Percentage of Winning Traders - The real numbers

There is an on going perpetual conversation on T2W about the actual percentages of winning traders on FX. This conversation goes on and on and around in circles and never gets anywhere.

But when the government ask you, "Would you like each FX, Spread and CFD provider to provide you with those figures at the first point of contact". You lot completely ignore them and fail to answer. You lot are unbelievable.
And no doubt you will continue to argue the point for years to come. There is no helping some people.

I have made two posts about the FCA's proposed changes and consultation to FX (and other) trading. And there has been no interest on this site whatsoever.

So I will try again.

IF YOU WANT EVERY UK COMPANY TO ISSUE THEIR PERCENTAGE OF PROFITABLE TRADERS THEN CLICK ON THIS LINK AND TELL THEM. (you have until the 7th March to find out.)

https://www.fca.org.uk/cp16-40-response-form

IF YOU DO NOT WANT THE LEVERAGE CHANGED FROM 25:1 TO 4:1, THEN CLICK ON THIS LINK AND TELL THEM.

https://www.fca.org.uk/cp16-40-response-form

They want to hear from retail traders as well as people in the industry. It is a very short questionnaire, you don't even need to answer all questions. Under the question, which company are you from, enter N/A if you are a retail trader.

My opinion is yes to more transparency, tell us the percentages. And No to greater margin requirements, I have told them I prefer limited loss accounts for new traders to protect them rather than greater margin requirements (This is the line the that the large companies are pushing too.) I believe this will offer greater protection (while letting profitable traders get on with their trading) After all greater margin = more money in the account = eventual greater loss for the new trader.

Well done Jason101. Filled the form in the other day after your earlier helpful message.

These proposals seem like an answer to the wrong problem. Its an old established government trick - if there's a problem, do something so you will look decisive, but don't be too direct in case it doesn't work or in case you solve a problem that your opponents might inherit.

....and me , Jason, your posts weren't in vain!

Jason101 said:

IF YOU WANT EVERY UK COMPANY TO ISSUE THEIR PERCENTAGE OF PROFITABLE TRADERS THEN CLICK ON THIS LINK AND TELL THEM. (you have until the 7th March to find out.)

https://www.fca.org.uk/cp16-40-response-form

IF YOU DO NOT WANT THE LEVERAGE CHANGED FROM 25:1 TO 4:1, THEN CLICK ON THIS LINK AND TELL THEM.

https://www.fca.org.uk/cp16-40-response-form

Click to expand...

Not looking for conflict, just voicing opinions:

I admit to having read these proposals rather briefly, but wouldn't experienced traders generally be unscathed? What kind of experienced trader can't afford to have his or her leverage halved would be my question, which appears to be the general proposal for index points, FX and stocks going on market norms (IG et al)? Presumably nobody trades over 100:1 here who makes money? Speaking personally I wouldn't even need to change my cash on deposit if FX gets chopped to 50:1.

The definition of experienced trader in 3.22 is also extremely easy to satisfy. You could hedge indices and trade the requirement in one day at the cost of the spread. Pretty odd, no real qualitative test.

I can't see 4:1 mentioned anywhere. Do you mean 5:1 on single stocks for inexperienced traders? I may have missed it. People currently getting 25:1 on shares who care about it are surely all "experienced traders" under 3.22 and would get the 10:1 figure proposed? 20:1 currently offered by IG.

I filled out the form either way and did mention I considered the leverage restrictions to be excessive but not necessarily a terrible idea since so few retail traders even understand the concept - thanks for the links and the info.

Fair points I think Fill_Or_Kill, but I am concerned that once government set off down what seems to be the wrong track, unless their strategy is proven horribly wrong they are only likely to continue in the same vein.

We all recognise there are problems with the industry, but looking at the proposals first, rather than the issues, it seems hard to divine what the real problems are. So if this can be headed off in favour of a better solution, though possibly harder to implement and draft legislation for, so much the better. Maybe a small skirmish now rather than a large costly battle later.

