It is well documented that the majority of spreadbetters lose money. Estimates vary between 80% and 90% lose. It is less well written that the majority of traders also lose money. That includes all types of trading – intraday, end of day and any market.
The North American Securities Administrators Association reports that only 11.5% of traders actually trade profitably over the term of their trading. At least 70% lose money and the balance breakeven. A large majority of losers will lose everything they invest (trading account). So a new trader has a 1 in 10 chance of winning. I trade three strategies that are quite simple. There are thousands of strategy combinations that will work but still only about 12% of traders will win over the long term.
On another level I’ve recently been reading a staggering report from the Taiwan Stock Exchange regarding intraday traders (stocks and futures). It was conducted by the University of California with 925,000 trader accounts being studied over a four year period. That’s 100% of all Taiwan day traders from the occasional dabbler to regular everyday traders. The traders were grouped depending upon their trading criteria.
Of all traders 82% lost.
Of the winners 100% were regular traders.
Of occasional traders most lost.
Those that lost over a six month period also lost over the next six months.
Those that won over a six month period also won over the next six months.
Of those who traded every day, those who traded aggressively lost overall.
Of those who traded every day, those who traded passively (fewer trades) won.
During any given month of 21/22 trading days London Capital Group will have an average 4 to 5 losing days.
Summary
Spread betting continues to attract a wide range of participants, with increasing awareness of its risks and opportunities. However, data consistently shows that approximately 80% of spread betting clients lose money, often averaging losses of around £2,600 annually. These losses stem from a combination of over trading, lack of strategy, and emotional decision-making. Here’s a deeper look at the key issues and trends:
Why Most Spread Betters Lose Money
- Overtrading:
Many traders place too many bets, often based on gut feelings or chasing previous losses, leading to compounding losses rather than gains. - Poor Risk Management:
Beginners frequently fail to set or adhere to stop-loss levels. They either ignore stop losses entirely or fail to adjust them appropriately, leaving their trades vulnerable. - Emotional Trading:
A significant number of traders rely on instinct rather than a structured strategy, leading to impulsive decisions that often backfire. Research shows 40% of frequent traders rely on gut feelings rather than objective analysis. - Neglecting Fundamentals:
Around 80% of traders focus solely on technical analysis, ignoring the broader economic and corporate fundamentals. While technical analysis has its place, overreliance on charts without context leads to poor outcomes.
Insights from Market Research
- Client Behavior: Many traders treat spread betting as a hobby rather than a disciplined activity. They often enter trades without adequate preparation or a clear plan, leading to predictable losses.
- Day Traders vs. Long-Term Traders: Day traders are seeing more success in recent years compared to longer-term “betters,” as they capitalize on short-term volatility. However, this requires a high level of skill and discipline.
- Average Client Profile: Spread betting clients tend to have disposable funds of £10,000–£50,000, with the average age being around 37 years old.
The Cost of Simplicity
Spread betting’s simplicity is part of its allure – but also its danger. With the ease of placing trades, many participants take excessive risks, often using margin products like CFDs or spread betting accounts with leverage they don’t fully understand. Trading with money you don’t have can quickly spiral into unmanageable losses.
How to Avoid Common Pitfalls
- Focus on a Single Strategy:
New traders should learn and master one trading strategy, whether it’s fundamental analysis, technical indicators, or price action. Consistency is key—deviation turns trading into gambling. - Emphasize Discipline Over Strategy:
Successful trading isn’t about finding the perfect chart setup. It’s about maintaining discipline, managing money wisely, and sticking to your plan. - Understand Market Dynamics:
Be a contrarian when needed. Study herd behavior and learn to spot opportunities when the crowd is wrong. Avoid impulse trades based on market noise. - Prioritize Risk Control:
Set stop losses and adhere to them. Move stops strategically to protect profits, and always consider your risk-reward ratio before entering a trade.
So what’s really happening here?
The research highlights an over-reliance by spreadbetters on technical analysis which might explain the profession that most of these spread betters originate from: the financial and information technology industries. Technical analysis definitely has its place but is it wise to risk one’s capital ignoring to take into consideration the economic and corporate fundamentals?
Apart from that, it is a fact that most people that getting involved with financial spread betting do so without any real plan. They just blindly throw their money in anything that seems to be going up or down (mostly up) and foolishly believe when they’re losing money that the tide will turn so add more money to it, or trade the opposite direction. This is a losing strategy. There are ways to what is called ‘Hedge’ but don’t do it blindly to recoup a loss. Before they know it they have lost their deposit, returned to the pub and complained that it’s all a con. Let’s get this straight – 80% of spread bets aren’t losing bets or the spread betting providers would be changing the odds or narrowing the spreads in the clients favour because they don’t want clients to lose everytime. It is 80 per cent of accounts that are net losers.
New traders need to learn and master one strategy be it fundamentals, a combination of technical indicators or basic price action. That is the easy part. The difficult bit is sticking solely to that strategy and not deviating. The instant you deviate you no longer have a strategy and are back to gambling. A new trader can spend years wasting time trying different strategies with different indicators and end up being back where they started. Strategies (including charts) don’t make money. Discipline and money management make money. Given the relative unimportance of chart strategies I think they are sometimes given too much emphasis. It will only serve to confuse a new trader imo and lead them to concentrate on the wrong thing.
How to Lose Money on Spread Betting
Spread betting is very simple and, in some ways, its simplicity is the reason why so many traders lose money. It is very tempting to overtrade or to trade based upon emotion or gut feeling. Beginners also risk far too much of their capital on one trade and when it goes wrong have a tendency to “chase it”, compounding their losses, until their capital is so depleted it is very difficult to recover. You can lose a lot of money with no risk control procedures in place.
So back to the key question – why do most spread betters lose? Too many bets, too many trades (overtrading), too few people putting stop losses in place and sticking with them (bad money management). Too little attention paid to moving those stops (discipline). so people are often closed out at the wrong time. Too little research done on companies you’re putting the bets on. Forget not catching a falling knife.some people are betting on the knife once it’s hit the floor and wondering why it won’t drop any further. In short, the way you lose on any share trading – too much impulse and not enough research – that’s how to lose on spread betting. Be a contrarion, understand herd behaviour, do your research and learn how to win your spread bets!
Why Spread Betters Lose: The Key Takeaways
The main reasons for losses in spread betting include:
- Too many trades and too much risk per trade
- Failure to use or adjust stop losses effectively
- Lack of research or reliance on emotion-driven decisions
Winning in Spread Betting
To succeed in spread betting:
- Approach it with the seriousness of any other investment strategy.
- Understand the risks, leverage, and the market conditions driving price movements.
- Combine a robust strategy with discipline and proper risk management.
Remember, spread betting providers don’t profit more from losing clients than winning ones. Their business thrives on the volume of trades and spreads, regardless of whether a client wins or loses. The real challenge for traders is overcoming the emotional and psychological traps that lead to poor decisions. With preparation, discipline, and a focus on the long term, success in spread betting is possible.
