How Can the Retail FX/CFD Industry Withstand Biting Global Inflation?

According to <a href=”https://www.financemagnates.com/forex/analysis/retail-fxcfd-analysis-august-ftd-values-hit-all-time-low/” target=”_blank” rel=”follow”>Finance Magnates Intelligence’s August report,</a> the value of first-time deposits by retail traders into forex and CFD accounts hit an all-time low, dropping to just $663 dollars from $1,354 recorded in July. Meanwhile, the average single withdrawals in August spiked higher to $2,293, which is up from July’s $1,902.The data suggests that at the end of the summer period, new FX/CFD traders were not
interested in investing at all while existing clients were either depositing more or pulling out
their capital. The trends come at a time the global economy is fighting against inflation and other economic pressures. Across the world, inflation is biting hard, in Europe, Australia, North America, Africa and Asia. As a result, the pressure on income
has been intensifying over the past months. In Europe, the United Kingdom’s <a href=”https://www.financemagnates.com/tag/inflation/”>inflation</a> surged to a 40-year high in June, precipitated
by rising food and fuel prices. In the same month, <a href=”https://www.financemagnates.com/tag/swiss-national-bank/”>the Swiss
National Bank</a> raised its policy
interest rate to -0.25%, which is the first increase in 15 years. Additionally, inflation reached 10% across <a href=”https://www.financemagnates.com/tag/eurozone/”>the 19-member
eurozone</a> in September 2022, which is the
highest since the launch of the common currency in 1999. The
Baltic region of Europe was the most impacted by inflation rates in Estonia,
Latvia and Lithuania standing at over 20%.Inflation in Other RegionsAway from Europe, in August, the Australian
Bureau of Statistics reported that the country’s inflation shot up by 6.1%, which is the
highest in 32 years. The United States, the world’s largest economy, has also
not been left out as the country’s inflation skyrocketed 9.1% to an almost
41-year-high in June, driven by food and energy prices. This is even as <a href=”https://www.financemagnates.com/tag/federal-reserve/”>the Federal
Reserve</a> has repeatedly
increased interest rates to put price surges under check.Similarly, Canada’s inflation rate galloped to
7.7% in May this year, which is the highest in almost 40 years, and <a href=”https://www.financemagnates.com/tag/canada/”>the Bank of
Canada</a> followed this up by
raising interest rates to 1.5% in June.In Africa, the continent’s largest economy, Nigeria, saw its inflation rates jump to 20.77% in September, which is a 17-year-high.
South Africa, one of the continent’s top economies, also saw a 13-year-high
jump in its inflation figures which reached 7.8% in July. Furthermore, in the Middle East, Turkey had the highest
inflation rate in the world which stood at 54.8% as of the first quarter of this
year. Meanwhile, in Asia, Singapore’s core inflation figure, which excludes
private transport and accommodation, jumped to near a 14-year high in
August.These sharply rising inflation figures across the
world beg the question of how the online retail forex and <a href=”https://www.financemagnates.com/thought-leadership/has-the-cfd-industry-become-lazy/”>CFD industry</a> has fared so far in 2022. What impact is global
inflation having on trading volumes?Trading amidst Sharp VolatilityAs global inflation and geopolitical events such
as <a href=”https://www.financemagnates.com/tag/russia-ukraine-war/”>the
Russia-Ukraine war</a>
reshape the financial markets this year, retail investors have changed gears, re-strategizing to capitalize on rising volatility, resulting in upticks in
forex volumes.Forex VolumesCapital.com, a Cyprus-headquartered broker that
accepts customers from over 180 countries, reports that FX trading has been a
top traded market on its platform during Q3 2022 and so far in Q4. According to the broker’s <a href=”https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fcapital.com%2Fpulse-q3-2022&data=05%7C01%7Csolomon%40financemagnates.com%7C0135050949844f9657c308dacbda564c%7C5a54ff246b6145da90d5fe83fb5f64a5%7C0%7C0%7C638046435859127814%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=nrbPOE118GtiJvuvUner%2BbYG6NtFqaw0UIwzORukIus%3D&reserved=0″>Q3 2022 Pulse
Report, </a> trading volumes in
GBP/USD on the platform amounted to more than $11 billion during the third
quarter that ended in September. This figure is 144% higher than Q2, the broker
said. Furthermore, Kypros Zoumidou, the Group Chief Commercial
Officer at Capital.com, told Finance Magnates that the number of people trading
<a href=”https://www.financemagnates.com/tag/gbpusd/”>GBP/USD</a> increased by 23% in Q3 compared to Q2,
with UK and Middle Eastern traders accounting for the largest volume of trades in
the popular currency pair.eToro, an Israeli social and multi-asset trading firm, reported, “certain currency pairs
seeing big increases in trading including USD/JPY and EUR/USD.” “Across the
board, CFD volumes are up in 2022 versus the same period in 2021. This has been
driven by a rise in <a href=”https://www.financemagnates.com/tag/indices/”>indices trading</a>, with volumes on the NASDAQ and the S&P500
indices up year-on-year,” Dan Moczulski, the UK Managing Director at eToro, told Finance Magnates.‘Growing Interest in Short-Position Trading’Furthermore, industry stakeholders are “seeing a
