ESMA regulation reveals the percentages of traders
that are losing money!
Article originally appeared on financemagnates
Transparency has been a key issue for foreign exchange and CFDs brokers in recent years. When it comes to EU-regulated brokers, the beginning of August was supposed to be the start of a new era. European brokers were forced to make some dramatic changes to their offerings, and some key aspects of the broker-client relationship are now out in the open.
While some traders are scratching their heads and contemplating how to get higher leverage, firms now have to disclose what percentage of their clients are losing money. In an extensive effort, the Finance Magnates Intelligence department has collected a set of data which provides valuable insight into the dealings of several brokerage companies.
Every EU-regulated broker is now visibly displaying figures which the ESMA considers valuable to retail investors. The primary goal of this new regulation was to put a halt on misleading advertising, but the supranational regulatorâs decision to put a spotlight on client losses also provides traders and brokers themselves with precious information.
Not only can brokers compete to attract the most-successful traders, they can also smartly use their percentage of winning clients as a reputational edge.
Win-Loss Ratios
The Finance Magnates intelligence department included a total of 30 brokers in its sample. While the charts are certainly comprehensive, we must stress that these figures are in no way representative of the quality of the service of the mentioned brokers.
Trading is a zero sum game and as such, there will always be more losers than winners. The goal of the new regulation is to better inform retail investors that the winners are in the minority. The days when regulated brokers were able to advertise aggressively are long gone.
I remember the years when a crystal ball banner with a message âguess where the EUR/USD is goingâ would appear. An enticing message that you can make money by trading forex was designed to appeal to the most primal instincts of competitive humans. After all, competition is in our very nature and making money by beating our peers in a game is one of the most satisfying feelings one can experience.
With this long disclaimer, letâs move on to the data. Below you will find a complete list of the biggest brokerages. They are sorted by the number of most winning clients, which are represented as a percentage of the total clients of the brokerage.
Social Trading Actually Works
If there has been any doubt that social trading or copy trading works, the data provided by brokerage companies shows that there are some merits to it. Two of the top 5 brokers which are home to the largest number of winning clients offer a social or copy trading product.
A whopping 35 percent of clients of eToro have made money. Darwinex is the other firm on this list that enables clients to copy trade leaders. This has proven to be good for its customers, with 31 percent them being in the black.
Other brokers in the top 5 are also notable: AETOS, GBE Brokers, and XM Markets. Looking at the biggest brokerages, Saxo Bank comes close to the 30 percentile with about 29 percent of its clients making money.
The Red Line is Above 80%
We certainly donât want to single out any brokers for not having enough profitable clients. What we can say is that 70 to 80 percent losing clients appears to be the norm. There is little brokerage companies can do to stop their clients from losing money. What they can do is make sure that their clients have the necessary tools to make informed decisions.
The chart below shows that the profile of brokerages which house mostly losing clients is rather broad. Only Vestle (formerly iFOREX), HYCM, and EasyMarkets have an unusually high percentage of customers which are in the red.
Competing for Smarter Clients
If any trend emerges from this data forced upon us by the ESMA, it is that brokers should race to build up a client base which is better informed. The number of additional tools and tools that actually work and provide insight will be crucial. What will be even more crucial is education: brokers with the least educated clients will always house more losing clients. If they want to use their win/loss ratio as a clever marketing tool, they should commit more resources to that.
With the new leverage rules in force in tandem with the win/loss percentage disclosure, brokers who are in this business for the long haul should focus on bringing in clients that stay with them for long. The days of churn and burn are behind us, and so are the days of reckless advertising. It is time to adapt and focus on a tactic that will bring long-term benefits to clients and brokers alike.
"Anything worth having is worth going for - all the way." - J.R. Ewing
FAQs
Trading the financial markets is notoriously difficult and many wonder what percentage of forex traders fail. Using official data from 32 ESMA regulated brokers, my research shows that an average of 72.2% of forex traders lose money.
Is it true that 90% of traders lose money? ›
His agency, the Securities and Exchange Board of India, known as Sebi, says 90% of active retail traders lose money trading options and other derivative contracts. In the year ended March 2022, the latest for which figures are available, investors lost $5.4 billion.
What percentage of traders lose money in the market? ›
However, it can be a frustrating and costly experience for many new traders, leaving them with little to show for their efforts. Based on several brokers' studies, as many as 90% of traders are estimated to lose money in the markets.
Why do 95% of traders lose? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
What percentage of CFD traders lose money? ›
On average, 82% of CFD traders lose money.
Why do 80% of traders lose money? ›
Another reason why day traders tend to lose money is that it's very different from long-term investing. While traders take advantage of price swings (which means they have to make specific predictions), investors tend to buy a diversified basket of assets for the long haul.
What is the 90% rule in trading? ›
It is a high-stakes game where many are lured by the promise of quick riches but ultimately face harsh realities. One of the harsh realities of trading is the “Rule of 90,” which suggests that 90% of new traders lose 90% of their starting capital within 90 days of their first trade.
How much money do day traders with $10,000 accounts make per day on average? ›
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
What percentage of traders get rich? ›
Only 1.6% of the traders are profitable. 12% of day trading activity accounts for successful players.
What percentage of stock traders are successful? ›
Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.
According to research, the consensus in the forex market is that around 70% to 80% of all beginner forex traders lose money, get disappointed, and quit. Generally, 80% of all-day traders tend to quit within the first two years.
Do day traders beat the market? ›
Day trading is a high-risk, high-reward strategy. If your decisions don't work out, you can lose money much more quickly than a regular investor, especially if you use leverage. A study of 1,600 day traders over the course of two years found that 97% of individuals who day traded for more than 300 days lost money.
How much does the average trader lose? ›
Average Trade Loss refers to the average amount of money lost on each trade executed within a specific trading strategy or portfolio over a defined period. It is a crucial metric used in the field of finance and investment to evaluate the effectiveness of a trading approach and assess risk management practices.
Are CFDs banned in the US? ›
Additionally, most CFD brokers don't accept US citizens or US residents as clients. CFDs are illegal in the US because they are an over-the-counter (OTC) trading product. OTC trading products aren't listed on regulated exchanges like the New York Stock Exchange (NYSE), bypassing US regulatory bodies.
Why do 99 traders lose money? ›
The ones that try to squeeze the market for disproportionate returns only end up loosing money and in turn creating those very inefficiencies. This is one of the most important reasons why most people fail to make money in the markets. Unrealistic expectations. First of all, you're misquoting Zerodha (Nithin).
How many people lose money on Trading 212? ›
Around 78% of retail investor accounts with Trading 212 lose money when trading CFDs, the company says.
Why do 90% of people lose money in the stock market? ›
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.
What percentage of traders actually make money? ›
Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.
