Millennial investors are skeptical about the benefits of using trading platforms that are regulated, according to recent survey findings from AvaTrade, an online trading company.
While most Canadian investors (83%) believe they could lose the most money on unregulated platforms, 32% of millennials aged 18 to 34 believe they can actually lose more money on regulated platforms, the survey of 1,000 online Canadians who are members of the Angus Reid Forum revealed.
“This contradiction may simply be a case of younger investors with less investment capital believing that the higher leverage allowed on unregulated platforms might be instrumental in helping them 'get rich quicker',” said Daire Ferguson, CEO of AvaTrade, in a press release.
Regulated platforms have a leverage limit, which is the amount of money an investor can borrow from a broker in order to make a trade. For example, on the Forex currency-trading platform, the Canadian leverage limit ratio is 30:1. This is all very high-level and can get confusing, but it essentially means you’ll need 3.3% of the money you wish to trade in what’s called a margin account as a deposit in order to complete the trade.
When a trading platform is unregulated, it doesn’t have such oversight, from either a group of people or a regulatory agency, which opens investors up to the potential for fraud and scams — though it might feature higher leverage limits.
“Higher leverage means potentially higher rewards, but it also comes with equally higher risk,” explained Ferguson. “A balanced investment portfolio must take this into account…”
The main regulatory body for the Canadian Forex market is the Investment Industry Regulatory Organization of Canada (IIROC), which is a not-for-profit, self-regulated organisation that oversees the activity of Canadian Forex brokers. IIROC belongs to the Canadian Securities Administrators (CSA).
However, the security of regulated platforms are appealing to the majority of Canadian investors, 91% of which said they find regulated platforms safer to trade on.
According to the poll, Ontarians supports regulated platforms the most, at 97%, while respondents from Atlantic Canada and the Western provinces support them the least, at 78% and 87% respectively.
Those with higher incomes tend to gravitate toward regulated platforms as well, for their safety. Some 94% of investors who earn $100,000 a year or more said they find regulated platforms safer. That’s compared with 83% of investors with less than $50,000 of annual income who said the same.
Investors can verify whether their broker is regulated by visiting the membership directory on the Canadian Investor Protection Fund website. All regulated brokers are required by law to be a member of this fund.