ASIC dampens CFD and FX trading

The Australian Securities and Investments Commission’s (ASIC’s) tightened restrictions around Contracts for Difference (CFD) and Foreign Exchange trades appeared to result in a slowing in trades last year, according to new analysis from Investment Trends.

The Investment Trends 2021 Australia Leverage Trading Report, released today, reveals a 15% year on year decline largely owed to the role of the regulator.

However, the Investment Trends analysis notes that even at this reduced level, trades were still well up on pre-pandemic levels.

Commenting on the findings, Investment Trends head of research, Irene Guiamatsia said that notwithstanding the downturn, 100,000 unique individuals had placed at least one CFD or foreign exchange trade in the 12 months.

“This is the first time in several research periods that a reduction in market size has occurred, although it is important to note that a comparison of these results with the seven major markets studied throughout 2021 across the US, Europe and Asia, reveals the 15% contraction for the Australian market is consistent with muted growth observed elsewhere in the second half of the year.” she said

“A number of factors have caused the inflow of new traders and reactivators to taper, with ASIC’s product intervention dampening trade frequency and volume in 2021, and the absence of volatility that typically drives trader activity causing dormancy rates to increase.”  Guiamatsia said.

Investment Trends noted that, consistent with their European counterparts, ASIC had tightened restrictions on CFDs/margin FX, curtailing leverage and trading inducements – 16% of traders, up from 7% in 2020 have applied for, and received, professional status.

It also noted that while these macro-wide challenges persisted, cryptocurrency usage had increased among CFD/FX traders over the past 12 months, with 33,500 traders (or 33%) using the asset class. Of this cohort, three in ten CFD/FX traders believed that cryptocurrency would be the best-performing investment in the coming year.

The bullish sentiment is most pronounced among younger traders (40% of Zoomers, 35% of Millennials).

“More traders are embracing crypto, with the quest for diversification and the central driver – many want some stake (even if small) in it,” said Guiamatsia. “And for leverage traders, appetite is strongest for exposure to the physical asset class.”

According to Investment Trends analysis the best performers in select categories based on the highest client satisfaction ratings in 2021 were: