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Sharp increase in online ETF trading

A new breed of savvy retail investor is emerging, in spite of market volatility. They use institutional techniques such as FX trading, contracts for difference (CFDs) and ETFs to boost returns.

They are also trading more than ever. A fifth (22%) of investors have traded even more in recent market conditions to take advantage of opportunities and 27% of online investors trade on a weekly basis, a report from Barclays Wealth says.

Within the last decade, online trading has increased from 0.1% to 85% of trades and there has been a sharp increase in the usage of products such as FX trading, CFDs and ETFs amongst online investors in the last 12 months.  While just a few years ago individual investors could only dream about having the same resources available to them as institutions, the landscape has quickly transformed and technology, products and services have developed at such pace that private investors are fast catching up with the professionals, Barclays says.

Even in periods of extreme market volatility, the new investor, dubbed 'Instividuals' has increasingly found opportunities to boost returns on their investments.  One in seven (14%) investors have still traded regularly throughout the last year and over a fifth (22%) have actually traded more than usual because there have been so many opportunities.

In periods of volatility, Barclays Stockbrokers typically sees a spike in purchases as clients trade on falling markets to boost returns.  On Friday 10 October, which some dubbed 'Black Friday', when the FTSE fell to 3932.10, 73% of trades were buys compared to 27% sells.  Banking stocks and the financial sector have driven most of the equity trading activity, with investors accessing stocks at a significant discount compared to recent months.  It is not just active clients who are trading in these conditions; clients who are typically less active placed 68% of trades, over the phone or through certificates. 

Des Byrne, managing director and head of Barclays Stockbrokers, says: "like the 'dot com' boom, people are dipping their toes in the water for the first time, but the difference this time is they are equipped with knowledge, not to mention that this is happening when the market is weak and cheap, rather than strong and expensive.  We have seen investors becoming increasingly savvy about their investments through a time of extreme turmoil within the markets and they are taking things into their own hands when making decisions."

Institutional techniques

Individual investors now use a wide range of sophisticated products to execute their trading activity. There has been a marked increase in usage of products such as FX trading, CFDs and ETFs in the past year as online investors have been diversifying their portfolios to protect them against market volatility. Just under a third of online investors said that they were already using FX trading (up 6% to 30% from the same time last year), 26% spread trading (up 9%), 14% CFDs (up 5%) and 23% Exchange Traded Funds (up 9%).

In recent market volatility, investors have been using these sophisticated techniques to gain returns.  Currency markets have been extremely volatile in recent weeks but investors have been taking advantage of this, on Monday 13 October the most heavily traded pair on the Barclays Stockbrokers FX platform was GBP/USD as clients reacted to falling sterling.  In September, volumes in FX trading doubled month on month.

Profile of 'The Instividual'

When it comes to their day-to-day investing behaviour, online investors like to take control of their investment decisions.  Barclays Wealth research found that 74% (up 4% year on year) had full control over their investment decisions, 25% felt they had started to gain more control and just 2% relied on advice from investment professionals.  The proportion of online investors trading on a daily basis is up by more than 100% year on year.  On average, 16% of online investors trade daily (up from 7% last year), more than a quarter (29%) trade every week, while 16% trade once a month.  One in ten online investors (11%) trade over £5000 and 21% trade between £1000 – 2000.

Frequency of trading is related to age with those investors that trade daily or weekly more likely to be in the 17-24 age bracket (38% trade daily and 23% weekly).  The next most active investors are aged 25-34 where 22% trade daily and 44% weekly.  There is little distinction between male and female investors with 16% of men and 13% of women saying they trade daily (and 30% versus 26% weekly).

Byrne says: "The growth of direct trading is a real challenge to the status quo.  We expect to continue to see fast evolution in the market as clients become more sophisticated and demand more efficient and transparent trading.  With markets set to stay rocky for some time we expect  the 'Instividual' investor will continue to grow in confidence and to employ institutional techniques to achieve returns."

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