CFDs Weary of Competition from Alternative Leveraged Products as Volumes Increase

Listed derivatives such as Exchange Traded Products are gaining traction as investors explore alternative instruments in light of market volatility.

boot etpBoost ETP, a UK-regulated financial services firm that offers leveraged listed instruments on the London Stock Exchange, has seen a sharp rise in the value of asset under management. The firm reported that its AUM reached a record $201 million during the month of January. The move signifies the importance of diversification in financial markets as active investors explore alternative instruments.

The London-based firm that is part of Wisdom Tree, an asset manager, saw a growth in volumes as traders add less riskier bets to their portfolio. The value of investments increased  to $201 million, representing a notional value of $592 million. Nik Bienkowski, Co-CEO of Wisdom Tree Europe, commented in a statement: “The 87% growth in AUM and 266% growth in trading volumes in Boost ETPs over the past 6 months is very impressive. It clearly shows that investors have a strong appetite for robust and transparent short and leveraged investment vehicles. With increased volatility and the recent float of the Swiss franc versus the euro, Boost’s collateralised structure continues to shine above other product structures.”

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Exchange Traded Products (ETPs) are fast becoming standardised components in an investor’s portfolio as they provide access to multiple products through one vehicle. The products is defined as an investment vehicle that tracks the performance of a selection or ‘basket’ of related assets, such as indices, commodities or currencies.

The notion of leverage or gearing came under fire during the January currency crisis with several providers capping the amount of margin available on financial instruments. The events had detrimental effects on the portfolio of investors with some falling short on the demise of their broker and others suffering at the hands of the market gap in the EUR/ CHF cross.

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ETPs are listed on recognised exchanges such as the LSE or Borsa Italiana, although both CFDs and ETPs offer gearing, ETPs are capped, for example Boost ETP offers three items leverage. In addition, when comparing the two ETPs they are generally collateralised and/or physically replicated while ETP issuers do not hold open positions against their clients. For example, in the event of a BOOST ETP counterparty default, the collateral would be liquidated and the proceeds paid to ETP holders.

Boost ETP has also seen growth in the performance of its energy instrument, BOOST WTI Oil 3x Short Daily ETF, the firm stated: “In December 2014 oil futures fell 20% and in January they fell by another 10%. Over the same period, BOOST WTI Oil 3x Short Daily ETP (3OIS) returned 167% (from 1 Dec 2014 to 30 Jan 2015), demonstrating once again that geared short ETPs are capital efficient investments in downward trending markets.

Geared short ETPs can amplify returns of investors desiring opportunistic bearish positioning, as well as enabling them to build hedges to protect long positions over several weeks and even months to ride out the storm.”

The overall value of ETPs and ETFs continue to grow as both retail and institutional investors seek coverage and security of listed instruments, the recent volatility in commodity markets has triggered investors interest in the alternative segments, this market is expected to grow globally as users become more aware of the advantages of ETPs.

London-based IG, a multi-asset CFD specialist provider offers CFDs on ETPs.

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