You may just simply palm contracts for difference (CFD) off as something that is just for those city suits that are anonymous to you. The figures on the amount of people doing it will make many sit up and take notice though.
According to FT.com, a report by global wealth researcher Investment Trends suggests that the number of private investors trading CFDs has risen by 40% and that they’re steadily outperforming spread bettors.
Trading numbers were up from 18,000 to 25,000 in the year to October 2010 after the group interviewed a sample of around 13,000 traders.
The popularity of CFDs meant that both Paddy Power and Betfair were amongst the companies to dabble in the market over the past year or so both with contrasting results. Paddy Power’s service is performing steadily but the fledgling LMAX project that Betfair is a part of saw the CEO resign last week as it continues to struggle.
According to the 2010 UK Financial Spread Betting and Contracts for Difference Reports, it’s also expected that the number of CFD traders will rise by a further 9,000 in 2011.
In terms of CFD traders outperforming spread bettors the report found that they had an average return of 20% compared with only 9% for spread bettors. In addition the CFD traders reported far fewer losses than their spread betting counterparts.
It supports the notion of many retail investors that have been attracted by the potential to make a quick buck on CFDs. Well that’s if the market goes their way. If it doesn’t then they’ll be in for a hefty loss.