CFD Indices
CFD Market Growth
We see the growth across our customers and ramped interest from prospects.
In 2020, almost 560,000 customers traded CFD products each month, a year over year increase of 32%. It has also been estimated that this number will reach 720,000 in the second half of 2021. In 2020, there were over 1,000,000 CFD-funded retail client accounts, and currently there are 110 different CFD trading platforms licensed by the FCA, which is driving the demand of contract for difference (CFD) market.
Admiral Markets posting growth largely fuelled via CFD Indices
By market type, stocks/equities segment recorded the highest market share in 2020 in the global contract for difference (CFD) market.
The Winning Picture
It's an area of growth. 74% of retail traders lose money. Use a Compass risk management strategy on the 26%, B-Book the rest, earning an additional 5-10$/M across the entire B-Book via liquidity reduction. Use auto-classification to manage this bifurcation to reduce time to action and keep operational costs low via automation.
Produce solid pricing which removes forms of temptation in the first place. Avoid single LP or a bridge provider dominating the offering to protect against problems with either
- LP continuity, single point of failure, poor pricing in illiquid hours
Bridge - latency issues can leave you vulnerable to arbitrage.
Attract customers by owning your own pricing spreads and market them (making sure your customers know they are on to a good deal. Produce tailored pricing models for your different types of liquidity.
Receive tailored trading advice and ecosystem awareness, with access to an extended team externally validated, plugged into multiple other similar teams facing off against a larger surface area of learnings in the FX + Crypto + CFD space.
Shared product discovery, prototypes and reduce your time to market. Use simulations to avoid costly mistakes and to accelerate learning.
Benefits of our CFD Product to Brokers
New Asset Class / Growth - if they don't have a CFD business
Counterparty Automation - management to avoid systematic exploitation of your rate. Target those 24% who are making money on your platform
Pricing Control - Can control the fees/spread as you want => different models for different clients. Choice Spreads
Liquidity Reduction - Judicious response to nefarious trading. Regulator friendly. Not blanket "markup" slippage
Global => protection against EA, Signals, Collusion, coordinated trading. Unexpected market moves. Slippage when liquidity is consumed faster than the published rate.
Counterparty => avoid the machine-gunners hoping to get TOB spread for large orders
External Sweep detection => Protects against dealing not full. Signal based liquidity reduction based on the detection of sweeps from elsewhere.
Skew -
reduce risk via skew (Covariance based equivalent position. not just direct Indices). Either people respond to the skew and reduce your risk. Or you earn more money to increase your risk.
increase risk via skew (in the view that long term client's behaviourally lose out)
flow imbalance skew following news (highly effective)
Flow Imbalance
Flow imbalance can be an alternative/complementary technique to Liquidity Reduction. It can improve PnL by $5-15/M or more. Flow imbalance exploits retail sentiment and herding.
Our predictivity framework obsesses over predicting price, but in this case we only need to obsess about predicting future flow imbalance. Retail flow imbalance is sustained i.e. the herding effect.
Simulations - Speed up learnings without risking capital Simulations & Backtesting
VaR management - highly correlated indices
Availability - Increase trading hours
Patchy LPs - Jump/Virtu is indicative quite a bit
Unique Competitive Advantages
Liquidity Reduction - This alone can result an increase of 5-10$/M across the entire B-Book
i) Swarm trading, colluding across brokers to move the market when there is low liquidity in the market. Make it more expensive for trader's to trade when this happens. Once you have this protection, these kind of damaging traders will go elsewhere.
ii) Slow down machine gunners. Machine gunning is when traders split a larger order up into a series of small orders and machine gun that order in to achieve a VWAP price at the TOB price rather than pay the full VWAP price published in a full order book.
The techniques applied are judicious and are a commensurate regulator-friendly response to nefarious trading.
Predictive - More predictive than just using that provider on its own. Can leverage other LPs market data even if it's using a different basis.
Flow Imbalance - Flow imbalance can be an alternative/complementary technique to Liquidity Reduction. It can improve PnL by $10/M or more. Flow imbalance exploits retail sentiment and herding.
Our predictivity framework obsesses over predicting price, but in this case we only need to obsess about predicting future flow imbalance. Retail flow imbalance is sustained i.e. the herding effect.
Sweep Detection - These days, even retail clients have access to multiple brokers via a single trading application (where they open a position, may not be where they close it.
CFD Normalisation - Can price with automatic failover even if your main provider goes down, but due to normalisation there won't be a "basis" adjustment price spike/fall.
Trading Consultancy - One of the recurring themes of feedback we receive from our clients is that we partner on a business and trading outcome basis. We're here to help and will always provide create and innovative solutions. Read more about our Vision & Values
Benefits for Users of CFD/Spread Betting
More flexible trading for users than a share portfolio
Can short indexes
Can trade on margin (less capital requirements)
Trade instantly vs share/index transactions can be day/hours settlement
Can profit even in turmoil
Can be tax efficient, offset losses / no stamp duty on profits
Hedge a share portfolio
References
Monthly volumes changed a lot since pandemic:
- Exness - 2.48T
- IC Markets - 2.84T per month
- XM - have 60 servers to manage flow - likely to be around $750bn (competing with IG in USA)
- Libertex $1bn a day in just XAU
- Trademax (TMGM) - $150bn
Source: https://www.compareforexbrokers.com/forex-trading/statistics/#IC-Markets
Additional AVDT: http://www.wvwv.org/forex-brokers/largest-forex-brokers.html
