The UK Dominates the CFD Market. Number of Traders Up by More than 90%

The City of London is not only the heart of European Finance but also global finance. London on the map of the Forex market is one of the most important hubs, which every day processes transactions worth trillions of pounds. In addition to the thriving professional industry, retail trading is developing very actively, mainly based on Contracts for Difference (CFDs).

The UK is the birthplace of spread-betting (a leveraged product very similar to CFDs). Last year around 275,000 people traded at least one of these instruments in the UK, putting the UK at the forefront of the retail industry.

Finance Magnates Intelligence has x-rayed the local market, looking at investor structure, average deposits flowing into accounts and the most prominent operating brokers.

The UK Is the World's 5th Largest Economy

Great Britain is the fifth-largest national economy in the world measured by nominal gross domestic product (GDP), constituting 3.3% of world GDP. The UK is also one of the world's top five exporters.

Historical fun fact: In the 18th century, Great Britain was the first country to start the process of industrialization. Thanks to the expansive growth of its colonial empire, it accounted for 10% of global GDP at that time.

Just as the UK economy is one of the largest globally, the national currency, the pound sterling, is one of the most important reserve currencies. It is second only to the US dollar, the euro, and the Japanese yen.

According to the Bank of England's latest triennial report on the FX market, daily foreign exchange trading volumes in London stood at $2.41 trillion in April 2020. A similar report published a year earlier by the Bank for International Settlements (BIS) showed that London and the UK as a whole was (like in previous years) the most important foreign exchange centre in the world, clearly ahead of the US, Hong Kong and Singapore, among others.

*Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200 instead of 100 per cent.

FCA: One of the Most Important Regulators in the FX and CFD Industry

Did you know that one of the first central banks was opened in the UK (the Bank of England)? The islanders have a very long tradition regarding legislation and regulation of financial markets. The Financial Conduct Authority (FCA), which is responsible for regulating the retail derivatives industry, among other things, was created based on their tradition.

Although the FCA was only established in 2013, it draws on a long-standing tradition of the Financial Services Authority (FSA). It is currently responsible for regulating around 51,000 financial firms operating in the UK. Among them are many retail brokers that represent the top of the FX/CFD industry in retail volumes.

According to the latest Finance Magnates Intelligence research, these include Exness, IG Group, Plus500, and CMC Markets. If you would like to see the full breakdown and exact numbers, do not miss the latest edition of the Quarterly Intelligence Report.

275,000 Traders after Pandemic. UK Is the Largest CFD Market in Europe

The UK leverage trading market has grown the most over the past 12 months, reclaiming its position as the largest surveyed by Investment Trends. According to Lorenzo Vignati, Associate Research Director at the company, the 12 months to May 2021 saw 275,000 Britons place one or more leverage trades (up 92% from pre-pandemic levels in 2019).

The average UK trader is 44 years old, but newer markets attract younger investors. As a result, the average is moving towards the mid-30s.

"Globally, we see that UK and German traders tend to be the most inclined to trade a wide range of underlying instruments (3.5 on average). Even before the oil prices rose to the highest level since 2012, 52% of traders in the UK already had exposure to commodities through their spread bets or CFD trades. The recent crisis and market instability could result in key drivers for strong participation," Vignati added.

These figures are confirmed by Alayna Francis, Global Head of Media Relations at IG Group. Currently, the broker has a global client base of 400,000, which is a significant increase from the 178,500 it reported in fiscal 2019. The group's latest financial report, presenting preliminary results for H1 of FY22, shows that in the aggregate, the UK market dominated the company's business. Both in terms of the number of customers and revenue generated.

Alayna Francis says Brexit has not had a more apparent impact on changing the UK's FX and CFD industry landscape. However, the covid-19 pandemic had a clear effect on everyday trading activity.

"We believe the pandemic was an accelerator of the existing trends of use of online trading and self-directed investing. The market has doubled in size in the last two years due to several factors related to the pandemic: market volatility, working from home, constant news flow and increasing access to market information and news," Francis commented.

Finance Magnates also spoke to CMC Markets Chief Analyst Michael Hewson. As he states, "The pandemic saw a surge in interest in trading across the board, not just in FX, but across asset class, as low interest rates and furlough money prompted a surge of interest in DIY investing and trading.”

“Trading activity generally increases when volatility starts to rise as clients take advantage of the big swings in price action which opens new trading opportunities. This has resulted in increased trading activity,” Hewson added, referring to the armed conflict in Ukraine.

$7 Thousand a Month. This Is the Average Amount Deposited by the UK CFD Traders

Data released by cPattern shows that in 2021 (data available for January to November), the average UK CFD traders credited over $7,000 to their account each month. During the same period, the average withdrawal was almost half that amount at $3,800.

Additionally, a first-time deposit (FTD) is high, with over $1,000 for the reported period. This is similar to another highly developed retail CFD market, Australia. Only novice traders from Singapore are spending more. In their case, the FDT last year ranked at $1,700.

The data distribution for individual months does not indicate any clear seasonality in terms of average deposits and withdrawals. Over consecutive months the values were very close to each other. The median confirms this for monthly deposits and withdrawals, which amounted to $7,300 and $3,500, respectively.

However, a more significant divergence can be seen in the FTD metric. Median stood clearly below the average for the period from January to November 2021 at $700.