In 2020, the number of accounts in CFD (contract for difference) trading grew by 32% to just under 261,000. According to a study by the CFD Association, the number of transactions and the traded volume have also increased significantly compared to the previous year. The corona pandemic played a key role in the development of the CFD market in Germany.
In this article we offer you a CFD comparison. We also deal with the question of CFD trends in Europe and the development of the CFD market in Germany. But let’s start from the beginning: What is CFD trading?
About CFD trading
The term CFD trading means trading in contracts for difference. Private investors speculate on falling or rising prices in international financial markets or individual financial products. If the trader has correctly predicted the price development, he can book the difference in the prices at the time of buying and selling the CFD as a profit. In contrast to warrants, CFDs are leverage products that are issued by banks.
CFDs are offered for a wide range of financial investments, e.g. stocks, ETFs, FX, ETFs, commodities, Bitcoin, Dogecoin, Ethereum and many others. The financial regulations enforced by the FCA have limited leverage and risk for traders by setting a cap on leverage and protecting against negative balances.
Profit from CFD trading
The equation behind the profit on your position is based on the difference between the buy and sell price minus any fees incurred in holding the position. Costs such as holding and opening the position are automatically deducted from your CFD account. The buy / sell price – initial buy / sell price – interest cost x days – transaction cost = profit or loss.
Trading CFDs on a margin means exponential gains based on the initial investment, but also the risk of increasing any losses. To manage risk when trading CFDs, traders should be aware of position size and how to use a stop loss.
CFD broker comparison
Trading in CFDs has only been possible in Europe since 2006. Although there has been regulatory resistance to trading CFDs in europe for a long time, these have been enjoying increasing popularity in recent years. This even goes so far that Germany is now the fastest growing market for CFDs. One reason for this is the EU directive on markets for financial instruments, which led to the rapid growth of CFD brokers operating in Europe.
The fastest growing and best CFD brokers in Europe include Avatrade, XM and eToro. Before online CFD trading enjoyed great popularity, most Europeans had to make do with British CFD brokers. That is why British CFD broker firms have opened branches in Europe to meet this demand. We have tested the best CFD brokers to make a CFD broker comparison. for more information, yous can also see a liste of the best broker on 1broker.org
The best CFD brokers in comparison
Skilling – 800+ instruments
A newcomer to the German market with an intuitive trading platform and a trading app with zero commission, which is very useful when trading CFDs. This CFD provider has been growing rapidly since the corona crisis, thanks to its top products with +800 instruments, regulated by FCA and CySEC. The CFD broker opened in 2016 with offices in Great Britain, Malta, Spain and Cyprus.
eToro – Number 1 in Social Trading
A listed CFD broker company with roots in Israel, with a wide range of +800 titles and regulated by the FCA, CySEC and ASIC. eToro is an established trading platform that was started in 2010 and is primarily characterized by its social trading. You can open a CFD account with this broker very easily. There are just a few steps to take before you start trading CFDs.
Plus500 – High-Trust Broker
A leading CFD trading platform, listed in London, +2000 shares. This CFD broker is regulated by the FCA, CySEC and ASIC. Plus500 has been operating as a CFD provider since 2008 and subsidiaries are regulated in several countries around the world including the UK, Singapore and Australia.
Development of the CFD market in Germany in 2020
The CFD market in Germany was dominated by the corona pandemic in 2020. This can be seen in particular from a few important key figures:
CFD number of accounts:
At the end of 2020, the number of CFD accounts in Germany was 260,920. As a result, the CFD market recorded a drastic growth of a whopping 32%. For comparison: in 2019 the number of accounts had decreased by 2.6% compared to the previous year. The number of accounts totaled 260,920 at the end of 2020, an increase of 32% compared to the previous year
The traded volume also grew enormously, from EUR 1,068.7 billion in 2019 to EUR 2085.5 billion in 2020. This corresponds to a growth of 95.1% – in the previous year the CFD market was still around 32.2 % shrunk.
Number of transactions:
A similar picture was observed with the number of transactions: around 110% growth to almost 92 million transactions, which was also a record increase.
