ASIC tells retail investors to stop trying to go pro
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Australia’s corporate cop is annoyed with retail investors trying to copy the professionals and has even pleaded with amateurs to think of their families.
ASIC issued a warning to Australia’s amateur traders that even professionals find it hard to time the market, and for retail investors to attempt the same was “particularly dangerous”.
“ASIC analysis of markets during the COVID-19 period has revealed a substantial increase in retail activity across the securities market, as well as greater exposure to risk,” the regulator worried in a report today.
“[It is] likely to lead to heavy losses – losses that could not happen at a worse time for many families.”
While all of this may sound paternalistic from the regulator, it has data proving wannabe day traders haven’t covered themselves in gold.
A report covering the period February 24 to April 3 found for more than two thirds of the days on which retail investors were net buyers, their share prices declined over the next day.
“For more than half of the days on which retail investors were net sellers, their share prices increased over the next day. If all retail investors held their positions for only one day, total losses would have amounted to over $230m,” the report said.
In the period under review, 140,241 new accounts were set up and dormant accounts revived, about 3.4 times more than normal.
Retail investors also chose the volatile March-April period to become very keen on highly risky products.
Geared exchanged traded products, oil-related financial instruments, listed investment funds and trusts (although these are usually considered safe), and Australian real estate investment trusts.
More worryingly, there was a significant increase in interest for contracts-for-difference or CFDs particularly in mid-March.
“Compared with unleveraged investment in securities like shares and ETFs, CFD leverage magnifies investment exposure and sensitivity to market volatility,” the report said.
“For a $1,000 investment in a CFD over shares with a leverage ratio of 20:1 (i.e. providing $20,000 exposure), the loss is $1,000 — 100 per cent of the initial investment amount.
“We commonly see CFD leverage ratios of up to 200:1 for CFDs over securities market indices, and up to 500:1 for CFDs over currency pairs.”
Over March 16-22 retail investors made net losses of over $234m on CFDs and 5448 accounts at the 12 main CFD providers owed over $4m at the end of that week.