both upwards and downwards price action. Coupling leverage with how quick moving the CFD markets can be, Vantage has experienced a surge of new clients that have strong interests with trading forex, gold and indices CFDs," Daniel Lee, the Regional Sales Manager for Vantage in Australia, commented.

For comparison, almost twice as large as Poland (in terms of population), the number of active retail traders is estimated at 60,000. In another part of the world, in Singapore, it was 50,000, according to estimates by Finance Magnates Intelligence.

"There could be a number of contributing factors to this outcome: relatively high penetration of cash equities investing which is a feeder market, proximity to Asia which tends to be a breeding ground for fintech, a regulatory framework historically more accommodative; but the most direct link is likely the prolific supply side in the form of the many platforms participating in, and contributing to growing, the market," Investment Trends added.

Tightening Leverage Regulations Do Not Bother Australians

In recent years, Australia and the European Union have decided to further limit the leverage that individual traders can use. However, as you can see from the statistics above, the limitation of leverage to a maximum of 30:1 for major FX currency pairs did not scare investors.

According to Daniel Lee, the Regional Sales Manager for Vantage in Australia, ASIC's Product Intervention Order "has undoubtedly played an impact on the Australian landscape for CFD and forex trading."

16% of retail traders have successfully applied for professional trader status. This is a definite jump from previous years, including 2020, when a similar status was achieved by 7% of all active traders.

"Such requests are not uncommon across the industry, though they are limited to clients who are qualified for being treated as professional investors. That is, either they have met the previous experience and knowledge requirements, or they pass the wealth test, of having a gross income of $250,000 or more per annum in each of the previous two years and/or net assets of at least $2.5 million," Daniel Lee added.

Interestingly, FX/CFD traders were also much more willing to look at cryptocurrencies. According to the survey, 33% of them use this asset class or trade cryptocurrencies based on contracts for difference. The youngest representatives of this group have the most bullish attitude and positive sentiment towards bitcoin and altcoins.

The 2021 report notes that 40% of Zoomers and 35% of Millenials believe in the long-term appreciation of digital assets.

Average Trader in Australia Deposits over $8,000 in a Month

According to cPattern data aggregated by Finance Magnates Intelligence, throughout 2021 (data for the period January to October) the average Australian trader deposited more than $8,400 into their FX/CFD account (the median for the same period was almost $7,000). Meanwhile, the average single deposit stood at around $1,220.

Withdrawals of funds during this time were lower, and in 2021 the average for a single month recorded $2852, more than three times the amount of deposits. In contrast, the value of a single withdrawal reached a ceiling of $1450.

Furthermore, statistics of the first deposit (FTD) might be interesting, especially from the broker's point of view. From January to October 2021, the average stood at $1,014 and the median at $643.

Compared to other developed financial markets, these values align with the general trend. However, by comparison, Singapore had much higher numbers for the same period, with an FTD of $1,743.