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

April 25, 2008

Abstract

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 info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA April 25, 2008

Executive Summary 03
Introduction 05
  Methodology 05
The UK Retail Investor Market 07
  Retail Investor Segments 07
  Getting into the Heads of Active Traders 11
Products and Markets 18
  UK Personal Wealth and Financial Asset Selection 18
  Changes in the Mix of Household Assets 19
  CFDs Carving a Niche 23
  Overview 23
  Trading Volume 23
UK Brokerage Market 28
  Overview 28
  Market Leaders 29
  Consolidation Wave 31
  Trading Fees and Commissions 31
  Retail Investor Outreach 32
  Outlook 33
CFD Provider Market 35
  Overview 35
  Players, Strategies, and Distribution Channels 36
  Outlook 38
Conclusions and Outlook 40

 

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