Analysis: German Active FX/CFD Retail Traders Base Grew 58% Last Year

Germany is one of the largest economies in the world, and undeniably the largest economy in the European Union, and one of the biggest foreign exchange (FX) markets in Europe. It is home to many retail and institutional brokers and trading service providers.

In terms of total Gross Domestic Product (GDP), Germany is the fifth most developed economy and one of the best countries to live in, according to the Human Development Index (HDI) calculations.

This has a positive effect on the local financial market, which is home to the Frankfurt Stock Exchange, one of the ten largest stock exchanges globally in terms of total capitalization and daily turnover. After all, the DAX 40 Index is one of the most closely followed instruments by analysts and a top-rated speculative product among retail and professional investors.

BaFin Keeps a Firm Hand on the Retail Trading Industry

The Federal Financial Supervisory Authority (BaFin), which oversees over 4,000 different financial organizations in Germany, is responsible for regulating the retail contracts for difference (CFDs) industry. This entity has some of the strictest market regulations, which is why retail brokers do not often apply for licensing in this part of the Old Continent.

The EEA initiative allows European players to offer their services across the continent without having to set up satellite offices in individual countries. As a result, start-ups and smaller companies are looking for other jurisdictions, both for reasons of business costs and local tax law.

As we reported in mid-February, the German regulator has decided to extend the conditions for retail investor protection in the derivatives market. Just as contracts for difference with additional payment requirements were banned in 2017, the institution now wants to restrict the marketing, distribution, and sale of similar instruments in the futures market.

"The guidelines, which were supplemented by a general decree of the BaFin in Germany, has been implemented to improve investor protection. Since XTB is also committed to this, we have been offering a wide range of training courses to our users even a long time before. And, these education opportunities have been, and are, used very intensively," Eliza Dygutowicz, the Director at XTB Germany, said.

According to Samed Yilmaz, the CEO of FXFlat Bank, a member of the CFD Association in Germany, reducing leverage made no difference in retail traders' investment behaviour. Moreover, interest in the market among investors has increased since then, and this has been influenced by, among other things, the Covid-19 pandemic and lockdowns.

"This is justified in high volatility in all markets during the pandemic, where clients usually try to find a new product to invest money and speculate. Also, the fact that most people are working from home gives them the space and the time to search more intensively for alternative products," Yilmaz said.

This is confirmed by Uwe Wunderle, Project Manager at GBE brokers. The company he represents has noticed a marked increase in interest in the FX/CFD market since the start of the pandemic.

"We experienced an increase of account openings since the outbreak of Covid-19," Wunderle commented.

How Many People Trade FX/CFD in One of the Biggest European Countries?

According to data released by Investment Trends, 84,000 people have actively traded CFDs or margin FX in Germany over the past 12 months (until February 2021). This is a significant jump compared to the same period a year earlier (by 58%).

For comparison, ten years ago, the number of active traders in the same market was significantly lower and stood at 50 thousand (more details here).

The growth was supported by the continued above-average volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in the markets, which encouraged a large number of new players to place their bets for the first time. In the case of the German market, it was a record-breaking number of 25,000 new leveraged accounts that entered the market over 12 months.

"Our estimate for the size of the retail CFD/FX market in Germany is 84,000 (traders active over the course of 2021). This number grew by 58% year on year as a result of a surge in first-time traders. In particular, the latter were 25,000, seeking the desire to learn a new skill which we think is a natural consequence of the additional spare time during lockdowns and the heightened equities volatility in the first half of 2021," Lorenzo Vignati, the Associate Research Director at Investment Trends, said.

Among the group of retail investors in Germany who bet on CFDs, the popularity of cryptocurrency contracts has increased significantly. Over the past 12 months, 42% of clients have made at least one leveraged trade on crypto CFDs. In the earlier period, this value stood at 24%.

As for other popular instruments, there are certainly no surprises here. FX majors and euro currency pairs lead the way. EUR/USD, GBP/USD and EUR/GBP were among the most popular last year.

According to Wunderle, the approach to trading strategies may have changed due to limited leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term:

"Clients had to adapt their trading strategies according to the reduced leverage, especially clients using Expert Advisors. A few clients complained that their automated strategy is not working anymore with the reduced leverage," Wunderle added.

German Trader's First Deposit for New Account Averages $740

Data released by cPattern shows that throughout 2021, German retail investors deposited more than twice as much money into their CFD accounts each month as they withdrew. The average for the period from January to October stood at $4,500 for deposits and $1,920 for withdrawals.

This coincides with a broader trend in the industry, showing that retail traders are much more likely to lose their money, more often funding their trading accounts than withdrawing profits.

Another interesting metric from a broker's perspective is the value of the average retail trader's first-time deposit (FTD) in Germany. cPattern reports that for most of 2021, the average FTD was $740, and the median was $680. In comparison, these values are much lower in neighbouring Poland. As reported by Finance Magnates Intelligence, the average FTD in 2021 was less than $270.

In contrast, the values overlap with other highly developed markets, including Australia and Singapore. Germany outweighs the latter in terms of average monthly deposits but achieves lower FTD metrics.