I remember reading somewhere that in futures a rough guide is that 80% of traders lose; 12% break even, and 8% win. I'm sure many will have seen these figures as I've read them more than once. I've always assumed that the percentages for spread betting would be similar, and possibly worse? I do think that the spread betting companies are treated <i>very</i> kindly by the media. It's usually rare to read anything slightly negative. Perhaps all that advertising revenue helps?
This website, by contrast, greatly helps to address the imbalance. I read a very good definition on here a few days ago, I think written by Frugi, of the SB bias. But possibly failure is likely to be the natural result of anything we attempt? Success the exception? In an excellent book (my opinion, guys): 'The Power Laws of Business' (anyone else read this?) by Richard Koch, the author states:
<i>If we realize that failure is normal, we come to view all business as an experiment, where success at the first attempt is not to be expected. Paradoxically, this is very good news."</i>
The problem is not the instrument with which you trade, it's the trader, his/her understanding of the market they're trading and their understanding of the instrument's behaviour in that market. Forget the 'bet' in spread betting, all trading can be considered gambling. Gambling in terms of pure chance is not what we do, we're looking to bring the odds of success our way by technical analysis. The Time's article referred to investors, not speculators, I would largely agree that spread betting is not for them. The buy and hold mentality is a hard one to shake.
David Buik of Cantor Index, a spread-betting firm, said: “Before the stock market bubble burst in 2000 some spread betters were reckless
Well I nearly bust a gut reading that quote! Weren't all stock investors the truest morons at that time? 'Reckless' would be flattery if applied to those that bought into the 99-2k market simply because 'this time it's different'.
Perhaps investors will feel safisfied with slow steady growth at best, whilst speculators require more spectacular results, and are therefore more often dissapointed.
The character type poll on this site indicates that the iNTj and iNTp types make up the bulk of traders, those two groups constitute 3% of the general population. That must be the few that the article's 97% refers to!
Have a little more faith in yourself and pay less attention to those that make money talking about the markets.
The reason that so many people lose and so many fail to win is the timescale. The smaller time scale you work on the smaller the distribution of gains and losses. They clump together and the standard deviation of those returns narrow. If you take out transactional costs then that wipes out a lot of the bell curve to the right and all you are left with are the outer lying edges of the bell curve the >95% (2 stdevs) that is why you end up with this figure of 90/10 or whatever the mood is when it is quoted. Simple.
bang on the nail Zigglewigler!...."understanding the mkt/instrument's behaviour characteristics".....too many $$$ sign's in front of the eyes, not enough prep work/study/money management nounce....blind leading the blind....straight into the welcoming arms of the 3%!!!!!!......
In answer to the two threads it is possible to make money from spreadbetting, I do, however you need to set yourself some rules mine are, never risk more than 3% of capital per trade, look at the bigger picture (you might find it easier to trade over a few days rather than daytrade) know where you want to get in and out of a trade.
Some points when looking for a spreadbetter dont just go for the one with the lowest spreads speed of execution and accurately following the market price are also inportant its a well know fact that spreads are moved to either side of the market price especially in times of high volatility. get a live price and compare
Try setting up a practice account at first all the big SB'S have them, and use stop losses in practice, it is easy to win paper trading whilst forgetting that the market initially went against you and you would have been stopped out
Brilliant points, Zigglewiggler...................instead of understanding the concept of trading and it's instruments........a lot of ppl approach spreadbetting or trading with a gambler's mentality hence the unending search for the 'Holy Grail'...............Smart individuals like VS and co take advantage of this type of mentality to rip off ppl with seminars and books based on outrageous claims of sudden riches.
I would like to suggest that trading directly to the market (I’m talking US stocks / futures) via a direct access platform is as near to ‘zero sum game’ as you are going to get. When people enter the world of spreadbetting they fail to correctly calculate the mathematical increase in risk which is bought about by trading in parallel markets. These risks are numerous but include obvious ones like increases in spread and delays in getting orders processed and the not so obvious ones like the drastic increase in the likelihood of long term failure caused by continually trading your account using a big leverage. Any one who trades their account in a manner where by several losses back to back would cause an enforced reduction in bet size will almost certainly lose in the longer run.
Based on the above people then fail to correctly calculate how much they would really need as a deposit / pot in order to trade on a fulltime basis.
I would suggest that your style of trading is directly influenced by your ‘need’ to make money. If you have only a small ‘pot’ then your need to make money maybe higher than someone who has a larger ‘pot’. Because of this increased ‘need’ you may feel pressured into making trades that you aren’t quite comfortable with. This situation becomes exaggerated when trading on margin as losses will consume a much larger percentage of your working capital.
I wonder, therefore, based on the points that I have made, how many professionals use the spreadbetters ? Could it be that few professionals use these services as they realise the risks involved. Since one of the main attractions of the spreadbet companies is the ability to trade using a big leverage I could suggest that someone who already has a large account wouldn’t need this service simply because they don’t need that kind of leverage.
A professional may also find that he or she is also deemed ‘professional’ by the Inland Revenue and therefore their tax situation is such that winnings are not ‘tax free’. You will, by now, be noticing that several of the key ‘advantages’ which the spreadbet companies advertise are not advantages to professionals. I might therefore like to suggest that the 97% figure is skewed simply because people who win consistently over an extended period of time simply don’t use the services of a spreadbetting agent to any great degree because it simply doesn’t offer them any kind of real advantage and does in fact represent disadvantage based on increased spreads and company sharp practices which are to the detriment of the customer.
If you actually think about it 97% is such an outrageously large number that one wonders where it came from. Certainly the SB companies would never reveal winning and losing numbers for the mere fact that the number must, by the law of averages, be greater than 50% and that would be a bad enuf advert. If you add in the spread which nowadays almost compares in many cases with dealing through a broker and paying commision fees etc the odds must come down to around 40% winners.
Then adding in the fact that most traders no matter what tool they use run their loses and cut their profits will increase the percentage of losers again probably to around the 80-90% range.
The error in accusing the SB companies of bad faith in market practice is that for the main part it is the customers own failings that make them long term losers in the market.
There is one very good rule that all dealers must try to adhere to and that is NEVER believe you are right. More people lose money because they cannot bring themselves to admit defeat on a position than any other reason. There is always the fear that your stop out will signal a refersal and this is what drives the average punter into major losses.
Set your stops / stick to them / do not let a winning position turn into a losing one / never put a stop further away than your profit target.
The real problem with losing money with an SB, I believe, is that 97% of people (the losers), don't have sufficient funds to spread bet.
Many people who don't have enough funds (say typically those with less than £2000) are drawn to use SB's rather than direct access because of the lower amounts required to open an account and for margin. They are however penalised by large spreads.
It is these very people who would benefit from using direct access due to the lower spreads, but they can't because they don't have sufficient funds.
I find SB trading can be very profitable......
1) If you are an experienced / professional market player
2) You have at least £50,000 to play with.
If you fit into those categories, you can make serious money. Because you make serious money, the tax advantages of using an SB rather than direct access make sense, which is why, currently I don't use direct access