Continuing our journey through the European financial markets, we move to sunny Spain, which is one of the largest countries in Europe by area and population. It also has a thriving and developed financial market, which stems from the almost 200-year-old tradition of the Bolsa de Madrid, a stock exchange operating in the country since 1831.
But, what is the state of the local retail Forex (FX) and Contracts for Difference (CFD) industry? Has the coronavirus pandemic and current geopolitical turmoil influenced its shape?
Do You Want to Start a Brokerage Business in Spain? Call CNMV
The National Securities Market Commission (CNMV) is the local regulator of the financial markets in Spain. It is responsible for supervising and licensing the money markets and all the entities within, including FX/CFD brokers.
As Spain is a European Union member, the local regulator works closely with the European Securities and Markets Authority ( ESMA
ESMA
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of the EU financial system by ensuring the integrity, transparency, efficiency, and orderly functioning of securities markets, as well as enhancing investor protection. ESMA fosters supervisory convergence among securities regulators and financial sectors through its work with other EU supervisory authorities. ESMA is independent; there is full accountability towards the European Parliament, where it appears before the Economic and Monetary Affairs Committee, at their request for formal hearings. What Functions Does ESMA Perform?The purpose of assessing risks to investors, markets, and financial stability is to spot emerging trends, threats, and vulnerabilities, and where possible opportunities in a timely fashion so that they can be responded to. ESMA uses its unique position to identify market developments that threaten financial stability, investor protection, or the orderly functioning of financial markets. ESMA’s risk assessments build on and complement risk assessments made by others. The purpose of compiling a single rulebook for European financial markets is to enhance the EU Single Market by creating a level playing field for investors and issuers across the EU. ESMA’s four activities are linked. Insights gained from risk assessment feed into the work on the single rulebook, supervisory convergence, and direct supervision, and vice versa.
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of the EU financial system by ensuring the integrity, transparency, efficiency, and orderly functioning of securities markets, as well as enhancing investor protection. ESMA fosters supervisory convergence among securities regulators and financial sectors through its work with other EU supervisory authorities. ESMA is independent; there is full accountability towards the European Parliament, where it appears before the Economic and Monetary Affairs Committee, at their request for formal hearings. What Functions Does ESMA Perform?The purpose of assessing risks to investors, markets, and financial stability is to spot emerging trends, threats, and vulnerabilities, and where possible opportunities in a timely fashion so that they can be responded to. ESMA uses its unique position to identify market developments that threaten financial stability, investor protection, or the orderly functioning of financial markets. ESMA’s risk assessments build on and complement risk assessments made by others. The purpose of compiling a single rulebook for European financial markets is to enhance the EU Single Market by creating a level playing field for investors and issuers across the EU. ESMA’s four activities are linked. Insights gained from risk assessment feed into the work on the single rulebook, supervisory convergence, and direct supervision, and vice versa. Read this Term), and since 2018, it has applied a unified law for trading in leveraged markets for retail investors.
With a population of almost 50 million, it is estimated that more than 1 million people are actively investing in financial markets locally, mainly seeking additional security for retirement. But, how large a percentage of these investors are interested in the Forex market?
“Based on a study published by the eToro investment platform regarding the Spanish market it is oriented to retailers. In Spain, one in three novice investors is between 18 and 24 years old. If new investors aged between 25 and 34 are also added, 54% of the total for this group is reached. The platform ensures that 17% of its current users in Spain have arrived during the Covid-19 pandemic, a more than significant percentage,” commented Renato Cassinelli, a market expert and analyst from Spain.
More than 50 Thousand People in Spain Trade FX and CFD
The number of active Spanish retail traders in the over-the-counter (OTC) derivatives market is similar to that observed in other large European countries, including Germany and Poland. According to data released by the analyst firm, Investment Trends, the coronavirus pandemic strongly influenced the increase in retail trader activity in these markets, with a peak in 2021.
There has indeed been a decrease in the number of active traders compared to the beginning of last year, but the activity remained higher, looking back to the pre-pandemic period.
“The number of Spaniards trading CFDs or FX has started to ease following the surge observed in 2021, but it is still higher than the pre-pandemic era (an estimated 53,000 unique individuals placed an OTC leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage. Read this Term trade in the 12 months to March 2022, and intend to continue trading, down 16% from 2021, but up 8% from 2020),” commented Lorenzo Vignati, the Associate Research Director at Investment Trends.
According to Vignati, the numbers could be even more elevated, retaining pandemic highs, if not rising trading dormancy rates. Retail investors who joined the FX/CFD market 1-2 years ago and placed a few first bets became discouraged by the losses and high volatility in that period and did not return to active investing (at least on OTC).
“The drop in trader numbers was primarily driven by a trifecta of factors: smaller inflows of new-to-market traders, lower reactivation of dormant traders and higher dormancy rate compared to 2021. In particular, traders going dormant increasingly cite a preference for other products as reasons for not continuing with CFDs/FX; indeed, a substantial overlap exists between CFDs and listed derivatives trading, with the former acting as a feeder to the latter,” Vignati added.
