The equity markets are down but retail investors, or individual non-professional traders, are seeing opportunity ahead of mounting risk.
What is more, these so-called mum and dad investors are being warned by the Australian Securities and Investment Commission (ASIC) to stop ‘playing’ what has become a very volatile share-market.
The COVID-19 Emergency has created new retail accounts at 3.4 times the rate of what is usual, prompting the securities regulator to warn investors against trying to time market rebounds in volatile conditions.
"What worries us is that (the strategy by) people (of) chasing quick profits and playing the market has been shown generally not to be particularly effective," Greg Yanco, ASIC's executive director of markets, told the Financial Review.
In a public statement ASIC was blunt: “We found that some retail investors are engaging in short term trading strategies, unsuccessfully attempting to time price trends.”
“Trading frequency has increased rapidly … indicating a concerning increase in short-term and ‘day-trading’ activity.
“Even market professionals find it hard to ‘time’ the market in a turbulent environment, and the risk of significant losses is a regular challenge."
“For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families,” ASIC warns.
The higher probability and impact of unpredictable news and events in offshore markets overnight only magnifies the danger.
ASIC is therefore particularly concerned by the significant increase in retail investors’ trading in complex, often high-risk investment products, including highly-geared exchange traded products and also Contracts For Difference (CFDs).
Leverage inherent in CFDs magnifies investment exposure and sensitivity to market volatility, so retail clients should be particularly cautious about investing in leveraged products at this time.
In the week of 16-22 March 2020, for example, retail clients’ net losses from trading CFDs were $234 million for a sample of 12 CFD providers.