Confronting Retail Trading Stats

Why in a tightly regulated yet competitive market aren’t investors doing better with trading apps? And what can Finatext UK do to buck this trend? Rob Brockington digs deeper than the industry average.

Let’s address the elephant in the room. According to statistics researched by the FCA, ‘between 74% and 89% of retail clients trading CFDs will lose money’. This is not very encouraging.

An industry which should be intent on growing personal wealth by managed investment should be doing better. Yet, is a nagging sense of failure all we can take from these figures? What other questions should we be asking in such a cut-and-dried assessment of past results?

Let’s make one thing clear. We certainly don’t wish to question the quality or veracity of the FCA study. It provides strong evidence of a well-regulated industry, the above statistic is a mandatory accompaniment to promotional materials published by any new business in the sector.

This particular text is required for all new businesses who do not have customers’ performance data. So, only the newcomers are obliged to use this ‘industry average’. Those trading more than 12 months’ records still need to add a ‘risk warning’ but they can use their own data instead. If it’s better than the industry average of course!

The traditional light show on a London trading floor

Facts & Figures

So what is the purpose of the stat? Well, this also should be stated on the same ‘risk warning’. Though you might wonder what else a warning serves to defend you against, let’s not get tangled up in semantics! The figure is there to give a ‘fair’ representation of what the ‘average punter’ will stand to gain or lose through the service. This figure does the job if it is accurate but is it the complete picture?

The statistic is actually based on a small set of regulated brokerages (34 in a market of hundreds) and therefore, could contain some margin of error. But let’s keep an open mind to the idea that this might not be the least-flattering assessment of consumer performance. With more or fewer companies in the survey, it could have been worse.

Why Not 50/50?

Now, a lay-person to CFD trading could quite rightly ask, why are these gain/loss stats not 50/50? Surely the market has an equal chance of going up, or down, so even the most uninformed punters could expect to ‘guess’ the direction of the rate about half of the time?

Could it be that the very structure and experience of trading through the current crop of platforms lowers the chances of success? I would suggest it plays a part – though it might be tricky to prove. Having personally researched numerous competitors and surveyed the onboarding, assessment, skilling-up and execution of their platforms, there is a lot left to be desired in user-experience terms. Especially when fostering the kind of clear transparent environment needed in the practice of responsible and accurate trading.

The ongoing light-show of scrolling tickers makes it difficult to extract information from the digital bumf on display

Obstructively noisy interfaces with endlessly-flashing buttons, crowded with a myriad of stats and optional functions are the norm. Strikingly few platforms have any obvious user guides for the uninitiated.

The ongoing light-show and scrolling tickers of information make it difficult to extract the important information from the digital bumf on display. The experience itself is by-and-large ‘hard-core’ and assumes a high level of user competence. Granted, only people who have ‘self-certified’ themselves as having trader knowledge are ‘allowed’ to open a trading account in the UK – but the majority of these platforms are far from user-friendly. Improving this shouldn’t be a tricky task for the tech-savvy and cash-rich businesses producing these platforms.

Accessibility & Closed Circles

There’s a broader discussion here regarding the average person’s ‘financial literacy’. When it comes to whether investors in CFDs have the appropriate understanding or support network to help avoid common trading errors is, in my opinion, questionable.

A culture of keeping investments in high-risk markets, private is a customer’s choice but it could be harmful when things aren’t going well. We all understand the mistakes sound-minded individuals can make when under pressure or feeling the strain of a bad run of fortune.

We have the tools in this connected age to learn directly from and return patronage to leaders, role-models and influencers

Knowing when to take a pause and re-prioritise matters and not ‘double-down’ in life and finance, is a skill many of us occasionally need support with. A more open culture of sharing, learning and support must be adopted. We have the tools in this connected age to learn directly from and return patronage to leaders, role-models and influencers across all industries.

Trading must modernise towards a more progressive culture and move away from the ‘winners only’ mentality. There’s always as much if not more to learn from your failures in life, than your successes.

Raising the Standard

At this stage, we must admit we simply don’t have all the answers right now. However, the concept behind Pipster has always been to improve the ‘standard’ offering and provide a more transparent, concise and relatable experience.

How this will actually feed into the success our users have is something we’ll be monitoring extremely closely. In fact, as well as developing trading software, Finatext is rooted in providing big-data solutions for financial markets. So crunching the numbers and finding out where there are trends in users’ successes and failings will be intrinsic to our future development.

It is not only in the industry’s interest to improve the success rates and experiences of users, but an obligation to strive for better results. Success breeds success and there’s no good reason to simply accept these figures as ‘the way it is’. Pipster has nothing to lose by helping push the statistic in the right direction.

We’ve had a good start, our student Bull Run competition runner had a loss rate of 32% – admittedly these were students who were largely studying or interested in finance and trading. When we start our Pioneer Mode this month will be the true test of our mettle.