Key findings of annual Investment Trends Australia Contracts for Difference (CFD) Report:

• The Australian CFD market continues to grow: 44,000 Australians traded CFDs in the 12 months to May 2012, up from 41,000 a year earlier
• Potential for an even stronger growth exists, if the economic conditions improve: Volatility and the current economic climate are among the largest barriers to further adoption
• Traders take advantage of the widening range of markets available: Overseas indices, individual overseas shares and commodities play an increasing role in the underlying instrument mix
• CFD traders go mobile: 58% of current CFD traders use a smartphone and/or tablet to trade

Traders embrace CFDs in the tough conditions for investing

44,000 Australians traded CFDs at least once in the 12 months to May 2012, 3,000 more than in the corresponding period a year earlier. This represents a faster growth rate (7%) compared with the 2010-2011 period (5%) .

The Investment Trends May 2012 Australia CFD Report is the seventh iteration of the in-depth study on the use of CFDs, based on a survey of 17,197 investors conducted in May 2012.

Senior Analyst Pawel Rokicki commented on the findings: “Against a backdrop of challenging economic conditions, the market has shown considerable resilience. Traders are adapting to the lacklustre performance of the local share market. While most Australian CFD traders graduate from domestic equity trading, they are increasingly willing to trade overseas assets and commodities – a sign that the market is maturing.”

An improvement in the economic climate would help the industry grow further

While the main focus of the report is on current traders, it also looks into the psyche of the next wave of traders—people who have not traded CFDs previously but intend to begin in the next 12 months.

Asked what stopped them from trading CFDs, four out of ten next wave traders pointed to market conditions, including 29% citing the current economic climate and 28% citing volatility levels as barriers to trading. Thirty-one percent were held back by inadequate knowledge about the product.

“Volatility is a double-edged sword for the industry. The more seasoned traders thrive on it, but there is a large group of potential traders who wait for the waters to calm, before they jump in”.

International markets beckon

International markets are becoming increasingly attractive to Australian traders. Between May 2011 and May 2012 the proportion of trades placed over international indices and shares grew from 14% to 22%. Commodities and, to a lesser extent, currencies were the other underlying assets to see a relative increase in trading volumes. Individual Australian shares gave ground. The table below shows the details.

CFD traders go mobile

Fifty-eight per cent of current CFD traders use their smartphone and/or tablet to trade and another quarter intend to start doing so.

“Based on our international experience, the English speaking countries clearly lead the way here”, said Rokicki.

“Australia now has the highest level of adoption of mobile trading platforms, closely followed by the other English-speaking: US and UK where the mobiles and tablets are also used by the majority of leveraged product traders. Europe is significantly behind with the penetration in Germany and France at about half of what we see here.”

The market continues to consolidate around the two leaders

The top two providers—IG Markets and CMC Markets—now control almost 60% of primary relationships, up from 55% in 2011.

“Both incumbents have benefited from MF Global’s exit”, commented Rokicki, “but the competition is likely to intensify in the near future, with large international players such as Saxo Bank and London Capital Group looking to make their mark in Australia.”

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This is followed by (in order of most-traded):

• EUR/USD
• Gold
• Germany’s Dax 30 Index
• Australia’s 200 index

With over 2,500 products at trader’s disposal, Capital CFDs found that experienced and new traders alike seem to focus on currencies, commodities and indices as this is where the volatility is.

The greatest advantage among trading CFDs across the major Forex pairs, indices and commodities is free brokerage and access to extremely tight, fixed spreads.

“Traders using Capital CFDs in the 1st quarter of 2012, maintained their wide-eyed interest in trading currencies with 33% focused on the Aussie dollar and 16% jumping on board the Euro to hunt for volatility and short term gains.”

“Gold continued its relentless surge of volatility following Ben Bernanke offering grim hope of QE3 forcing Gold and other commodities to take a sharp nosedive,” said Ashley Jessen, Head of Sales Trading, Capital CFDs.

What to expect in 2nd quarter 2012?
“Moving forward, the focus for Capital CFD traders should continue to support a strong upside for US-based indices, more volatility from precious metals but a lack of trending opportunities.”

“We expect that there will be a steady grinding uptrend for the local Aussie index. It will be critical to keep a close eye on overhead resistance levels across all indices as they continue to show overbought levels following their incredibly bubbly start to 2012,” said Mr Jessen.

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