The UK Retail Trading and Securities Market: Winning the Hearts and Minds of Frequent Traders

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25 April 2008


New York, NY, USA April 25, 2008

UK retail investors are more likely than ever to handle their own portfolios. Their demand for new products and distribution channels has risen, reshaping the competitive landscape of the UK retail brokerage market.

The stock market decline from 2000 to 2003 has had an enduring impact on the savings and investment culture in the UK. This is reflected in the decline of direct investment in equity and mutual funds as well as the rise in insurance and deposits over the past seven years. Strengthening equity markets have failed to translate to a rush into equities by retail investors. At the same time, a by no means new product has become one of the UK’s fastest growing investment vehicles: Contracts for Difference (CFDs). CFDs are equity derivative products which allow investors to profit from share prices’ rising and falling by going long or short, while benefiting from leverage and current exemption from UK stamp duty. Retail trading volumes of CFDs are on a steady upward trajectory, as investors increasingly turn to them to hedge against falling prices and profit from recent market turbulence.

A major driver of this development is the growing segment of active traders in the UK. While they constitute only a narrow segment of the total number of retail investors in the UK (4-6% as of year end 2007), they often become heavy users of their firms’ online trading platforms and may constitute a significant portion of online trading volumes. A Celent survey into the attitudes and attributes of UK active traders shows that this group is more open to exploring emerging investment and traded products than their counterparts in other European economies. A remarkable 45% of this segment is always looking for new products to trade. Hence, UK brokerages aggressively market to active traders by means of special pricing, education activities, and exclusive call center support to hold on to their share of this lucrative segment.

In a new report, The UK Retail Trading and Securities Market, Celent aims to tackle the current structure and dynamics of the UK retail investment market by providing answers to the following questions:

  • How do retail investors in the UK segment by risk appetite, trading frequency, and degree of self-direction in investment decisions?
  • What are the attitudes and attributes that influence the lucrative segment of active traders when making investment decisions?
  • Which types of products are attracting UK retail investors? How is the competitive landscape evolving?
  • What strategies are incumbents and entrants adopting to cope with an altered competitive landscape?

"While the UK retail equity market is expected to see a correction in the course of 2008, market conditions are positive for CFDs. Investors will continue to look for shelter in CFDs in a period that is likely to be marked by sharp volatility and sliding equity markets," notes Isabel Schauerte, an analyst with Celent’s Securities & Investment group and co-author of the report.

"The UK brokerage industry is headed for further shakeout. MiFID will reduce trading costs for the subset of financial firms that have the scale to become systemic internalizers, providing them with a competitive advantage," she adds.

The 39-page report contains 28 figures and three tables. A table of contents is available online.

Members of Celent's Retail Securities & Investments research service can download the report electronically by clicking on the icon to the left. Non-members should contact for more information.