The past year on the stock market will undoubtedly go down in history, which is also and especially evident from the example of CFDs. In 2020, the contracts for difference in Germany achieved higher sales than ever before: a total of more than two trillion euros were moved with CFDs in this country over the entire year, an increase of almost 100 percent compared to the previous year. In the fourth quarter alone, sales were just under 546 billion euros. This enormous plus in and of itself allows only one conclusion: More and more investors are relying on financial instruments with which they can make better and more timely use of opportunities on the stock market than with traditional securities. Especially in markets where the direction of development changes rapidly. The run on CFDs expresses one thing above all: the desire of stock marketers for the greatest possible flexibility.
Confirmation of this is provided by a recent market study that the CFIN Research Center for Financial Services has carried out on behalf of the CFD Association. In a representative survey of more than 1,000 CFD customers, a good 80 percent stated that they carried out short and medium-term speculations with contracts for difference – and anyone who has witnessed the volatility of prices in the past year knows that there are opportunities in abundance have revealed. The demand for CFDs should also have benefited from the fact that they can be traded in both directions, namely that CFD buyers can not only bet on rising but also falling prices.
The study by the CFD Association also reveals that there are also conservative investors among CFD fans – who in turn use the contracts for difference to hedge their positions. Speaking of security: Risks are fundamentally an issue for CFD buyers – 70 percent of those surveyed said they use money or risk management instruments when trading CFDs, such as stop-loss orders. But the other advantages that CFD buyers see as decisive criteria for these instruments were clearly named in the CFD study, such as the simplicity and comprehensibility of the product or the smaller minimum trade sizes. It also became clear that CFD buyers know what they are talking about, because the study also provided information on the subject of experience: 31 percent of those surveyed have been trading for at least two years, another 40 percent for more than five years.
In any case, the year 2020 has impressively shown the high value investors attach to instruments with which they can enormously increase their flexibility, such as with CFDs – two trillion is a number that does not lie.
Rafael Neustadt is the managing director of Contracts for Difference Verband e.V. (CFD Association) and has been active in the CFD industry for 25 years. After working for Deutsche Bank in Düsseldorf for a few years, he helped found the FXFlat Wertpapierhandelsbank, of which Rafael Neustadt is also the managing director.