Today, the Australian Securities and Investments Commission, or ASIC, has published some troubling news. During the Time of 16th of March to the 22nd of March of 2020, 12 Australia-based Contracts For Difference (CFD) providers had their retail clients report AU$234 million (150.32 million USD) in net losses. Australian CFD providers account for approximately 84% of market shares.
Massive Rise In Client Losses
Mainly, ASIC had published a report regarding the trading activities of retail investors during the heightened volatility brought by the COVID-19 pandemic. Australia’s securities and CFD brokers have seen a massive influx of new retail client accounts, as well as overall trading volume. Now, it seems that the regulator has noticed a new increase in these exchanges: That of client losses.
These losses, as highlighted by ASIC, have been attributed to AU$234 million in net losses, with AU$428 million (274.96 million USD) in gross losses. However, it should be noted that these numbers are based on only 12 CFD providers, so the probability that the aggregate losses for retail clients during this week could be higher across Australia’s industry.
Clients Owing to CFD Providers AU$4 Million
ASIC explained that fast-moving markets could leave room for prices to gap, allowing for the initial investments to be exceeded by the losses gained. The Australian watchdog explained that many accounts of retail clients went into the negative balance in the week that commenced on the 16th of March, 2020. The Australian regulator stated that 5,448 individual retail client accounts spread across the 12 providers it sampled went into a negative balance.
While this only consists of approximately 2% of the total retail client accounts that traded during that week, they still managed to go into an aggregate negative balance value of -AU$4 million (-2.57 million USD) to the various CFD providers. What this means is that the clients lost their initial investments, then proceeded to owe another AU$4 million to the CFD providers as a whole. Some of the providers were forced to absorb these losses themselves, according to ASIC.
Everything Is Increasing
Through the report, ASIC examined the Australian securities and CFD market from the 24th of February, 2020, all the way to the 3rd of April, 2020, referred to as the Focus Period. During this time, the Australian watchdog stated that the average retail investor did not have proficiency when it came to predicting the short-term market movements over the period they were trading.
ASIC suggested that the client losses had increased during this time, but so had trading activity as a whole. Retail brokers, in particular, recorded average daily securities market turnovers of AU$3.3 billion during the focus period. This is AU$1.6 billion more than the average of the previous six months.