CySEC shines light on European retail investors’ habits

The Cyprus Securities and Exchange Commission (CySEC) has released retail investment behaviour research showing what it views as a concerning rise in unregulated, volatile investment products.

CySEC surveyed 200 European retail investors aged between 18 and 55 who directly traded in securities or derivatives at least once in November 2022.

Almost a quarter of surveyed investors reported taking more risk than they can afford, and many regret their past financial investments. This was particularly true for French traders, with 32% saying they could not afford to lose their investment. German and Cypriot investors appear to be the most cautious, with 24% and 18%, respectively, agreeing they had invested more than they could afford to lose.

The research also showed that too few spend enough time researching the products they plan to invest in or the firm selling them, raising concerns that investors did not understand the relevant risks. Of the retail crowd, a quarter revealed that they spent 6-7 days researching a particular product, 7% said they did less than 30 minutes due diligence or none at all before committing their money to a product.

Meanwhile, only 30% of all respondents looked up their broker on the website of the country’s regulator to check it was licensed. While 15% didn’t do any checks at all, more than half (51%) said they looked at company reviews or the firm’s own website.

The research also confirmed the prominence of digital and social channels as sources of information for investors, with a quarter (22%) of investors making investment decisions based on digital promotions or celebrity endorsements. Only one in three investors (31%) sought advice from an authorised financial advisor, and 6% said they bought a product because they felt pressured by a peer group.

A spokesperson for CySEC said: “Social media now has a direct influence on investment decisions, but not all the information can be trusted. Too many investors including young people are taking real risks with their money because they are taking advice and recommendations from unreliable sources, ranging from family members and friends to celebrity endorsements on social media platforms, without properly checking out the entity they’re buying from. “

Cypriot regulators launched last year a campaign to educate its ‎citizens on the potential risks involved when it comes to online trading‏.‏ The watchdog advised retail traders to be cautious when engaging so-called “finfluencers” and conduct serious due diligence on any prospective partners.

CySEC says those promoters must be licensed to give financial advice or are authorised representatives of advisers. The same rules apply to influencers who earn affiliate commissions for referring their pages’ followers to online brokers, which also requires a licence to give such advice.

The regulator added that investment recommendations had to be produced in an objective and transparent way, so that investors could distinguish fact from opinions.