Distribution of transactions according to base values:
In 2020, equity indices were the most popular base value when using CFDs, accounting for around 89% of the volume traded. The DAX had the largest share (57%), followed by the Dow Jones (33%).
Volume traded per transaction:
Compared to the previous year, the traded volume per transaction decreased by 7% to EUR 22,684.
How can the growing popularity of CFDs in Germany be explained?
Corona-related turbulence on the stock market undoubtedly played a decisive role in these new record values. The managing director of the CFD Association Germany Rafael Neustadt said:
“The past year clearly shows how high the demand from investors is for
Financial instruments is with which you can respond to market events as flexibly and as possible
react efficiently or be able to protect yourself against them. And especially with this one
CFDs clearly play a fundamental role in hedging. “
How has the corona pandemic affected CDF trade?
In particular, two key effects of the corona pandemic on the CFD market can be observed. On the one hand, market participants reveal increasing risk awareness due to fast-moving markets, which in turn is reflected in their trading behavior. This is evidenced by the lower trading volume per transaction. “The fast-moving markets apparently have an impact on the trading behavior and risk tolerance of investors; this is how you trade lower volumes, but more often, ”says Rafael Neustadt.
On the other hand, the corona pandemic led to an enormous increase in depot openings. This was particularly evident in the retail sector, where three-digit growth rates could be observed in some cases. This is another indication that risky financial products such as CFDs are increasingly gaining acceptance among normal investors. At the same time, German CFD traders still seem to be more cautious than their British counterparts. A wave of traders speculating with “meme stocks” a la Gamestop, especially in the short term, has not yet occurred in Germany.
Why do Germans trade CFDs?
Compared to risk-taking investors, for example in Great Britain, German CFD traders are above average willing to take risks, but also have above average experience. According to a study by the CFD Association, 83 percent of those surveyed use CFD trading in Contracts for Difference as a short or medium-term instrument. However, you use more than half to hedge positions in other products.
In addition, 31 percent of those surveyed have been trading on the stock exchange for at least two years, and a further 40 percent for more than five years as private investors. In addition to CFDs, 69 percent also invest in stocks. Only 33 percent trust their gut instinct when making investment decisions, but a whopping 81 percent name technical analysis as the most important criterion when making investment decisions.
“CFD investors apparently know exactly what they are doing,” says Rafael Neustadt and continues: “This makes it clear that they are a good instrument for market participants who have experience and therefore can and want to act independently.”
CFD trading trends in 2021
Compared to the same quarter of the previous year, the volume traded grew again by 2.2 percent in the first quarter of 2021. The number of CFD accounts in Germany rose to 277,000, which corresponds to an increase of 24 percent compared to the same quarter of the previous year. Despite a legislative change hastily passed at the end of 2020, which introduced a restriction on loss offsetting for futures transactions and thus disadvantaged CFD investors, the boom in this industry continues. Rafael Neustadt, Chairman of the CFD Association:
“It is extremely questionable that, despite their obviously great need and growing interest in CFDs, the latest version of the Annual Tax Act will put obstacles in the way of trading in Contracts for Difference. The passage in the Annual Tax Act, which concerns the limitation of loss offsetting, is unconstitutional in our eyes and makes the entire law a bad construct, ”explains the association’s managing director.
“If the state participates in the case of price gains for investors in the form of taxes, but then caps its participation in the event of losses, this can in special cases ensure that the bottom line is that an investor makes losses but still has to pay taxes. Against the background of this obvious imbalance, we demand that the law be improved at the next opportunity and that the regulation of tax loss offsetting in particular be abolished in the coming legislative period, ”Rafael Neustadt continued.
Despite this questionable treatment by the legislator, the demand for CFD accounts is growing steadily. Therefore, at the moment there is nothing to suggest that the CFD trading market will cool down anytime soon.
How to choose the right broker for CFD trading
When deciding on a trading platform for CFDs, there are several points to consider in order to choose the right CFD broker. Our CFD broker comparison has named 3 trading platforms, Skillin, eToro and Plus500. However, you can do a CFD broker test yourself. Please note these points:
- · Pricing
- · Fees and Commissions
- · Market accessibility
- · Opening hours
- · Account balance and deposit security
- · Functions of the order platform
- · Market tools and educational offers