Regulation's a two-edged sword. In a previous work role I saw the Dangerous Dogs Act introduced, a total dog's dinner if ever there was one, but whose passing allowed government to sit on their hands for the subsequent years when further problems arose. Now again, its hard to see these current proposals as something new customers need or existing customers want.

Surely even if this regulation is in place then people can still trade with brokers based abroad?

ralfSchu said:

Surely even if this regulation is in place then people can still trade with brokers based abroad?

Click to expand...

Yes, though that does involve higher risk in certain respects - currency exchange, cash transfer costs and issues, less transparent market, less regulatory protection, higher risk of fraudulent company establishment, reduced legal rights for overseas residents etc. But you can do it if you think its worth it.

@ FillorKill, Hi there, I see you wrote this: " Presumably nobody trades over 100:1 here who makes money? Speaking personally I wouldn't even need to change my cash on deposit if FX gets chopped to 50:1."

And you wrote this "...considered the leverage restrictions to be excessive but not necessarily a terrible idea since so few retail traders even understand the concept"

(Before writing anything else, this will be quite a long post, as I try to explain the issues, and if you spot an error please do feel welcome to raise it and correct me. Otherwise E&OE. Thank you.)

From what you've written above, I'm pretty confident that you seem to be a little confused about the terms margin, leverage and how they relate to each other. Most of us do in fact understand margin and leverage, nonetheless just in case anyone else completes the above form, before the 7th of March, without fully realising the meanings of these terms, here is how it works:

BTW I'll keep my examples to speadbets on the FTSE100, with IG Index, the largest provider.

To start - "What is margin?" "What is leverage?" And "how are the two related?"

'Margin' is how we refer to the money borrowed to take a position, long or short, on a financial instrument. Because we do not have to put up the full value of any contract we speak of the "margin required" to take a position in that contract or bet.
'Leverage' is the gearing ratio applied to that margin (or money borrowed).

Here are some examples of margin and respective leverage (or gearing ratios) -
1% of 100 is 100:1
0.5% of 100 is 200:1
And 10% of 100 is 10:1
And so on and so forth..

FACT: The higher the gearing ratio (or leverage), the less money (or margin) you will need to open and maintain a bet.

ISSUE: The FSA are all of a sudden, concerned that we are being offered too high a gearing ratio as well as too low margins - despite the fact that the gearing ratios & margins we use have been commonplace and accepted across the industry for *over* four decades! Yes, that's a long time in 'trading years' folks.

THEIR PROPOSED SOLUTION:

Either (1): If enough people say we are happy with the current margins and leverage, then they should stay the same.

OR (2): If Not enough people say (&/or the CFD firms themselves don't make sufficient case for the present margins/leverage to remain unchanged) we are happy with current margins and leverage requirements before the 7th of March, then they will introduce lower leverage ratios and higher margins to open any bet or CFD.

So, in real terms WHAT DOES THIS ALL MEAN?


The current situation is quoted @ 0.5% (margin) which is (expressed in the following 'leverage' ratio) 200:1
In other words, if the FTSE is trading at 7300, to open a bet under these conditions, you will need to deposit £365 for every £10 per point bet you open, long or short. This is the current margin requirement to open a £10 per point bet, long or short, on the FTSE 100 with IG Index. Many of us who are experienced with spreadbets and CFDs want the present margins/leverage to remain unchanged. Why? Because we realise that the FCA want to make us use more money to take the same effective position sizes as before, without sufficient supporting proof as to exactly why that proposed change will truly help increase the numbers of winning clients!

For anyone who is still confused - "what is meant by having to put up more money if margins are increased and leverage ratios are reduced?"

If we accept that 1% (margin) of 100 is (expressed in the following ratio) 100:1
So if the FTSE is trading at 7300, to open a bet under these conditions, you will need to deposit
£730 (not £365 as before) for every £10 per point bet you open, long or short. This would be double the present margin and leverage requirements.

