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Introduction

Leveraged Retail Trading: 2019 Market Overview

  

Retail trading of leveraged products such as contract for difference (CFDs) and retail FX have experienced a steady growth in recent years. Forex Datasource estimates that retail brokerage firms generated trading revenue of as much as US$9 billion in 2018, with US$7.3 billion occurring outside of Japan, compared to global revenue of US$1.5 billion in 2003. 


Several key forces, from demographic growth and internet propagation in the emerging world to new trading products are propelling the industry forward despite moderate regulatory headwinds in Europe and other geographies. The trading product mix, which includes but is not limited to spot FX, index CFDs, and spot commodities, remains as attractive as always, so the arrival of cryptocurrency trading in 2017 invigorated retail interest in self-directed trading and offered brokers a new, very profitable trading product. 


Self-directed trading should be seen as a trend that ultimately achieves more retail participation in investing than ever before. As a trend, it carries significant risk of loss. But most experienced retail traders tend to view the said financial losses as an intrinsic value, a ‘tuition’ of sorts that tempers unrealistic return expectations. 


Given the financial losses experienced by retail traders initially, critics of the self-directed trend argue that investment decisions should be left to professionals. This well-meaning argument loses strength given stark realities, however. There is mounting evidence that the number of financial advisors has stagnated over the past two decades, and that human-to-human financial advice will, as a result, become more restricted geographically, costly, and exclusive in years to come. 


Literally, hundreds of millions of would-be investors globally are at risk of never receiving investment advice delivered locally. Thanks to the internet, web-delivered trading tools, and trading costs that are more than 10x cheaper than two decades ago, a new generation of self-guided individuals aspires to master online trading as one of the various things they can accomplish on their own.


There is constant reinvention in the leveraged trading industry, even as less efficient retail brokers are acquired or exit the business. This report provides an overview of key industry metrics going into 2019 and offers a needed perspective into major trends that are transforming the way self-directed services are metered, by whom, and where. Within the larger discussion of leveraged retail trading, we dedicate particular attention to CFD-related metrics and topics. 


METHODOLOGY

This reports relies on information from the following sources: 


  • Latest public self-disclosures. The publicly-disclosed figures and press releases issued by brokerage firms and industry regulators, with special focus on the 12+ non-Japanese retail brokers who self-disclose details of their operational performance
  • Web traffic trends. November/December 2018 Web traffic information to 72 retail FX/CFD brokerage sites (measured by Alexa data and similar firms) broken down by country and adjusted as much as possible to address traffic differences
  • Forex Datasource’s proprietary knowledge base. This includes but is not limited to key performance indicator (KPI) estimates and forecasts 
  • The report author’s subject matter expertise. Mr. Paz has written more than two dozen institutional reports related to retail trading in foreign exchange (FX) and the CFD market during the past 12 years. His work has been quoted in four initial public offering prospectuses, in many tier-one financial press articles, and in FX industry magazine articles

Learn More

This report is of particular importance to retail brokerage firms, prime broker firms, vendor firms serving brokers, retail trading regulators, and private equity firms / institutional funds with investments in this field. 

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