Forex in Spain: A Small But Active Market Ready for Growth?

Continuing our journey through the European financial markets, we move to sunny Spain, which is one of the largest countries in Europe by area and population. It also has a thriving and developed financial market, which stems from the almost 200-year-old tradition of the Bolsa de Madrid, a stock exchange operating in the country since 1831.

But, what is the state of the local retail Forex (FX) and Contracts for Difference (CFD) industry? Has the coronavirus pandemic and current geopolitical turmoil influenced its shape?

Do You Want to Start a Brokerage Business in Spain? Call CNMV

The National Securities Market Commission (CNMV) is the local regulator of the financial markets in Spain. It is responsible for supervising and licensing the money markets and all the entities within, including FX/CFD brokers.

As Spain is a European Union member, the local regulator works closely with the European Securities and Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term), and since 2018, it has applied a unified law for trading in leveraged markets for retail investors.

With a population of almost 50 million, it is estimated that more than 1 million people are actively investing in financial markets locally, mainly seeking additional security for retirement. But, how large a percentage of these investors are interested in the Forex market?

"Based on a study published by the eToro investment platform regarding the Spanish market it is oriented to retailers. In Spain, one in three novice investors is between 18 and 24 years old. If new investors aged between 25 and 34 are also added, 54% of the total for this group is reached. The platform ensures that 17% of its current users in Spain have arrived during the Covid-19 pandemic, a more than significant percentage,” commented Renato Cassinelli, a market expert and analyst from Spain.

More than 50 Thousand People in Spain Trade FX and CFD

The number of active Spanish retail traders in the over-the-counter (OTC) derivatives market is similar to that observed in other large European countries, including Germany and Poland. According to data released by the analyst firm, Investment Trends, the coronavirus pandemic strongly influenced the increase in retail trader activity in these markets, with a peak in 2021.

There has indeed been a decrease in the number of active traders compared to the beginning of last year, but the activity remained higher, looking back to the pre-pandemic period.

“The number of Spaniards trading CFDs or FX has started to ease following the surge observed in 2021, but it is still higher than the pre-pandemic era (an estimated 53,000 unique individuals placed an OTC 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 trade in the 12 months to March 2022, and intend to continue trading, down 16% from 2021, but up 8% from 2020),” commented Lorenzo Vignati, the Associate Research Director at Investment Trends.

According to Vignati, the numbers could be even more elevated, retaining pandemic highs, if not rising trading dormancy rates. Retail investors who joined the FX/CFD market 1-2 years ago and placed a few first bets became discouraged by the losses and high volatility in that period and did not return to active investing (at least on OTC).

“The drop in trader numbers was primarily driven by a trifecta of factors: smaller inflows of new-to-market traders, lower reactivation of dormant traders and higher dormancy rate compared to 2021. In particular, traders going dormant increasingly cite a preference for other products as reasons for not continuing with CFDs/FX; indeed, a substantial overlap exists between CFDs and listed derivatives trading, with the former acting as a feeder to the latter,” Vignati added.

By comparison, in France, there were far fewer people actively trading FX/CFDs, 38,000. Leveraged trading is still the most popular among Britons on the European continent. In the last 12 months, 275,000 UK residents entered into at least one transaction of this type , which is an increase of 92% compared to pre-primary levels.

First Time Deposits above $1,000

One of the regular features of my articles regarding the retail Forex and contracts for difference industries in given countries is deposit data. Courtesy of cPattern, we have an insight into how the average deposits, withdrawals and first-time deposits (FTDs) have evolved month by month.

However, in the case of the Spanish market, the available data is limited in time and the averages presented below do not cover the whole year but only the period from July to December 2021. However, they coincide with the values presented in previous analyses for countries with similar populations and financial market structures, which can be considered statistically significant.

In the reported period, the average monthly deposit amounted to $5,242 (this refers to all funds deposited by an average trader into investment accounts within a month). At the same time, the average value of monthly withdrawals was much lower (which is a common trend) and amounted to $3,258.

The aforementioned first-time deposits, or FTDs, were also high and, on average, exceeded $1,000 in the second half of last year. This value is higher than in France or Germany but comparable to the UK market.

Moreover, the dominance of cryptocurrency transactions is clearly growing. As reported by Cassinelli, 9% of the Spanish population (approx. 4 million people) already uses or owns cryptocurrencies such as BTC.

“High returns, huge volatility and persistent media attention have propelled cryptocurrencies to the forefront of news cycles. The younger generation is more willing to accept the risks of working with a relatively young market, rather than maintaining the traditional status quo,” Cassinelli concluded.