By comparison, in France, there were far fewer people actively trading FX/CFDs, 38,000. Leveraged trading is still the most popular among Britons on the European continent. In the last 12 months, 275,000 UK residents entered into at least one transaction of this type , which is an increase of 92% compared to pre-primary levels.
First Time Deposits above $1,000
One of the regular features of my articles regarding the retail Forex and contracts for difference industries in given countries is deposit data. Courtesy of cPattern, we have an insight into how the average deposits, withdrawals and first-time deposits (FTDs) have evolved month by month.
However, in the case of the Spanish market, the available data is limited in time and the averages presented below do not cover the whole year but only the period from July to December 2021. However, they coincide with the values presented in previous analyses for countries with similar populations and financial market structures, which can be considered statistically significant.
In the reported period, the average monthly deposit amounted to $5,242 (this refers to all funds deposited by an average trader into investment accounts within a month). At the same time, the average value of monthly withdrawals was much lower (which is a common trend) and amounted to $3,258.
The aforementioned first-time deposits, or FTDs, were also high and, on average, exceeded $1,000 in the second half of last year. This value is higher than in France or Germany but comparable to the UK market.
Moreover, the dominance of cryptocurrency transactions is clearly growing. As reported by Cassinelli, 9% of the Spanish population (approx. 4 million people) already uses or owns cryptocurrencies such as BTC.
“High returns, huge volatility and persistent media attention have propelled cryptocurrencies to the forefront of news cycles. The younger generation is more willing to accept the risks of working with a relatively young market, rather than maintaining the traditional status quo,” Cassinelli concluded.
Continuing our journey through the European financial markets, we move to sunny Spain, which is one of the largest countries in Europe by area and population. It also has a thriving and developed financial market, which stems from the almost 200-year-old tradition of the Bolsa de Madrid, a stock exchange operating in the country since 1831.
But, what is the state of the local retail Forex (FX) and Contracts for Difference (CFD) industry? Has the coronavirus pandemic and current geopolitical turmoil influenced its shape?
Do You Want to Start a Brokerage Business in Spain? Call CNMV
The National Securities Market Commission (CNMV) is the local regulator of the financial markets in Spain. It is responsible for supervising and licensing the money markets and all the entities within, including FX/CFD brokers.
As Spain is a European Union member, the local regulator works closely with the European Securities and Markets Authority ( ESMA
ESMA
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of the EU financial system by ensuring the integrity, transparency, efficiency, and orderly functioning of securities markets, as well as enhancing investor protection. ESMA fosters supervisory convergence among securities regulators and financial sectors through its work with other EU supervisory authorities. ESMA is independent; there is full accountability towards the European Parliament, where it appears before the Economic and Monetary Affairs Committee, at their request for formal hearings. What Functions Does ESMA Perform?The purpose of assessing risks to investors, markets, and financial stability is to spot emerging trends, threats, and vulnerabilities, and where possible opportunities in a timely fashion so that they can be responded to. ESMA uses its unique position to identify market developments that threaten financial stability, investor protection, or the orderly functioning of financial markets. ESMA’s risk assessments build on and complement risk assessments made by others. The purpose of compiling a single rulebook for European financial markets is to enhance the EU Single Market by creating a level playing field for investors and issuers across the EU. ESMA’s four activities are linked. Insights gained from risk assessment feed into the work on the single rulebook, supervisory convergence, and direct supervision, and vice versa.
European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of the EU financial system by ensuring the integrity, transparency, efficiency, and orderly functioning of securities markets, as well as enhancing investor protection. ESMA fosters supervisory convergence among securities regulators and financial sectors through its work with other EU supervisory authorities. ESMA is independent; there is full accountability towards the European Parliament, where it appears before the Economic and Monetary Affairs Committee, at their request for formal hearings. What Functions Does ESMA Perform?The purpose of assessing risks to investors, markets, and financial stability is to spot emerging trends, threats, and vulnerabilities, and where possible opportunities in a timely fashion so that they can be responded to. ESMA uses its unique position to identify market developments that threaten financial stability, investor protection, or the orderly functioning of financial markets. ESMA’s risk assessments build on and complement risk assessments made by others. The purpose of compiling a single rulebook for European financial markets is to enhance the EU Single Market by creating a level playing field for investors and issuers across the EU. ESMA’s four activities are linked. Insights gained from risk assessment feed into the work on the single rulebook, supervisory convergence, and direct supervision, and vice versa. Read this Term), and since 2018, it has applied a unified law for trading in leveraged markets for retail investors.
With a population of almost 50 million, it is estimated that more than 1 million people are actively investing in financial markets locally, mainly seeking additional security for retirement. But, how large a percentage of these investors are interested in the Forex market?
