Boss of spreadbet firm talking to Ft journo's over lunch

This was on the Markets Live chat on FT.com today, the journalists had lunch yesterday with a boss of a smaller spread betting company:

:
neil and I had lunch yesterday with the head of one of the smaller spread betters
NH:
amazing lunch
NH:
I left stunned
PM:
We were talking about FX trading and asked how much leverage they offered
PM:
He ssaid:
NH:
300 times
PM:
Before adding:
NH:
and your point is
PM:
We, said — “Er..”
PM:
“Do you not fear regulation”
NH:
No
NH:
he also came up with an amazing stat
NH:
that clients never make money in financial spread betting
PM:
Yes, repeated told us that the clients were always wrong
PM:
And he said it with a smile on his face
NH:
and to protect themselves from bad debts they have an aggressive stop loss system that just takes you out if there is a spike
PM:
For those who dont know , let me just run thru quickly how spread betting FX will lose you lots of money
PM:
You put up a few grands — and then feel smart punting 1m
PM:
You think sterling will go to — say — 125, and bet that way
PM:
It might go to 125, but not in a straight line — and if you are levered 300 times with automatic stop loss, you will be wiped out with the first bit of volatility
NH:
i was just stunned by the contempt in which they held their customers
NH:
sheep just waiting to be fleeced
NH:
anyway the conservation eventually moved on to that very annoying CMC advert featuring the actor James Nisbit

foredog said:

NH:
he also came up with an amazing stat
NH:
that clients never make money in financial spread betting
PM:
Yes, repeated told us that the clients were always wrong
PM:
And he said it with a smile on his face
NH:
and to protect themselves from bad debts they have an aggressive stop loss system that just takes you out if there is a spike
[/B]

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Mate I totally believe that, just watch some people trading on chats or whatnots where they are just totally incapable of honouring their stops, where they'll start looking for all sorts of obscure and nonsensical reasons to justify staying in a trade going against them WAY beyond their initial stop loss position because they just cannot stand losing and have a desperate need to look like winners on individual calls to themselves and others.

Doing that they let their losers run and cut their winners short in yet again a desperate ploy to maximise their winners, so they can brag to their ego and to others how often they are "right".

"Right" they may have been, but also inevitably bottom line net losers, most of those people.

Which à propos of nothing actually also highlights one of the problems in trading publicly, the ego can become involved, and that is never a good advisor, and probably the main reason why most supposed board or chat gurus may appear like winners, but consistently lose money in their real accounts.

Losing is part and parcel of trading, those who can't handle that will never make it. Most can't, so most are net losers.

"An Analysis of the Profiles and Motivations of Habitual Commodity Speculators

Abstract

The focus of this study is the habitual speculator in commodity futures markets.

Responses to a 73-question survey were collected directly from retail commodity brokers with offices in Alabama. Each questionnaire recorded information on an individual commodity client who had traded for an extended period of time.

The typical trader studied is a married, white male, age 52. He is affluent and well educated. He is a self-employed business owner who can recover from financial setbacks. He is a politically right-wing conservative involved in the political process. He assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler.

This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders.

He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run.

© 1998 John Wiley & Sons, Inc. Jrl Fut Mark 18:765-801, 1998"

Wiley InterScience :: Session Cookies

Typical net losers will take the dumbest systems and try everything to twist the facts to their ill-begotten theories to desperately make the systems work out with over 50% winners, just to prove to themselves how clever and "right" they are and won't really care about the fact that they are steadily hemorrhaging money to other market participants.