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A quick flick of Twitter, a social media investment club, or an investment-themed Reddit can quickly find a handful of traders who have done exceptionally well in a month, semester, or year. . Believe it or not, most successful traders choose a time period or use different accounts at the same time so they can always view their winning positions.
On the other hand, millions of traders blow up their portfolios and go empty-handed, especially when using leverage. For example, the UK’s Financial Conduct Authority (FCA) requires brokers to disclose the percentage of accounts that trade derivatives unprofitably within their region.Data show that between 69% and 84% of his retail investors are lose money.
Similarly, according to a U.S. Securities and Exchange Commission study, 70% of forex traders lose money every quarter, and eToro, a multinational broker with 27 million users, report Nearly 80% of retail investors suffered losses in the 12 months.
The same pattern is seen across all markets across continents and decades. Still, we believe that novice and experienced investors can overcome that bias with the ingenuity and mass marketing campaigns of influencers, exchanges and algorithmic trading systems.
Below are four culprits behind the inevitable failures of retail traders. Dollar cost average based strategy Buy a fixed amount weekly or monthly.
In June 2021, US financial industry regulators will Robinhood fined $70 million, which claims “extensive and material damages” and “misleading information to millions of customers” from September 2016. Specifically, the regulator cited platform outages from 2018 to 2018 that impacted customers’ ability to execute buy and sell orders during periods of high market volatility. period.
On March 8, 2022, Europe’s largest commodity exchange, the London Metal Exchange (LME), canceled all trading in nickel futures and postponed the delivery of all physical settlement contracts.cause Quote According to Bloomberg, it was a “massive squeeze involving the largest nickel producers and major Chinese banks, and unprofitable short positions.”
Please note that such a decision is very bad for brokers who deliberately decide to shut down their platform. In such cases, at least the client can choose another intermediary. Users were already expecting a profit, or even hedging in some cases, so rolling back or canceling a trade was much more problematic, meaning the trade was part of a broader strategy.
Professional traders use colocation servers, placing servers as close as possible to the exchange’s data center. This is because the transmission delay is greatly reduced. These exchanges offer premium services to high-end clients, including on-site private housing servers.
Colocation servers not only require large volumes to cover costs, Advantages of implementing strategies such as pingwhich uses a series of small orders to survey whales entering and exiting the market.
In addition to being heavily funded, these arbitrage traders usually raise additional funds from exchanges. These advantages basically mean that you can post trades without collateral, just like having credit, offering a significant advantage over individual investors.
Solid proof? Bankruptcy of Three Arrows Capital (3AC) negative Impact on Deribit Exchange, was forced to cover the loss himself. Additionally, prominent Bitcoin Cash (BCH) figure Roger Burr has been sued by exchange CoinFLEX for allegedly owing $84 million in liquidation.
Retail traders must understand that there is no room for amateurs and understand the complex relationship between exchanges, venture capitalists, market makers and whales. Whether the partnership is on paper or not, the mutual benefit will give these players priority access to pre-seed funding rounds, listings and market access.
The only way for investors to opt out of losing money is to give up trading and avoid leveraged trading like the plague. In practice, an investor with a tenor of 6 months or more may make a profit on each position.
The views and opinions expressed herein are solely author They do not necessarily reflect the views of Cointelegraph. All investment and trading movements involve risk. You should do your own research when making a decision.