“Based on a study published by the eToro investment platform regarding the Spanish market it is oriented to retailers. In Spain, one in three novice investors is between 18 and 24 years old. If new investors aged between 25 and 34 are also added, 54% of the total for this group is reached. The platform ensures that 17% of its current users in Spain have arrived during the Covid-19 pandemic, a more than significant percentage,” commented Renato Cassinelli, a market expert and analyst from Spain.
More than 50 Thousand People in Spain Trade FX and CFD
The number of active Spanish retail traders in the over-the-counter (OTC) derivatives market is similar to that observed in other large European countries, including Germany and Poland. According to data released by the analyst firm, Investment Trends, the coronavirus pandemic strongly influenced the increase in retail trader activity in these markets, with a peak in 2021.
There has indeed been a decrease in the number of active traders compared to the beginning of last year, but the activity remained higher, looking back to the pre-pandemic period.
“The number of Spaniards trading CFDs or FX has started to ease following the surge observed in 2021, but it is still higher than the pre-pandemic era (an estimated 53,000 unique individuals placed an OTC leverage
Leverage
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage.
In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders need to rely on leverage to make financial trading viable. Generally, the higher the fluctuation of an instrument, the larger the potential leverage offered by brokers. The market which offers the most leverage is undoubtedly the foreign exchange market, since currency fluctuations are relatively tiny. Of course, traders can select their account leverage, which usually varies from 1:50 to 1:200 on most forex brokers, although many brokers now offer up to 1:500 leverage, meaning for every 1 unit of currency deposited by the trader, they can control up to 500 units of that same currency. For example, if a trader was to deposit $1000 into a forex broker offering 500:1 leverage, it would mean the trader could control up to five hundred times their initial outlay, i.e. half a million dollars. Likewise, if an investor using a 1:200 leveraged account, was trading with $2000, it means they would be actually controlling $400,000, i.e. borrowing an additional $398,000 from the broker. Assuming this investment rises to $402,000 and the trader closes their trade, it means they would have achieved a 100% ROI by pocketing $2000. With leverage, the potential for profit is clear to see. Likewise, it also gives rise to the possibility of losing a much greater amount of their capital, because, had the value of the asset turned against the trader, they could have lost their entire investment.FX Regulators Clamp Down on Leverage Offered by BrokersBack in multiple regulators including the United Kingdom’s Financial Conduct Authority (FCA) took material measures to protect retail clients trading rolling spot forex and contracts for difference (CFDs). The measures followed after years of discussion and the result of a study which showed the vast majority of retail brokerage clients were losing money. The regulations stipulated a leverage cap of 1:50 with newer clients being limited to 1:25 leverage. Read this Term trade in the 12 months to March 2022, and intend to continue trading, down 16% from 2021, but up 8% from 2020),” commented Lorenzo Vignati, the Associate Research Director at Investment Trends.
According to Vignati, the numbers could be even more elevated, retaining pandemic highs, if not rising trading dormancy rates. Retail investors who joined the FX/CFD market 1-2 years ago and placed a few first bets became discouraged by the losses and high volatility in that period and did not return to active investing (at least on OTC).
“The drop in trader numbers was primarily driven by a trifecta of factors: smaller inflows of new-to-market traders, lower reactivation of dormant traders and higher dormancy rate compared to 2021. In particular, traders going dormant increasingly cite a preference for other products as reasons for not continuing with CFDs/FX; indeed, a substantial overlap exists between CFDs and listed derivatives trading, with the former acting as a feeder to the latter,” Vignati added.
By comparison, in France, there were far fewer people actively trading FX/CFDs, 38,000. Leveraged trading is still the most popular among Britons on the European continent. In the last 12 months, 275,000 UK residents entered into at least one transaction of this type , which is an increase of 92% compared to pre-primary levels.
First Time Deposits above $1,000
One of the regular features of my articles regarding the retail Forex and contracts for difference industries in given countries is deposit data. Courtesy of cPattern, we have an insight into how the average deposits, withdrawals and first-time deposits (FTDs) have evolved month by month.
However, in the case of the Spanish market, the available data is limited in time and the averages presented below do not cover the whole year but only the period from July to December 2021. However, they coincide with the values presented in previous analyses for countries with similar populations and financial market structures, which can be considered statistically significant.
In the reported period, the average monthly deposit amounted to $5,242 (this refers to all funds deposited by an average trader into investment accounts within a month). At the same time, the average value of monthly withdrawals was much lower (which is a common trend) and amounted to $3,258.
The aforementioned first-time deposits, or FTDs, were also high and, on average, exceeded $1,000 in the second half of last year. This value is higher than in France or Germany but comparable to the UK market.
Moreover, the dominance of cryptocurrency transactions is clearly growing. As reported by Cassinelli, 9% of the Spanish population (approx. 4 million people) already uses or owns cryptocurrencies such as BTC.
“High returns, huge volatility and persistent media attention have propelled cryptocurrencies to the forefront of news cycles. The younger generation is more willing to accept the risks of working with a relatively young market, rather than maintaining the traditional status quo,” Cassinelli concluded.