growing interest in <a href=”https://www.financemagnates.com/thought-leadership/the-best-trading-platforms-for-short-term-traders/”>short-position
trading</a>.” Retail investors are
also spreading out their investments across a range of asset classes, with some
of them “scaling back or switching to more defensive assets,” eToro points
out. “A lot of <a href=”https://www.financemagnates.com/tag/retail-investors/”>retail
investors</a> have adapted their
approach this year in the face of plummeting markets and this is being
reflected by an increase in CFD activity on the platform, particularly
shorting. So far this year, there has been a c.60% increase in short positions
opened versus 2021 (as of November 14, 2022),” Moczulski explained.For Capital.com, 30% of all trades on its platform
during the third quarter of the year were short trade positions. “Our data also
shows that the use of <a href=”https://www.financemagnates.com/thought-leadership/best-stop-loss-strategy-for-forex-trading/”>stop-loss
orders</a> — a risk management tool
to limit losses – was higher in Q3 with 12.3% of trades covered by a stop-loss
order, up from 11% in April-June 2022,” Zoumidou explained.‘A Commodity Super Cycle’ Another trend panning out in the industry has increased interest in commodity assets as recession fears force many investors
to shift their focus from forex assets. “With the market experiencing <a href=”https://www.financemagnates.com/institutional-forex/heres-why-the-commodities-super-cycle-will-continue-in-2022/”>a commodity
super cycle</a>, we are already seeing
an increase in our clients’ gold, silver, and oil CFD turnover. We expect this
trend to continue and possibly intensify in the short term,” Denis Golomedov, the Chief Marketing Officer at CySEC-regulated RoboMarkets, explained, adding that
there has been no decrease in trading volume from the broker’s clients.XTB, one of the largest stock exchange-listed FX brokers in the world, shares the same view. The broker noted
that it has observed a growing interest in the financial markets beyond just
individual asset classes as customers want to use the market situation for
profits and to diversify their investments.Are Customers Safe? To shield their clients from the impact of
global inflation and <a href=”https://www.financemagnates.com/terms/v/volatility/”>volatile
market conditions</a>,
brokers are making an effort to double down on providing up-to-date information
to their traders. “We have always understood that the most
important thing is investing is free access to knowledge and information, which
is why our customers have free access to a huge knowledge base and professional
courses,” noted Filip Kaczmarczyk, a Member of the Management Board of XTB. “In
addition, we are continuously expanding the Analysis Department in order to
inform our customers about the up-to-date situation on the financial markets,” Kaczmarczyk added.For its part, Capital.com said it has increased
its coverage of inflation and inflation-related content. Additionally, the broker boasts of being the
only trading platform to have an in-house editorial and film team committed to
delivering articles, explainers and analysis. “We help our traders make sense of inflation,
explain what it is and offer explainers around instruments like gold, and other
inflation <a href=”https://www.financemagnates.com/thought-leadership/mfp-tradings-minerva-turning-hedging-into-a-profit-centre/”>hedging
instruments</a>,” Zoumidou said.“Recently we have also launched bond futures
following demand from our clients,” eToro’s Moczulski added.For its part, RoboMarkets says it “systematically
and consistently” strives to improve its clients’ trading conditions by closely
monitoring clients’ preferences across different regions. “We are also
constantly working on adding new instruments for trading and investments,
thereby providing more opportunities for clients to hedge potential risks,”
Golomedov added.The Industry Resilience QuestionAccording to <a href=”https://www.ipsos.com/en/global-inflation-monitor-november-2022″>a new
36-country survey</a>
commissioned by the World Economic Forum, seven in 10 people (69%) expect
inflation to continue to rise in 2023, with the majority emerging from
Singapore (81%), South Africa (81%) and Argentina (80%). On top of that, the study found
that 79% of workers are expecting their real income to fall in 2023, with only
12% anticipating a raise at par with or above the inflationary trend.Will these expected trends impact the forex and
CFD trading industry? Will the vigor of trading and investing be maintained
during the coming months? Golomedov believes that this is
difficult to forecast because a lot of factors come into play. However, the executive
believes that the industry will adapt to these external
conditions. Furthermore, the
resilience of the market, it appears, lies in how traders respond to inflation.
As Kaczmarzyk points out, “inflation encourages people to get interested
in investing and protecting the capital they have accumulated.”Regardless, it remains important for traders to rethink their traditional long-only strategies amidst the current rising global interest rates by pivoting to new strategies to protect themselves from downside risks.“Risk management and education will be key to
the [industry’s resilience]. And how platforms deliver these to their clients
to help them navigate the uncertainty will be instrumental going forward,”
Zoumidou added.