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Home » Popular Markets » Economics » Pro traders: we like leverage but retail money should stay away

CloseCross, the blockchain-based derivatives trading platform, has carried out tailored research among professional investors around the world responsible for around $380 billion in assets under management. The trading platform found 90% believe leveraged trades will play a bigger role in stock pricing, but they are warning retail traders to steer clear.

Around 65% believe the increasing role for leveraged trades is healthy for financial markets while 25% worry it is bad for them, the study for CloseCross, which is regulated under MIFID II rules, found.

However professional investors including hedge funds, wealth managers, institutional investors, fund managers and IFAs are concerned about the impact on retail traders. Less than one in five (18%) professional investors believe retail traders should use leverage for trading. This is despite restrictions imposed in the UK and EU which have radically dialled down the level of leverage smaller traders can access.

Retail investors don’t understand leverage – 44%

Around 44% of pro investors warn that retail investors do not understand leverage well enough while 37% say using leverage makes it more likely retail investors will get into financial difficulties and 36% believe escalating potential losses for retail traders is wrong.

The professional investors interviewed are forecasting an increase in the trend towards investing in assets through derivatives. Up to 78% believe it will increase over the next 12 months with 24% predicting a significant increase.

CloseCross CEO, Vaibhav Kadikar, said: “Leveraged trades are an important tool for professional investors but potentially very risky for retail traders and it is interesting to see that professional investors recognise that. The forecasted growth in derivatives trading is an example of that. The global market is worth around $1,200 trillion a year but has always been highly concentrated and exclusive with issues around complexity, difficulty of use, high costs and unquantified risks stemming from leverage and margin call liquidations. All these are absolutely unnecessary.”

CloseCross is seeking to build a reputation for itself around transparency, free access to the crowd wisdom and offering potential outsized returns without the need for leverage. Money placed on incorrect predictions is lost, but traders never lose more than what they put in.

There is no margin trading or surprise liquidations on the platform, which is tailored to meet the unmet demands of the retail trader.

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CloseCross is regulated under MIFID II rules offering increased protection and transparency for customers. Unlike other trading platforms, there are no participation fees for using CloseCross, and its patented multiparty model ensures that leverage is not needed to achieve potentially outsized returns. Users pay facilitation fees, only on their winning trades, giving them significant savings when compared to traditional trading platforms.

The platform also provides real-time data on the predictions of other traders enabling investors to make a more informed forecast based on increased transparency. TTraders can choose to follow the crowd or go on their own views.

Investors can try a demo and subject to appropriateness assessment process, investors can sign-up and trade by selecting an asset class and making a forecast over a time frame of a few hours or over months.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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