But they don't just want to double margin requirements! For inexperienced traders they want you to put up TEN times more money to open a position on the FTSE! That's, quite frankly, a whopping increase. For 'experienced' traders (anyone they deem to have over 12 months of experience) they want us to put up FIVE times more money to open the same positions we've been opening (and some of us have 'experience' for decades, by now)

In other words, asking us to put up FIVE and TEN times more money only because they believe it would somehow be better for we clients, just doesn't add up. When they cite the figure that around 82% lose money, as one of the main reasons for such an arbitrary increase in margins (and lowering of leverage), the argument also just doesn't hold. Nor has any proof been given in their supporting documentation that arbitrarily increasing margins by up to ten fold, will materially increase the number of winning clients, we must reject this part of their proposals. They have also not stated what they propose to do if they raise margins (i.e., lower leverage ratios) and within e.g., five years time, imagine that the numbers of losing clients stay either relatively the same, or worsen – will they even admit that arbitrarily changing margins and leverage was an experimental disaster by then? And they do not guarantee that the old margins and leverage ratios would be reintroduced in the event that such a change does not improve the current situation, whereby nearly 8 in ten people consistently lose money.

For these reasons, and more, the proposals (especially as far as very experienced clients are concerned) as to their radically changing margin and leverage should be rejected.

Lastly, it should also be said that some of their other proposals are excellent – such as their proposal for enhanced disclosure, and their proposal for firms to publish the numbers of losing clients on an annual basis.

peakoil said:

@ FillorKill, Hi there, I see you wrote this: " Presumably nobody trades over 100:1 here who makes money? Speaking personally I wouldn't even need to change my cash on deposit if FX gets chopped to 50:1."

Click to expand...

Welllll you're possibly right I must be confused because indeed it's plenty of text to explain the simplicity of margins and leverage, which don't need to be so delineated as individual concepts from where I stand. My specific example was FX generally trades (for retail) in the UK at 100:1 leverage, that being £1,000 of margin sidelined for one standard lot of exposure to the market.

If they change it to 50:1, I now have to put £2,000 margin down for the same £100,000 clip. Since I trade with about 20 times max cumulative point to point portfolio drawdown using historical volatility standards in my account, I don't need to put any more money down, personally, on deposit with the broker, being my rather throwaway point. Are you saying I have it wrong because yes I would need more margin against deposited monies on my account? That is clearly right, but I would not need any more actual funds deposited for my purposes, which was the point I was trying to make. My further point was people who routinely make real money from the markets are unlikely to care, though I don't doubt there are some outliers, talented newbies maybe. The better point perhaps is that regulation could be a slippery slope or that perhaps I am overcapitalised in my individual account and should be putting money to work elsewhere.

Where do I have it wrong here? Feel free to talk to me as if I were a special child as I've been trading for a long time and if I don't get it I'm happy to be condescended at this juncture.

@fillorkill - I don't mean to be condescending and please accept my apologies If you took it that way. Truth be told, I took your quoted posts purely on face value - not least because I'm unfamiliar with your posts on this forum, so I've little history to go on, nonetheless please accept my response was put accordingly, and without any such slant.

re the belief that you won't need to put more money in your account - the answer to that is relative. For example, if you're a millionaire who's put e.g., £50K into your s/b account and your max bet size is £10pp then it's likely there would be little to concern you. For the majority of people, those with more limited account sizes, it become far more likely (should such changes be introduced), with the less one has to trade, and to maintain the same bet sizes as before, that more money would be needed for both variation margin purposes and to maintain the same r/r ratios.

Hope you can accept this point.

peakoil said:

@fillorkill - I don't mean to be condescending and please accept my apologies. Truth be told, I took your quoted posts purely on face value - not least because I'm unfamiliar with your posts on this forum, so I've little history to go on, nonetheless please accept my response was put accordingly, and without any such slant.

re the belief that you won't need to put more money in your account - the answer to that is relative. For example, if you're a millionaire who's put e.g., £50K into your s/b account and your max bet size is £10pp then it's likely there would be little to concern you. For the majority of people, those with more limited account sizes, it become far more likely (should such changes be introduced), with the less one has to trade, and to maintain the same bet sizes as before, that more money would be needed for both variation margin purposes and to maintain the same r/r ratios.

Hope you can accept this point.

Click to expand...

