European retail traders turn to futures as sophistication increases

Retail traders across Europe increasingly trade in listed futures and options markets as regulatory curbs hit traditional retail instruments and educational efforts boost sophistication. Eurex spoke with Dominic Schorle, Business Development Manager at WH SelfInvest and Vincenzo Zinnà, Equity and Index Sales EMEA at Eurex, about what is driving the growth of retail investment and what it means for strategies and approaches to the market.  

Retail trading in Europe has traditionally been focused on OTC products such as CFDs, turbos and certificates. However, recent regulatory moves in numerous European countries to reduce the risk of losses incurred by retail traders, have resulted in curbs on marketing of certain products. In response, retail traders are increasingly turning to listed derivatives.  

Dominic Schorle, Business Development Manager at WH SelfInvest, a brokerage that provides a range of instruments and services to retail and institutional clients, says that the new restrictions on offering certain products to retail investors coincide with a growth in the appeal of trading German exposures.

“In general, retail traders are increasingly interested in the German market. But at the same time, we are seeing traders taking different approaches. We have more and more customers opening accounts with us, but their trading volumes are typically lower. This is a change from the past where we tended to see fewer participants but larger trades.”  

Schorle adds that the client journey for retail traders has also changed. He says that retail traders historically moved from stocks to certificates to CFDs with some then moving into listed markets. However, today, the same traders move from stocks directly to listed futures and options instead of CFDs. The transition to listed markets has been eased with the launch of micro contracts that trade in smaller sizes and are more appropriate for retail investors.  

This shift into futures has impacted how retail traders approach their trading strategies.  

“The mindset has changed,” says Schorle. “Retail traders today look less for high short-term profits that involve taking big risks and instead have a longer-term approach to making a profit and avoiding big losses. We see this increase in risk-awareness, particularly in the German market.” 

In 2023, the German financial regulator, BaFin, introduced negative balance protection for retail clients. This meant that the broker and not the trader would bear the loss on any trade that would make the account balance fall below zero. 

Schorle says: “You might have thought that this would encourage people to take higher risks as they are protected on the downside. But in fact, it drew attention to the losses that investors were exposed to, resulting  in more cautious trading.”  

Education of retail traders has also been increasing across Europe, which has boosted the understanding and sophistication level of retail traders. At the same time, new product launches on listed markets have catered to the needs of retail investors. 

The launch of Eurex micro products has made a big difference, the micro contract allows retail traders to choose a position size that suits their portfolios. This, together with many advantages of a Eurex listed product, makes it very easy to switch from competing products.

Eurex has been at the forefront of developing products to meet the demands of retail traders and grow that market segment. The introduction of micro futures is just one initiative in this respect.  

Vincenzo Zinnà, Equity and Index Sales EMEA at Eurex, says: “We are always talking with retail brokers to understand the needs of their clients. For example, in 2017, on a suggestion of WH SelfInvest, Eurex developed micro futures."

“We also brought bitcoin futures to the regulated market in Europe and launched daily options last year, which see significant growth. We are always looking to extend our  product offering for retail traders.” 

The size of the new contracts launched on Eurex is appealing to retail investors, but so too is the range of products, says Schorle. Retail investors in Europe are more focused on trading futures on indexes rather than individual stocks and have a home bias in their trade selection.  

The key European benchmark indexes, such as the DAX^®, SMI^® and EURO STOXX 50^®, offer relatively low medium-term volatility but with enough intraday movement to provide an opportunity for profit. 

In addition to equity indexes, retail investors also trade bond futures. The bund future is in the top 10 products traded by retail investors at WH SelfInvest, says Schorle.  Zinnà adds:

There are a lot of day traders in Europe that are active in the DAX^® and EURO STOXX 50^® Futures. Retail clients like the indexes that cover the markets they know as they represent their home markets. The time zone is also good for them.

Eurex has worked with retail brokers to develop various educational outreach programs for to retail clients across Europe to increase their understanding of the opportunities and risks of trading on listed markets.  

Trading futures and options on a regulated exchange such as Eurex allows retail traders to gain exposure in transparent markets at tight spreads. Trades are cleared at the central clearinghouse, eliminating counterparty risk.  

Schorle says: “Futures markets have a flawless reputation and offer retail clients the opportunity to trade in a safe environment. Retail clients are attracted to the tight spreads in listed futures markets. The depth of liquidity and provision of liquidity by market makers on Eurex is attractive. Traders want to see tight spreads and a small tick size.” 

For retail traders, the spread is as important as the product. Micro-DAX^® Futures are quoted 1 – 2 index points wide, which means that retail traders and others can trade across a competitively tight spread in a range of 0.6 – 1.2 basis points.  We are continuously working on creating the most efficient market for retail investors to trade.