ASIC analysis reports greater market risks for retail investors

ASIC reported an increase in retail activity across the securities market during the Covid-19 period. The Commission’s market analysis shows greater exposure to risk for investors. ASIC has found that some retail investors engage in short term trading strategies unsuccessfully attempting to time price trends.

ASIC observes increased trading frequency, rise in the number of different securities traded per day and the duration for holding the securities has considerably decreased which indicates a troubling rise in short-term and ‘day-trading’ activity.

The turbulent environment of the market increases the risk of loses, especially for retail investors.

ASIC office

ASIC’s analysis revealed that during the focus period, on over two thirds of the days on which retail investors were net buyers, their share prices declined the following day. When retail investors were net sellers, their share prices more likely increased the next day.

The analysis also observes sharp increase in the number of new retail investors to the market by a factor of 3.4 times and rise in the number of reactivated dormant accounts.

ASIC shared concerns about the critical rise in retail investors’ trading in complex, high risk investment products such as highly-geared exchange traded products, but also CFDs.

During the period of heightened market volatility, CFDs trading has increased considerably. ASIC cautions retail clients about investing in leveraged products at this time. The Commission gives an example a week in March when retail clients’ net losses from trading CFDs were $234 million for a sample of 12 CFD providers.

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