Yeah I accept it and it was a throwaway comment on my part, but generally I'd only keep small deposits unadjusted for long term volatility with a broker I don't trust to properly escrow client funds. I suppose that is as good a reason as any.

tomorton said:

I am concerned that once government set off down what seems to be the wrong track, unless their strategy is proven horribly wrong they are only likely to continue in the same vein.

We all recognise there are problems with the industry, but looking at the proposals first, rather than the issues, it seems hard to divine what the real problems are. So if this can be headed off in favour of a better solution, though possibly harder to implement and draft legislation for, so much the better. Maybe a small skirmish now rather than a large costly battle later.

Regulation's a two-edged sword. In a previous work role I saw the Dangerous Dogs Act introduced, a total dog's dinner if ever there was one, but whose passing allowed government to sit on their hands for the subsequent years when further problems arose. Now again, its hard to see these current proposals as something new customers need or existing customers want.

Click to expand...

Just look at what over regulating has done to the US market.

Peter

Jason101 said:

There is an on going perpetual conversation on T2W about the actual percentages of winning traders on FX. This conversation goes on and on and around in circles and never gets anywhere.

Click to expand...

This conversation will never get anywhere on forums , traders have to make their own judgement , by doing google search.This will be aided by by your full knowledge of the human brain , it's wiring for trading and behavioural science.Coming to the forums for this answer is like asking the salesman for the faults and weaknesses of their products .

I spent over a thousand hours learning psychology from psychologists Dr A menaker , Dr Steenbarger ,Rande , Mark Douglas ,researcher Robert Sapolsky and many other brain specialsists and psychologists .

If you want the truth , you will have to go the professionals , they have many articles and webinars on youtube.

You are discussing with rebate benefators , who gain everytime you lose.

You haven't posted a link to one of your own threads. Are you feeling a bit under the weather?

tomorton said:

You haven't posted a link to one of your own threads. Are you feeling a bit under the weather?

Click to expand...

The purpose of postink links is to avoid repeating the same content , the additional content is on the links , they are usually related to the subject.

foroom lluzers said:

The purpose of postink links is to avoid repeating the same content , the additional content is on the links , they are usually related to the subject.

Click to expand...

Yes, alright, I know.

PS: You've done it again.

peakoil said:

ISSUE: The FSA are all of a sudden, concerned that we are being offered too high a gearing ratio as well as too low margins - despite the fact that the gearing ratios & margins we use have been commonplace and accepted across the industry for *over* four decades! Yes, that's a long time in 'trading years' folks.

Click to expand...

The main reason for quoting you was to thank you for your great and detailed post on margin and leverage, much better than I could have done.
But after giving some thought to your quoted text above I have come to the conclusion that the FCA are looking after themselves by wanting to reduce their exposure in the event a firm was to go into liquidation and there was a deficiency in the client money bank account, individual clients are covered by the FCA's compensation scheme.

I recently met up with a senior member of IG staff at an IG function and this topic came up in conversation.

He said that the reason for the FCA's sudden interest in spread betting, FX and CFD'S and tightening up the rules was sparked as a direct result of the surprise Swiss Nat Bank unpegging incident.
He went on to say that the FCA were shocked to find out the leverage on offer to retail clients. (what does this say about the FCA?)

IG are taking the FCA announcement pretty seriously, not surprising as IG's shares dropped 39% (as the largest provider), and CMC dropped 35% on the day of the FCA announcement.

They are taking the potential ramifications seriously enough to branch out in other areas as a hedge.
They have started to concentrate more on share dealing (as a direct e-broker) and they have teamed up with Blackrock to offer a range of ETF-based investment portfolios constructed by IG Group using Model Portfolios from BlackRock. With a bias towards investing rather than trading.
Make of this what you will.

P.S. as a side note, I think most of the potential downside is already priced in, so if the FCA do not come in as hard as expected there could be an IG and CMC long trade.

(P.P.S @ Foroom L, This thread was never really about % of winning traders, that was just a hook in the title and opening post, after finding little to no response from previous threads on this, at the time urgent topic.)