German CFD Industry Grows Despite Volatility Decrease: Investment Trends
- Report also shows that regulation is key to determining the right provider.
The study points to some peculiar patterns.
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The study was conducted in March 2017 and shows that the number of active traders of CFDs continues to rise despite a general drop in volatility in the stock markets. There were at least 53,000 unique traders who placed at least one trade, which is about 6% more than last year.
The London Summit 2017 is coming, get involved!
“The German OTC leverage trading market held its own despite the challenge of relatively low volatility,” said Dr Irene Guiamatsia, Research Director at Investment Trends. “This result was also achieved despite the impressive run of the DAX– up 21% over the period – as traditional investment products would have presented an attractive alternative to leverage trading. Continued strength in the equities markets could continue to stifle growth in leverage trading.”
Getting the next set of traders going might prove to be a challenge though, as the number of traders waiting to get started has declined. New traders are also likely to have regulation as one of their primary worries when they go shopping for a platform to trade on.
The growth in the number of CFD traders is likely to concern the German regulator Bafin which sought to control and regulate CFD trading last year by announcing a slew of measures that limit the extent to which providers can advertise CFD products. It also announced that no CFD products can carry additional payment obligations (i.e. Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. Read this Term risk), in a move to protect investors from the risk of incalculable losses.
The report said that more than one-third of the 7000 respondents said that they chose their current platform as it was regulated, though there did not seem to be any preference for locally regulated platforms. The number of traders switching from one platform to another also seems to be going down, with traders preferring to stick to their current ones, as evidenced by the fact that only 13% of respondents had switched provider, down from 17% last year.
Tough Competition Among Providers
Traders seem to prefer having multiple accounts at the same provider rather than holding accounts across providers, and the average number of accounts has hit two per trader.
“Declining switching activity is consistent with a growing willingness among German traders to keep a previous account even as they move on to a new provider,” said Guiamatsia.
This decline makes it a difficult market for new entrants, as they would need to diversify in order to make their offering more attractive and entice traders to switch from their existing provider. This ratchets up the stakes involved in the provider industry as they compete for the attention of the increased number of traders.
The study points to some peculiar patterns.
[gptAdvertisement]
The study was conducted in March 2017 and shows that the number of active traders of CFDs continues to rise despite a general drop in volatility in the stock markets. There were at least 53,000 unique traders who placed at least one trade, which is about 6% more than last year.
The London Summit 2017 is coming, get involved!
“The German OTC leverage trading market held its own despite the challenge of relatively low volatility,” said Dr Irene Guiamatsia, Research Director at Investment Trends. “This result was also achieved despite the impressive run of the DAX– up 21% over the period – as traditional investment products would have presented an attractive alternative to leverage trading. Continued strength in the equities markets could continue to stifle growth in leverage trading.”
Getting the next set of traders going might prove to be a challenge though, as the number of traders waiting to get started has declined. New traders are also likely to have regulation as one of their primary worries when they go shopping for a platform to trade on.
The growth in the number of CFD traders is likely to concern the German regulator Bafin which sought to control and regulate CFD trading last year by announcing a slew of measures that limit the extent to which providers can advertise CFD products. It also announced that no CFD products can carry additional payment obligations (i.e. Negative Balance Negative Balance In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. In its most basic form, a negative balance represents an account balance in which debits exceed credits. A negative balance indicates that the account holder owes money. A negative balance on a loan indicates that the loan has not been repaid in full, while a negative bank balance indicates that the account holder has overspent.In the retail brokerage space, this phenomenon occurs when a position’s losses in an account exceeds the available margin on hand from a given trader. When a trader places a trade that sharply goes against the chosen direction, an account can incur negative balance. Such exposure is traditionally very risky for brokers. While the foreign exchange market is the most liquid market in the world, unexpected economic, geopolitical or cataclysmic events can always cause a market disruption and consequently lack of liquidity.This has occurred during certain events, albeit limited, which have resulted in extraordinarily sharp movements over short timeframes such as the Swiss National Banking Crisis in early 2015.Negative balances are addressed in many jurisdictions globally and clients in the EU are protected from such risks. As a consequence, brokers are the ones which are exposed to the risks associated with covering the negative balance with a prime broker or a prime of prime. New Negative Balance Protections Look to Shield Market ParticipantsAs a countermeasure to the risk associated with negative balances on a wider scale, many brokers now have since adopted negative balance protections. These mechanisms are an automated adjustment of the account balance to zero in case it became negative after a stop out.Traders operating with a broker that offers negative balance protection often cannot lose more than deposited as this shields both the trader and broker from wider losses in times of crisis. Read this Term risk), in a move to protect investors from the risk of incalculable losses.
The report said that more than one-third of the 7000 respondents said that they chose their current platform as it was regulated, though there did not seem to be any preference for locally regulated platforms. The number of traders switching from one platform to another also seems to be going down, with traders preferring to stick to their current ones, as evidenced by the fact that only 13% of respondents had switched provider, down from 17% last year.
Tough Competition Among Providers
Traders seem to prefer having multiple accounts at the same provider rather than holding accounts across providers, and the average number of accounts has hit two per trader.
“Declining switching activity is consistent with a growing willingness among German traders to keep a previous account even as they move on to a new provider,” said Guiamatsia.
This decline makes it a difficult market for new entrants, as they would need to diversify in order to make their offering more attractive and entice traders to switch from their existing provider. This ratchets up the stakes involved in the provider industry as they compete for the attention of the increased number of traders.