Platform sees uptick in trading thanks to market swings and global trade uncertainty
One man’s meat is another man’s poison rings true for market volatility, which returned last year after a decade-long rally since the 2008 financial crisis.
And Michael Yeung makes no bones about the fact market swings and Trump tweets are good for business because it means more opportunities for speculative trading.
As Head of Canada for CMC Markets Canada, trading volume has picked up since October onwards, with clients attracted to the platform’s scope of products and the ability to short everything, specifically the US indices.
Yeung might also be one of the few people who looks forward to the Twitter activity of US President Donald Trump, although he admits he does his personal trading on a Monday-to-Friday basis to avoid any unexpected weekend social media activity from POTUS.
He told WP: “It’s not just Trump obviously – although he’s a great headline - but there’s so many things that happen. There’s always something on the currency side – the world is so connected now that there’s always trading opportunities.
“But it’s always good to have a headline figure that everybody likes to speak about; it keeps everyone in tune with the market and interested.”
So why CFDs (Contract for a Difference)? How should speculative trading fit into a portfolio? Yeung said it’s all about risk appetite and having a small allocation available for shorter-term speculation. He advises a broad base, an RRSP made up of GICs and mutual funds, for example, before expanding that portfolio pyramid with commodities or minor leveraged currencies or indices. Then the tip – around 5% - can be where CMC Markets comes into play.
He said: “Where you see an opportunity and want to participate to get some exposure in oil or natural gas, for example, you at least have this kind of account to take advantage of it.”
He added: “Everyone is different but I think everyone should have variety otherwise you miss opportunity. As long as you keep that side of your portfolio reasonable you have very little to risk as well.”
CFDs are niche but Yeung believes in the next two years they will grow in Canada, and CMC Markets’ plan for the country includes entering the institutional space to provide more access for money managers. He added that CMC has 80,000 clients globally and that Canada’s retail volume has grown 300% in the past four years.
With volatility now expected to be a constant for the months ahead, Yeung said the ability of CFDs to long and short brings significant advantages.
He said: “The markets are so inter-related these days and the depth of product is so wide that if you just have a stock account, you will just be exposed primarily to equities. You won’t have visibility on currencies, which have a huge impact on the indices of the world, and you wouldn’t have that much visibility in commodities, for example.
“If you have money tied up in Canadian stocks, we all know that Canadian gold and oil move the Canadian dollar and indices, so you are trading with a lot of blind spots if you are trading just on a stocks platform.”
CMC has access to stocks but also 50-plus commodities and global indices, the interaction of the currencies, and the client sentiment from around the world, enabling you to see where the money is moving.
“The markets have helped us,” Yeung said. “There’s always news and always people wanting to speculate on a wide range of products. We don’t see this volatility going away anytime soon, so I think there’s a good future for CFD trading in Canada.”
Some clients are coming to the table this year looking to hedge the market to make up losses suffered in 2018. CMC Canada's client base is made up largely of individuals but Yeung sees Canada going the same way as Europe and Asia Pacific and incorporating more advisors into the products.
“It’s a good opportunity in Canada,” he said. “There are some differences and reasons why Canada is a bit behind institutional usage of CFDs – primarily, it’s the leverage limitations that are here.
“Institutions elsewhere are able to hedge much larger positions with a smaller deposit than is allowed in Canada, which is why it’s still attractive for investors elsewhere but in Canada we are still handicapped by that.
“It’s part of our business plan and I see growth in this area; maybe in two to three years we will probably see an expansion of use of CFDs in the institutional world. It’s something that CMC, being a pioneer here in the space, will help to drive and push.
“It’s grown on the retail side decently in the last five years. I think it’s mature enough to start bringing this out to the institutional world. So keep an eye on that space for sure!”