Despite the small size in volume size, forex trading in Spain is an active industry with promising growth opportunities. Here are 3 interesting facts about it.
Spain is a country known for its vast size and population. The country's well-established financial market began from Bolsa de Madrid which has operated as a stock exchange since 1831. However, given the impact of the coronavirus pandemic and current geopolitical unrest, it's essential to assess the state of the local retail forex and Contracts for Difference (CFD) industry. So, what are the prospects for forex trading in Spain?
Get in Touch with CNMV
Suppose you want to start a brokerage business in Spain. In that case, you can contact the National Securities Market Commission (CNMV), the local regulator responsible for supervising and licensing the financial markets and entities, including FX/CFD brokers. As a member of the European Union, the CNMV has collaborated closely with the European Securities and Markets Authority (ESMA), applying unified laws for trading in leveraged markets for retail investors since 2018.
With a population of almost 50 million, it's estimated that over a million people actively invest in the local financial markets, primarily seeking additional security for retirement. But, it's unclear what percentage of these investors are interested in the forex market.
"Based on a study published by eToro investment platform regarding the Spanish market, it is oriented toward retailers. In Spain, one in three novice investors is between 18 and 24 years old. If new investors aged between 25 and 34 are also added, 54% of the total for this group is reached. The platform ensures that 17% of its current users in Spain have arrived during the COVID-19 pandemic, a more than significant percentage," commented Renato Cassinelli, a market expert and analyst from Spain.
Over 50,000 Individuals in Spain are Actively Engaged in Trading FX and CFDs
According to data from the analyst firm Investment Trends, the number is similar to the number of active retail traders in other large European countries like Germany and Poland. The coronavirus pandemic significantly impacted the increase in retail trader activity in these markets, peaking in 2021.
Although there has been a decline in active traders since the beginning of last year, the activity level has remained higher than in the pre-pandemic period.
The Associate Research Director at Investment Trends, Lorenzo Vignati, stated that the number of Spanish traders in CFDs or FX has started to ease following the surge in 2021, but it is still higher than in the pre-pandemic era. An estimated 53,000 unique individuals placed an OTC leverage trade in the 12 months to March 2022 and intend to continue trading. The number is down 16% from 2021 but up 8% from 2020.
Vignati suggested that the numbers could be even higher than they currently are, remaining at pandemic levels or potentially increasing if it were not for rising rates of trading dormancy.
However, retail investors who entered the FX/CFD market 1-2 years ago and made some initial bets were discouraged by the losses and high volatility during that period. As a result, they did not continue to invest, at least in the OTC market actively.
"The drop in trader numbers was primarily driven by a trifecta of factors: smaller inflows of new-to-market traders, lower reactivation of dormant traders, and higher dormancy rate compared to 2021. In particular, traders going dormant increasingly cite a preference for other products as reasons for not continuing with CFDs/FX; indeed, a substantial overlap exists between CFDs and listed derivatives trading, with the former acting as a feeder to the latter," Vignati added.
In comparison, France had a much lower number of active FX/CFD traders, with only 38,000 people engaged in trading. On the other hand, leveraged trading remains the most popular among British residents living on the European continent, with 275,000 individuals participating in at least one such transaction in the last 12 months. This represents a significant increase of 92% compared to pre-pandemic levels.
Initial Deposits Exceeding $1,000
One of the regular features in articles discussing retail Forex and CFD industries in different countries is deposit data. cPattern has provided insight into how the average deposits, withdrawals, and first-time deposits (FTDs) have changed month by month. For the Spanish market, the data available covers only the period from July to December 2021. Nonetheless, the averages presented are consistent with those of other countries with similar populations and financial market structures, which makes them statistically significant.
In the reported period, the average monthly deposit was $5,242, while the average monthly withdrawal was much lower at $3,258. Additionally, first-time deposits (FTDs) were high, averaging over $1,000 in the second half of last year, which is higher than in France or Germany but comparable to the UK market.
Furthermore, the popularity of cryptocurrency transactions is rapidly increasing, with 9% of the Spanish population (approximately 4 million people) already using or owning cryptocurrencies like BTC, as reported by Cassinelli. He concluded that high returns, huge volatility, and persistent media attention have propelled cryptocurrencies to the forefront of news cycles. The younger generation is more willing to accept the risks of working with a relatively young market rather than maintaining the traditional status quo.