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.