Survey on CFDs and Spread Betting
The survey by Boost (2014) examined the trading attitude of more than 1,000 people working in the financial industry that includes pro traders, money managers and retail investors. The objective was to understand the risk perception of different CFD investors. There were three main sections:
(1) Insights into the motives of CFD investors
(2) Risk/Return propositions of CFDs/spread betting traders
(3) Preference of traders as concerns financial instruments
CFD Survey key findings
Here are the key findings of the survey:
(1) A great majority of traders using ETFs, and exchange traded leverage instruments such as options and futures have not found much favor with CFDs/spread betting.
(2) Shorting, leveraged exposure and tax benefits are key factors that have pulled investors towards CFDs/spread betting platforms in the past.
(3) A large proportion of investors have maintained their position for more than 5 days over the last 12 months in contrast to the popular belief.
(4) Investors have preferred to trade at leverage level ranges of 2:1 to 5:1 in the past year.
(5) The financial risks of a provider has been singled out as the most significant concern among investors.
(6) Rather than maintain two accounts, investors have shown interest in using an instrument that can provide leveraged/short exposure through their traditional equity accounts which is covered in tax wrappers such as SIPPs and ISAs.
To summarize, it is clear that despite the advantages offered by CFDs/spread betting in leveraged trading, investors are concerned about the regulatory and trading risks associated with it and they are open to an instrument that can provide them with similar exposure while mitigating these risks, and they would most likely be open to experimentation.
Interesting Individual Fields
Do you trade Contracts for Difference (CFDs) and/or spread bets?
Almost half of the respondents (46%) trade CFDs compared to 37% who trade using spread betting. The remaining 17% trade in both these instruments.
Which other instruments do you also trade? (Choose all relevant fields)
Majority of the respondents trade in equities (79%) and ETFs (72%) while a smaller chunk trade in investment trusts (31%), bonds (28%) and futures (21%) as well. A small slice of the survey pool (7%) traded in options as well.
Which markets do you trade in?
A significant proportion of the respondents traded in the FTSE 100 Index (66%) closely followed by individual stocks (62%), highlighting the more popular markets. Less than half of the respondents traded in US markets based indices like S&P500 (35%), FX (28%), commodities (24%), other ex-UK European indices like DAX (24%) and Asian markets (21%).
10% of the respondents traded in markets other than these such as the fixed income space and UK mid and small cap.
What are the major attractions and benefits of CFD and spread bet trading? (Choose all relevant fields)
A significant 69% of the respondents each think that both high leverage and the ability to short-sell are major factors attracting traders towards CFDs and spread betting. Tax benefits (54%) also constitutes a significant factor, though stop losses (15%) turned out to be a less important factor. 8% of the respondents reported other influencing factors such as the opportunity to manage one’s own money directly or having an option for short-selling even if not primarily interested in doing so.
Which CFD/spread bet provider do you subscribe to? (Choose all relevant fields)
There is a significant preference towards subscribing to IG as the CFD/spread bet provider, with 39% of respondents. 13% of the respondents subscribe to each of CMC Markets and City Index while just 4% subscribe to Capital Spreads. The rest of the market is quite fragmented with 22% of the respondents subscribing to other providers such as City Credit Capital Ltd, Saxo and Monument. However, 13% of the respondents claim to have more than one CFD/spread betting service provider.
For how many years have you traded using leverage?
Over half of the respondents (52%) reported trading using leverage for 1 to 5 years while 22% have traded this way for 5 to 10 years. Respondents who have the largest experience (greater than 10 years) constitute 17% of the respondents and only 9% reported having an experience of less than 1 year in trading using leverage.
Which trading strategies do you adopt frequently? (Choose all relevant fields)
According to the survey results, there is no clear majority in the trading strategies used. An equal proportion of the survey pool adopts buy and hold as well as shorting strategies, with 46% of respondents identifying each of these two as a strategy that they adopt. A significant 38% of respondents use leveraging strategies frequently while 29% of respondents employ 1-5 days and greater than 5 days trading strategies. Intraday trading seems to be less popular with only 21% of the respondents using it frequently. A small slice of the survey pool (4%) employ other strategies like automated strategies-signal following.
In the past 12 months what would be your average holding position period for a position?
Respondents are close to evenly split over the average holding period for a position in the past year. Traders who have holding periods of 1-5 days and greater than 5 days constitute 46% of the respondents each while intraday traders along with traders having other holding periods (like greater than 30 days) constitute 4% of the respondents each.
In the past 12 months, under what range did your average leverage factor fall for equities?
Just under half the respondents (48%) reported their average leverage factors for equities lying in the 5x range while a significant 35% report average leverage factors in the 2x range. A further 13% of those surveyed had high average leverage factors (10x) and a small slice (4%) had even higher average leverage factors in the range of 10-20x.
In the past 12 months, under what range did your average leverage factor fall for FX?
There is no clear majority when it comes to the average leverage factor for FX. The majority of respondents (36%) employ two-times leverage while a further 29% of the respondents employ leverage up to 10 times. They are closely followed by 28% of respondents who use leverage factors of 5x while a meagre 7% constitute other leveraging strategies, some of which don’t do use any leveraging.
When trading CFDs & spread bets, what are your major risks? (Choose all relevant fields)
There is no prominent risk factor when trading CFDs and spread bets which comes out of the survey. An equal proportion of the survey pool specified losing more than the original investment and being closed out as major risks, with 29% of respondents identifying each source. A further 24% considered margin calls as the biggest risk. However, the majority of the respondents (62%) considered all the three risks collectively as major factors when trading CFDs and spread bets.
In terms of provider risks, which of the following concerns you the most?
In terms of provider risks, the financial risks of the provider clearly ranks at the top (40%). This is followed by various other reasons such as poor spreads, client money vs firm money risks and liquidity (15% each). A further 10% are concerned by price discovery in open markets and other issues include the inability to spread bet while working in financial markets.
The survey was made by Boost (2014)
Find out more: http://www.nasdaq.com/article/a-survey-on-contracts-for-difference-cfd-and-spread-bets-cm422674#ixzz3Ye8URH2O
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