The Australian Securities and Investments Commission (ASIC) has provided some statistics on the impact recent market volatility has had on retail Contracts for Difference (CFD) traders, who are trading with ASIC registered broker firms. The analysis shows that retail traders were highly impacted by the movements in financial markets as a result of the spread of the Covid-19 pandemic across the globe.
Notably, for 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.
Furthermore, many customers experienced negative balances in their accounts as a result of rapid price movements which led to the liquidation of trading positions with margin calls. In this respect, 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. In addition, the regulator noted increases in the cost of holding oil contract CFDs overnight – the so-called “swap” or “rollover” charge, which grew in some cases to 220% per annum.
We remind traders to always follow a sound risk-reward strategy and effectively use all the tools available to minimize risks. Traders can find our informative guide “Managing Trading Risks During Market Volatility” in our Tips for All section of the Financial Commission website.
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