Investors flee stocks, drawn to CFDs
Despite higher risk, such over-the-counter products are favoured due to smaller outlay
SINGAPORE - As the euro zone debt crisis continues to undermine stock markets worldwide, retail investors here have warmed to over-the-counter (OTC) products such as contracts for differences (CFD).
The benchmark Straits Times Index fell by 8.2 per cent over a one-year period to 2,815 as of June 25. And this month to date, the total value of shares traded on the SGX Mainboard slumped 31.2 per cent from the same period last year to S$14.7 billion.
But while some remisiers have seen their volumes halve since the beginning of the year, OTC brokerages are enjoying a 30-per-cent jump in their CFD business.
CFDs are leveraged derivatives that allow retail investors to take advantage of price movements in underlying instruments like indices, equities and foreign exchange.
Mr Jason Hughes, Head of Premium Client Management at IG Markets, said: "We have seen nervousness or perhaps a little change in habit or investment strategy over the last six months. But, certainly, they are still quite active, looking at CFD numbers in terms of new account openings, new trades, first trades and general trading numbers as a whole."
Retail investors who prefer a smaller capital outlay for their trades are also attracted to the leveraged OTC products. Mr Gavin Ward, Director of Asia at CMC Markets, said: "More investors are looking for shorter-term trading opportunities. So, rather than buy and hold, which typically is the equities market, they are looking at better opportunities in terms of intraday trading, which tend to offer more by the forex market, the indices market and the commodities market."
But while the commission for CFDs is much lower than stocks, investors have to contend with higher risks and brokers warn that losses could be more than the margins placed.
By Thomas Cho
27 June 2012