Retail CFD traders lose over $428m in the week 16–22 March 2020, ASIC analysis shows

Maria Nikolova

Based on a sample of 12 Australian licensed CFD providers, retail client losses were just over $428 million gross (or $234 million net) during the week 16–22 March 2020.

The Australian Securities and Investments Commission (ASIC) today published a paper including its early observations on trading in securities and contracts for difference (CFDs) during the period of high market volatility caused by the COVID-19 pandemic.

In the week 16–22 March 2020, based on a sample of 12 Australian licensed CFD providers, retail client losses were just over $428 million gross (or $234 million net). The 12 providers account for around 84% market share, so the aggregate retail client losses across the industry for this single week may be higher.

Many retail client accounts went into negative balance in the week commencing 16 March. A total of 5,448 retail client accounts of the 12 providers in the sample (or 2% of their retail client accounts that traded during that week) went into negative balance to the value of over -$4 million in aggregate. That is, they lost their initial investment and owed a further $4 million to the CFD providers. Some of the providers absorbed the losses themselves.

Also, ASIC has seen very significant increases in the cost of holding oil CFDs overnight (up to 220% per annum). For a hypothetical $100,000 exposure to oil CFDs ($1,000 initial investment at 100:1 leverage), overnight funding costs of 220% per annum would amount to around $600 per night—around 60% of the initial investment in fees alone in one night.

The average daily securities market turnover by retail brokers increased from $1.6 billion in the benchmark period (22 August 2019 to 21 February 2020) to $3.3 billion in the focus period (from 24 February 2020). Retail trading as a proportion of total trading increased marginally, from 10.62% to 11.88%, when benchmarked against the backdrop of total average daily securities market turnover—which increased from $15 billion to $28 billion (counting both sides of each trade, consistent with retail numbers).

Retail brokers were net buyers of securities over the focus period, buying $53.4 billion and selling $48.4 billion.

Read this next

Institutional FX

Euronext reports double-digit growth in FX volume

Pan-European exchange, Euronext has reported a 10 percent rebound in the average daily volume on its spot foreign exchange market. The ADV figure stood at $19.6 billion in January 2022, which is up from December’s $18 billion.

Digital Assets

Voyager subpoenas FTX’s inner circle over Alameda loan

Bankrupt crypto broker Voyager Digital, represented by law firm Kirkland & Ellis, is seeking court approval to subpoena Sam Bankman-Fried’s inner circle, as well as Alameda Research’s former executives.

Retail FX

AvaTrade seals sponsorship deal with F1’s Aston Martin team

Dublin-based forex broker AvaTrade today announced that it has concluded a sponsorship deal with Formula One’s Aston Martin Cognizant team that entails sponsorship rights and other marketing benefits.

Executive Moves

M4Markets onboards Invaxa CEO Marios Antoniou as COO

Seychelles-regulated brokerage firm M4Markets has appointed Marios Antoniou, who has a colorful career within the foreign exchange industry, in the capacity of its Chief Operations Officer.

Digital Assets

GK8 now allows clients to control their digital assets as they would their fiat

“As the institutional market is increasingly turning to self custody, our policy engine empowers them to automate transactions, approvals, and even crucial workflows, while providing the highest degree of security, consistency, governance and control.”

Digital Assets

Retail CBDCs in the UK: “Welcomed” by CryptoUK and R3, but “Dystopian” for ETC Group

“At this stage, we judge it likely that the digital pound will be needed in the future. It is too early to decide whether to introduce the digital pound, but we are convinced preparatory work is justified”, said the BoE and HM Treasury.

Institutional FX

Centroid taps Iress API to provide retail brokers with real-time market data

“It has always been a challenge to have an efficient, elegant solution for market data and order execution for retail brokers, but with Iress we have found absolutely the right partner to add to our client offering.”

Digital Assets

Ramp launches FCA-approved off-ramp product, onboards Brave, Trust Wallet, Ledger

“To obtain and maintain our FCA registration, we must meet and operate within their strict anti-money laundering and counter-terrorist financing standards. This is a huge achievement for us, as compliance is a cornerstone of our business and what we stand for.”

Institutional FX

State Street launches FIX API for Fund Connect ETF platform

“Expanding from proprietary APIs to the FIX industry standard will bring us closer to our goal of 100% digital interactions. This is another example of innovations we’ve brought to our operating model as we celebrate 30 years of servicing ETFs since the launch of SPY.”

<